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United States ex rel. Modglin v. DJO Global Inc.
Citations: 48 F. Supp. 3d 1362; 2014 U.S. Dist. LEXIS 139332; 2014 WL 4783575Docket: Case No. CV 12-07152 MMM (JCGx)
Court: District Court, C.D. California; September 2, 2014; Federal District Court
The court granted the defendants' motion to dismiss the second amended complaint filed by qui tam relators Doris Modglin and Russ Milko against multiple defendants, including DJO Global Inc. and Biomet, Inc. This case, initiated under federal question jurisdiction for violations of the False Claims Act (FCA), began on August 20, 2012, with the relators alleging fraudulent claims related to durable medical equipment (DME). The initial complaint was under seal, and after several amendments, including the addition of 29 state FCA claims and various defendants, the court unsealed the amended complaint in July 2013. By early 2014, the United States and all 29 states declined to intervene. The court stayed discovery pending a decision on the dismissal motion and held a hearing on May 5, 2014, after which the parties submitted supplemental briefs. The relators claimed that the defendants fraudulently caused the government to reimburse claims for noninvasive bone-growth stimulators prescribed for off-label uses, without disclosing this to Medicare and other federal health plans. The court indicated the importance of understanding the FDA approval process and the regulatory framework governing medical devices and their coverage under federal programs to contextualize the allegations. The Food, Drug, and Cosmetic Act (FDCA) aims to ensure the safety and effectiveness of medical devices for human use, as noted in 21 U.S.C. § 301 et seq. It classifies medical devices into three categories: Classes I, II, and III, with Class III devices posing significant risks requiring premarket approval (PMA) from the FDA. Without PMA, these devices cannot be marketed and are deemed "adulterated" under 21 U.S.C. § 351(f)(1)(B). The PMA process is extensive, requiring substantial scientific evidence of safety and effectiveness, as outlined in 21 C.F.R. § 814.2(a), and includes comprehensive evaluations of submitted materials. Usage of medical devices outside their approved indications is termed "off-label," which, although not specified in the device's labeling, is recognized and protected under the FDCA, specifically 21 U.S.C. § 396. This section ensures that healthcare practitioners can prescribe legally marketed devices for any condition within a professional patient relationship. Off-label use of Class III devices is generally accepted in the medical community and is often essential for optimal patient care, with this practice not being directly regulated by the FDCA, as reaffirmed in Buckman Co. v. Plaintiffs’ Legal Committee. Overall, off-label use is significant and acknowledged in medical ethics, FDA guidelines, and judicial decisions. The FDA allows off-label use of medical devices by healthcare professionals, recognizing it as a legitimate and significant aspect of medical practice, as affirmed by the Supreme Court. However, the Federal Food, Drug, and Cosmetic Act (FDCA) prohibits Class III device manufacturers from marketing PMA-approved devices for off-label uses. Specifically, manufacturers cannot introduce adulterated or misbranded devices into interstate commerce and must adhere to the conditions specified in the PMA approval order. A manufacturer is not liable under the FDCA for a device sold with knowledge of its off-label use unless the manufacturer actively markets or promotes the device for that purpose. For off-label marketing, a manufacturer must submit a PMA supplement for FDA review. The Second Amended Complaint alleges that DJO, Biomet, and EBI manufacture and market stimulators classified as Class III devices, requiring PMA approval. DJO's SpinaLogic stimulator has been approved as an adjunct treatment for lumbar spinal fusion surgery (PMA Number P910066), while Biomet and EBI's SpinalPak stimulator has similar approval (PMA Number P850022). Medicare, established by the Social Security Act, provides health insurance for the elderly and disabled and includes coverage for medical devices like stimulators. Under Medicare Part B, devices must be deemed 'reasonable and necessary' for coverage. A device is ineligible for Medicare coverage if it is not proven safe and effective, is deemed experimental, does not meet individual patient needs, or is significantly more expensive than viable alternatives. The Centers for Medicare and Medicaid Services (CMS) incorporates FDA device categorization into its Medicare coverage decisions, where FDA clearance is necessary but not sufficient for coverage. For a device to be deemed ‘reasonable and necessary,’ it must be ‘safe and effective’ while also considering alternatives that may be less costly yet equally effective. The Department of Health and Human Services (HHS) identifies categories of devices eligible for Medicare coverage, including those approved through the Pre-Market Approval (PMA) process, cleared via the 510(k) process, FDA-approved IDE Category B devices, and those approved by Hospital Institutional Review Boards (IRBs). HHS has the discretion to issue National Coverage Decisions (NCDs) that dictate whether specific items or services are covered nationally, which