The United States Court of Appeals for the Ninth Circuit recently considered an Order of the Central District of California dismissing a qui tam False Claims Act (FCA) suit against a medical device manufacturer based on allegations that it: (1) marketed devices used in spinal fusion surgeries for an off-label and contraindicated use; (2) fraudulently obtained Food and Drug Administration (FDA) clearance; and (3) violated the Anti-Kickback Statute (AKS) by entering into rebate agreements with hospitals and providing remuneration to physicians. The Ninth Circuit affirmed the dismissal of the FCA claims based on first and third theories of liability. It partially affirmed and partially reversed the dismissal of the claims based on the second theory. The case is Dan Abrams Co. v. Medtronic Inc., 19-56377 (9th Cir. Apr. 2, 2021).
The Off-Label/Contraindicated-Use Theory
The relator alleged “that Medtronic engaged in misbranding, mislabeling, and adulterating in violation of the Food, Drug, and Cosmetics Act (FDCA)” by marketing devices “without FDA approval or clearance for use in the cervical spine—an ‘off-label’ and indeed contraindicated use.” The Ninth Circuit rejected this theory because “the federal government does not distinguish between on-label and off-label uses in determining whether to pay for medical devices.” Thus, an allegation of off-label or contraindicated use was not enough. The relator would have had to allege that the device (1) did not have FDA approval/clearance, (2) was not “reasonable and necessary,” or (3) did not meet any other pertinent regulations. The relator’s claims failed because he did not plausibly allege any of these.
In this case, FDA cleared devices at issue through the 510(k) process. Relator’s “few anecdotal examples of harm caused by” the devices at issue did not suffice to plausibly allege that the devices were not “reasonable and necessary.” The court observed that any surgery carries risk, and merely showing that harm can occur is insufficient. “As long as a doctor finds an off-label use to be medically reasonable and necessary, then the off-label use is permitted, even if the particular use is contraindicated on the label.” The court noted that the relator did not allege any “statute, regulation, or administrative manual that specifically states that a contraindicated use of a device is categorically not reasonable and necessary.” For these reasons, the court concluded that “contraindicated use of the [devices at issue] is not material to the government’s decision to pay.”
The Fraud-on-the-FDA Theory
The relator also based his FCA claims on allegations that “Medtronic defrauded the FDA into granting the [devices at issue] Class II clearance.” This theory divided the devices into two groups: (1) devices “that allegedly cannot be used for their labeled intended use and can only be used for their contraindicated use in the cervical spine” (“Contraindicated-only Devices”) and (2) devices “that could be used for their stated intended use (i.e., use in the thoracolumbar spine) but which were contraindicated for use in the cervical spine” (“Extra-use Devices”). The Ninth Circuit held that the materiality element of the FCA could not be met for Extra-use Devices, but could be met for Contraindicated-only Devices.
As to Extra-use Devices, the “government allows reimbursement for off-label and even contraindicated uses.” So, the “alleged omission about its intent to market the devices for a contraindicated use was immaterial to the FDA’s clearance for Extra-use Devices.”
However, the Ninth Circuit found that the Contraindicated-only Devices raised another problem because they did not involve mere off-label use:
Rather, Relator alleges that the Contraindicated-only Devices were not properly cleared for any use: they cannot be used for their labeled intended use (and are thus not substantially similar to the predicate device), and they can only be used for their contraindicated use. Relator claims that Medtronic knew that cervical VBRs posed different questions of safety to its previously approved devices, and if Medtronic disclosed that the devices were intended for use in the cervical spine, then the FDA may have required Class III approval. These considerations—intended use, similarity to a predicate device, and different questions about safety—are precisely those that the FDA considers in granting Class II certification. 21 U.S.C. § 360c(i)(1)(A). Put differently, Medtronic’s alleged fraud went “to the very essence of the bargain.” United Health Serv., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 n.5 (2016) (cleaned up).
The Ninth Circuit rejected the argument that the FCA is not a proper vehicle to assert that a device manufacturer defrauded the FDA during the 510(k)-clearance process. It acknowledged the First Circuit’s decision to the contrary in United States ex rel. D’Agostino v. ev3, Inc., 845 F.3d 1, 7-9 (1st Cir. 2016). However, it held that its prior decision in United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890, 905 (9th Cir. 2017) controlled the issue by noting D’Agostino and nevertheless allowing a “fraud-on-the-FDA theory to go forward.”
Thus, the Ninth Circuit affirmed the dismissal as to the Extra-use Devices, but reversed dismissal as to the Contraindicated-only Devices.
The AKS Theory
Relator alleged two separate AKS theories. First, he alleged that rebate agreements that Medtronic entered with hospitals to buy the devices at issue violated the AKS. The court noted that there is an exemption for discounts in certain circumstances and noted that the relator did “not explain how Medtronic’s rebate agreement violated the AKS.” Second, the relator alleged AKS violations related to payment of expenses paid on behalf of physicians related to certain business development events. The court rejected these allegations because they were not sufficiently detailed.
Although the Ninth Circuit’s decision can rightfully be viewed as a victory for medical device companies, it should not be viewed too broadly.
- The Ninth Circuit rejected the view that off-label or contraindicated use of a medical device is per se material to payment. But different facts may lead to a different decision in a future case, either in the Ninth Circuit or elsewhere. For example, had the relator plausibly alleged that the off-label or contraindicated use was not “reasonable and necessary” or did not meet other regulatory requirements, he might have cleared the materiality hurdle.
- This case creates a circuit split between the First and Ninth Circuits over whether the FCA may be used as a vehicle to assert a fraud on the FDA. But the Ninth Circuit creates a somewhat narrow path for a fraud-on-the-FDA theory because it is limited to circumstances where the fraud alleged is that the medical device cannot be used for its labeled intended use but can only be used for a contraindicated use.
- We continue to advise caution. The case, while a victory for the medical device industry, is very fact-specific. Moreover, qui tam relators are far from the only threat when it comes to “off-label” promotion. Such promotion can result in scrutiny and enforcement actions from FDA, Department of Justice, the Securities and Exchange Commission, State Attorneys General, and others.
For more information, please contact W. Jerad Rissler.