are binding across the Medicare system. Local Coverage Determinations (LCDs) can be issued by individual carriers for local coverage issues. In the absence of applicable NCDs or LCDs, coverage is determined on a case-by-case basis. NCD 150.2 specifically covers stimulators for six uses, including as an adjunct to spinal fusion surgery, reflecting similar criteria in four corresponding LCDs. Importantly, neither NCD 150.2 nor the LCDs differentiate between types of stimulators based on location (e.g., cervical vs. lumbar spine) or on-label versus off-label use. NCD 280.1, titled the “Durable Medical Equipment Reference List,” serves as a reference tool applicable to all DME national coverage determinations (NCDs) by CMS. It categorizes equipment into generic types covered under DME benefits and specifies the conditions for coverage required for payment on rental or purchase. If an item is not covered, the list provides reasons for its exclusion. Contractors are empowered to decide on claims for items not clearly categorized, guided by the Medicare Claims Processing Manual and factors such as FDA approval status and necessity for the patient. NCD 280.1 acts as an initial guide for contractors by indexing national coverage determinations, indicating both covered and non-covered devices, and explaining the rationale behind coverage decisions. It is not exhaustive, as it may omit certain covered devices, and contractors must adhere to relevant NCDs even if devices are absent from NCD 280.1. To claim reimbursement from Medicare, Durable Medical Equipment (DME) providers must complete CMS Form 1500, including the PMA approval number for the device. For stimulators, they must add a "KF" modifier to indicate billing for a Class III device. Along with this form, a Certificate of Medical Necessity (CMS 847) is required, which consists of four sections: patient and provider information (A), medical necessity justification (B)—not to be filled out by the supplier—narrative description and cost details (C), and physician's attestation (D). The HCPCS code E0748 applies to all stimulators and must be included on both forms. Providers must supply sufficient information for Medicare to assess payment eligibility. The relators allege that the defendants, approved Medicare DME providers, routinely submitted false claims for stimulators since September 18, 2001. They claim that when physicians prescribed stimulators for off-label cervical use, the defendants did not disclose this, despite the stimulators being approved solely for lumbar spinal use. By reporting the PMA approval number on CMS Form 1500, the defendants allegedly misrepresented the intended use of the device. The relators argue that unless the narrative description on CMS 847 specifies off-label use, the defendants fail to provide adequate information for Medicare’s assessment of payment eligibility. Relators argue that defendants misrepresented the distribution of a stimulator by failing to disclose its off-label use in the CMS 847 narrative description, suggesting it was being used as per its PMA approval, which would make it eligible for reimbursement. Relator Milko, a former sales representative for Orthofix, details his experiences since 1997 promoting stimulators, particularly the Cervical-Stim, which is the only stimulator with PMA approval for cervical use. In 1997, the FDA warned Orthofix against illegally marketing the Physio-Stim for cervical use without PMA approval, as its approved indications did not include that application. Milko became an Orthofix distributor in 2005 and claims to have learned that defendants were promoting their stimulators for off-label cervical use. He alleges that DJO sales personnel instructed patients on improper use of the SpinaLogic device for cervical applications, despite its lack of approval for that purpose. After a sales associate left Milko’s employment to work for DJO, Milko lost significant referral sources, leading him to conclude that DJO was filling prescriptions for cervical stimulators with the SpinaLogic and billing Medicare and other programs. During a lawsuit against the former associate, Milko deposed two physicians who confirmed they had ordered stimulators from the associate. Additionally, prescriptions for SpinaLogic were faxed from the Spine and Brain Institute in Las Vegas on behalf of Dr. John Anson for Medicare beneficiaries. DJO later submitted a claim to the Minnesota Health Care Programs for a stimulator after cervical fusion surgery, which was reimbursed at $835.82. In August 2012, DJO’s Regional Sales Director and a sales representative informed Modglin, a licensed private investigator, that DJO frequently billed Medicare and Medicaid for the off-label use of SpinaLogic on the cervical spine. During a March 2013 convention, Milko learned from DJO representatives that over 75% of their SpinaLogic sales were for cervical applications. Patients fitting with lumbar stimulators revealed to Milko that they had previously used SpinaLogic after cervical surgeries. In May 2013, a former Orthofix sales representative, after briefly working with DJO, indicated that DJO management claimed 40% of SpinaLogic sales involved off-label cervical applications. Relators allege that Milko replaced Cervical-Stims for Medicare patients who experienced skin irritation from the SpinalPak, which was confirmed by visible irritation. Patients reported being instructed by Biomet and EBI representatives to limit SpinalPak usage. Between February 2010 and March 2011, Biomet and EBI submitted claims for off-label stimulators for cervical use, receiving payments totaling over $8,000. On September 5, 2012, Dr. Ketroser learned that a Minnesota neurosurgery office routinely prescribed SpinalPak for both cervical and lumbar fusions for Medicare and non-Medicare patients. Milko later inquired about Biomet securing Medicare payment for a lumbar device ordered for cervical use, finding that the relevant forms did not specify the spine level. Additionally, former Biomet representatives disclosed to Modglin that they had sold devices off-label to Medicare patients for cervical spine use. The parties have requested the court to take judicial notice of specific documents relevant to the motion, with all applications being unopposed. In ruling on a Rule 12(b)(6) motion, the court typically considers only the complaint's face and attached documents. If a court evaluates evidence outside the pleadings, it must convert the motion to a Rule 56 motion for summary judgment. However, the court can consider certain materials, such as documents attached to the complaint or those incorporated by reference, along with matters subject to judicial notice, without conversion. Judicial notice under Rule 201 allows the court to acknowledge facts that are either generally known or easily verifiable from reliable sources. Relators request the court to judicially notice thirty-two documents categorized as follows: 1. **FDA Documents**: These include comments opposing the reclassification of bone-growth stimulators, various FDA guidance documents regarding PMA requirements and practices, and FDA decisions related to device classifications and approvals for products like SpinaLogic and Cervical-Stim. 2. **CMS Documents**: Documents from the CMS website include the Medicare National Coverage Determinations Manual, Medicare Program Integrity Manual, and various forms related to medical device coverage. 3. **Medi-Cal Document**: A Medi-Cal Provider Agreement is also included. 4. **SEC Filings**: Defendants' filings include DJO Finance’s and Biomet’s Form 10-Ks for their respective fiscal years. 5. **Court Filings in Other Cases**: This category encompasses complaints, orders, and briefs relevant to similar legal cases. 6. **Insurance Policies**: Various policy statements excluding coverage for cervical spine stimulators. 7. **Defendants’ Websites**: Documents and information available on the defendants’ and Orthofix’s websites, including product brochures and images. Under Rule 201, the court can take judicial notice of these public records and government documents, as they are deemed reliable and accessible online. The court granted judicial notice for documents from the FDA, CMS, Medi-Cal, and SEC, but declined to consider the Medi-Cal Provider Agreement due to its lack of relevance, as the court does not exercise supplemental jurisdiction over the relators’ state law claims. Judicial notice was also permitted for court orders and filings in other False Claims Act (FCA) cases, following precedents that allow such notice of related proceedings. However, the court found that specific prior cases cited by relators were not relevant to the current motion, as they involved different factual circumstances, particularly marketing devices for off-label use, which was not alleged by relators here. The government’s stance on Rule 9(b) requirements in a separate case was deemed non-binding and irrelevant. Additionally, the court refused to take judicial notice of Texas’ Statement of Interest and a sixth category of documents identified by relators, as they lacked a basis for judicial notice. The court noted that policy statements from private insurance companies do not meet the criteria for judicial notice, and even if they could be considered, they would be irrelevant in determining Medicare coverage based on other insurers’ policies. Consequently, the court denied all requests for judicial notice of these documents. The court declines to take judicial notice of documents from defendants’ and Orthofix’s websites as proposed by the relators, who argue that such materials can be considered under the incorporation by reference doctrine. While some cases allow judicial notice of product labeling in relation to claims under the Unfair Competition Law (UCL) and False Advertising Law (FAL), the court finds that the documents in question were not referenced in the relators’ second amended complaint and are not essential to their claims. Although the court acknowledges the possibility of judicial notice based on the designs of the stimulators being readily determinable, it deems the design differences irrelevant to the case's decision. The relators provided evidence that the stimulators use different technologies, supporting their assertion that safety and effectiveness cannot be universally applied across different models. In contrast, the defendants request judicial notice of seven documents from the CMS and FDA websites, which include various National Coverage Determinations (NCDs), Local Coverage Determinations (LCDs), and a warning letter to Orthofix. They also seek to add ten more documents from these same sources in a supplemental request. Judicial notice is granted for documents related to medical device regulation available on government websites, as they are deemed relevant to the decision on the motion. A Rule 12(b)(6) motion tests the sufficiency of claims, allowing dismissal only for a lack of a cognizable legal theory or insufficient factual allegations. The court accepts all factual allegations as true and makes reasonable inferences in favor of the nonmoving party, but does not accept unreasonable inferences or conclusory allegations. A complaint must contain sufficient factual content to state a plausible claim for relief, raising the right to relief above a speculative level. The court first addresses the relators’ Federal False Claims Act (FCA) claim, which is essential for subject matter jurisdiction. The FCA targets individuals presenting false claims to the federal government and aims to recover civil penalties and restitution for fraud. Its origins trace back to addressing fraud by contractors during the Civil War. The Supreme Court has interpreted the False Claims Act (FCA) as a broad remedial statute that encompasses all fraudulent attempts to secure government payments, not just legally enforceable claims (United States v. Neifert-White Co., 390 U.S. 228, 1968). The FCA permits "relators" to file qui tam actions against individuals presenting false claims to the government (31 U.S.C. § 3730). Liability arises when a person (1) knowingly presents a false claim, (2) uses a false record or statement to get a claim paid, or (3) conspires to defraud the government (31 U.S.C. § 3729(a)(1-3)). The term "knowing" is defined to include actual knowledge, deliberate ignorance, or reckless disregard of truth (31 U.S.C. § 3729(b)). This definition was amended by Congress to clarify that honest mistakes or negligence are not punishable under the FCA (United States ex rel. Hochman v. Nackman, 145 F.3d 1069, 1998). A claim is considered false when a court assesses the accuracy of a defendant's representations against applicable law (United States v. Bourseau, 531 F.3d 1159, 2008). To establish liability under the FCA, a plaintiff must prove four elements: (1) a false statement or fraudulent conduct, (2) made with scienter, (3) that is material, and (4) that resulted in the government disbursing money (United States ex rel. Ruhe v. Masimo Corp., 977 F. Supp. 2d 981, 2013). Specifically, evidence of an actual false claim is essential, as the FCA targets the claim for payment rather than the fraudulent act itself (United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995, 2002). Violations of laws or regulations alone do not constitute an FCA cause of action; liability arises from false certifications of compliance when such certification is necessary for obtaining government benefits. Hence, if regulatory compliance is not essential for receiving state funding, there is no FCA liability. Relators can claim a defendant made a false claim by alleging either a factually false claim or a false certification. A factually false claim involves an explicit lie in a payment request, such as overstating amounts owed, often seen in qui tam actions where a company overcharges the government. Alternatively, a false certification claim alleges that a defendant falsely certified compliance with laws or regulations when submitting a claim, which is necessary for liability under the False Claims Act (FCA). There are two types of false certification: expressly false, where compliance is certified during the claim submission, and impliedly false, where prior commitments to comply are breached when a claim is submitted without explicit certification. To establish a false certification claim, the complaint must detail allegations that demonstrate the defendant's explicit commitment to compliance and the submission of non-compliant claims. FCA claims must meet the heightened pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure, requiring specific details about the fraud, including who, what, when, where, and how, while mere conclusory statements are inadequate. The complaint must provide enough specificity so that the defendant can adequately respond to the allegations. Allegations regarding fraudulent activities must meet the particularity requirement of Rule 9(b), which necessitates that a plaintiff specify the content of the fraudulent representation, the individual who made it, the time and location of the representation, and the manner in which it was misleading. The knowledge or scienter element in fraud claims can be alleged generally, but must still be sufficiently detailed to demonstrate a plausible entitlement to relief. In a dispute over the submission of false claims to Medicare, the central issue is whether claims for stimulators prescribed for cervical use, despite being FDA-approved for lumbar use, can be deemed false claims under the False Claims Act (FCA). Defendants argue that since Medicare authorizes reimbursement for all uses of stimulators, they had no obligation to disclose off-label use, thus making their claims not false. Conversely, relators assert that such off-label use is expressly excluded from Medicare coverage, arguing that the failure to disclose the cervical use and the certification of compliance with Medicare regulations constitutes false claims. Relators present two arguments to support their position: first, that Medicare reimbursement is limited to FDA-approved uses as outlined in the Medicare Manual, which does not include off-label uses unless a PMA supplement is filed. Second, they argue that the Medicare coverage determination relies on a process that considers additional factors beyond the PMA approval, indicating that off-label use is not necessarily covered. NCD 150.2 must be interpreted alongside NCD 280.1, which forbids coverage for off-label use of stimulators. NCD 280.1 applies to all Durable Medical Equipment (DME) and mandates a case-by-case review for devices not explicitly covered or uncovered. This determination requires carriers to assess whether the device has FDA marketing approval and is deemed safe and effective for its intended use. Relators claim that since the FDA has not approved the defendants’ stimulators for cervical use, NCD 280.1 necessitates that carriers deny coverage for this application. They argue that claims for reimbursement lacking disclosure of cervical use or certification of compliance with Medicare rules are false. Relators allege defendants submitted false claims for stimulators prescribed off-label, arguing these claims are factually false due to the inclusion of the PMA approval number without specifying cervical use on CMS Form 847, which they see as an affirmative misrepresentation. Additionally, relators assert that defendants made impliedly false certifications by certifying compliance with Medicare regulations, specifically regarding medical device safety and reporting requirements. They argue that the off-label provision of devices violated FDA regulations and that the failure to disclose cervical use on the CMS forms prevented Medicare from making informed coverage determinations. In response, defendants contend that the relators' assertion regarding the categorical exclusion of their stimulators from Medicare coverage for cervical use misinterprets the Medicare Manual, arguing that FDA approval for any use suffices for coverage eligibility. They maintain that their stimulators, approved for lumbar use, meet this criterion as they possess a PMA number and are not otherwise deemed unreasonable or unnecessary for coverage. Reimbursement claims for medical devices, specifically regarding off-label uses, are contested between the parties. Relators argue that their claims are valid despite not disclosing the specific prescribed uses, asserting that CMS's authority under the Medicare Act is limited to those uses deemed safe and effective by the FDA through its approval processes. Conversely, defendants assert that CMS has broader discretion to reimburse both on-label and off-label uses, provided the FDA has approved the device for at least one use. The court supports the defendants' position, noting that the Medicare Manual specifies that devices approved via the PMA process are eligible for coverage, rather than the uses themselves. Medicare does not explicitly prohibit reimbursement for off-label uses of medical devices, unlike pharmaceuticals, where such reimbursement is generally restricted. The eligibility for reimbursement of medical devices hinges on whether the use is deemed "medically necessary" or "reasonable and necessary." The court highlights that the regulatory framework for off-label device reimbursement is more flexible compared to drugs. It references a CMS memorandum indicating that if a Class III device is FDA-approved for any purpose, CMS can consider other uses, including off-label, as reimbursable. The memorandum further distinguishes the FDA's recognition of certain uses as significantly different from those covered under other clearance processes, reinforcing the court's conclusion about the permissiveness of off-label coverage for medical devices. Manufacturers must provide valid scientific evidence to demonstrate that their products are safe and effective for wound treatment before the FDA approves a Premarket Approval (PMA) application. Currently, the law prohibits marketing electromagnetic devices for wound healing. However, this lack of approval does not prevent healthcare providers from using such devices off-label. While FDA approval for at least one indication is required for Medicare coverage, it does not guarantee coverage, as the Centers for Medicare & Medicaid Services (CMS) conducts separate assessments of a device's appropriateness for Medicare beneficiaries. Medicare may cover drugs used off-label if the carrier finds the use medically accepted based on major drug compendia and authoritative literature. The court's conclusion aligns with CMS's interpretation that an FDA-approved device can be reimbursed for off-label use. Some National Coverage Determinations (NCDs) and Local Coverage Determinations (LCDs) specify that Class III devices are covered only for FDA-approved uses, as illustrated by guidelines for ventricular assist devices and cochlear implants, which require adherence to FDA-approved labeling. The procedure involves a fully FDA-approved aortic valve and implantation system. Certain Local Coverage Determinations (LCDs) indicate that both on-label and off-label uses of devices may be covered if supported by peer-reviewed literature. For instance, LCD L35084 covers non-coronary vascular stents only when used for FDA-approved indications or other specific indications backed by medical literature. Conversely, some LCDs explicitly exclude coverage for off-label uses, such as LCD L32220, which denies coverage for any off-label use of FDA-cleared transcranial magnetic stimulation devices, and LCD L32028, which deems repetitive transcranial magnetic stimulation (rTMS) not medically necessary regardless of FDA-approved indications or off-label uses. Defendants argue that if off-label coverage were categorically prohibited, the distinctions in LCDs would be unnecessary. This supports the interpretation that the Medicare Manual's reference to "devices approved by the FDA" does not equate to "uses of a device approved by the FDA." Relators misinterpret the relevant section of the Medicare Manual, undermining their claim. Notably, the case of Nowak demonstrates that claims alleging off-label use as "categorically false" due to lack of FDA approval do not adequately state a claim according to Rule 12(b)(6). Relators reference Svidler v. U.S. Department of Health and Human Services, asserting that it supports their position that FDA approval for one use necessitates Medicare coverage for off-label uses. However, the Svidler court did not establish this as a controlling precedent and rejected the notion that a physician's ability to prescribe off-label mandates Medicare payment. Instead, it emphasized that Medicare has discretion over payment for necessary treatments, irrespective of a physician's prescription authority. Ultimately, relators' assertion that defendants' devices cannot be reimbursed for cervical use conflates the Medicare Act's requirements with those of the FDCA. Relators assert that "devices approved by the FDA" should only refer to their FDA-sanctioned uses, which are deemed safe and effective after the Premarket Approval (PMA) process. They claim that, since the FDA has not approved the defendants' stimulators for cervical use, the defendants must file a PMA supplement to market these devices for that purpose. However, the excerpt emphasizes that the Medicare Act's coverage of devices differs from FDA regulation, stating that off-label use does not equate to medically unnecessary use. The lack of PMA approval for cervical use does not prevent reimbursement if the Department of Health and Human Services (HHS) determines the devices are "reasonable and necessary." Relators further argue that National Coverage Determination (NCD) 150.2 must be interpreted alongside NCD 280.1, which they believe restricts coverage for off-label uses based on FDA marketing approval. In contrast, defendants argue that NCD 280.1 serves only as guidance and that under NCD 150.2, stimulators are covered regardless of prescribed use. The court sides with the defendants, noting that NCDs define Medicare coverage nationally and are binding on contractors, indicating that NCD 150.2 applies to stimulators without restricting coverage to on-label use or specific spinal areas. The coverage for stimulators is affirmed by both the NCD and Local Coverage Determinations (LCDs), which do not limit coverage based on FDA approval for specific uses. The HCPCS coding for stimulators also reflects this broader interpretation. NCD 150.2's language encompasses all noninvasive stimulators used as adjuncts to spinal fusion surgery, including those approved for different spine areas. This broad coverage contrasts with other NCDs and LCDs, which explicitly limit reimbursement to on-label uses or specify conditions for off-label use. The absence of such distinctions in NCD 150.2 implies coverage for both on-label and off-label uses. NCD 280.1 serves as a non-comprehensive reference tool for contractors, providing guidance on covered and non-covered durable medical equipment (DME) but is not exhaustive. It directs contractors to specific NCDs for coverage determination, and while it includes lymphedema pumps as covered, it does not elaborate on pneumatic compression devices. The coverage criteria in NCD 280.6, which specifically addresses pneumatic compression devices, are binding and must be applied to determine coverage. Contractors are not required to apply additional criteria from NCD 280.1 if a device is already covered by its specific NCD. A contractor's decision on coverage for a device subject to a National Coverage Determination (NCD) that is not listed under NCD 280.1 does not rely on the criteria in that NCD, as it serves only as a reference, not a mandatory guideline. The determination of coverage for defendants’ stimulators is governed by NCD 150.2, which does not restrict coverage to only on-label uses. Relators argue that defendants have a duty to apply for a Premarket Approval (PMA) supplement due to their substantial profits from distributing stimulators for cervical use and their guidance to patients on modifying these devices for that use. If defendants are found to have an affirmative duty to file for a PMA supplement, submitting reimbursement requests for off-label use could be viewed as an implied false certification of compliance with regulations, potentially exposing them to liability under the False Claims Act (FCA). The relators reference 21 C.F.R. 814.39, which mandates that after FDA approval of a PMA, any changes affecting the device's safety or effectiveness, including new indications for use, require a PMA supplement. The FDA interprets "new indication" broadly, including changes in patient population or anatomical site. The relators also highlight that the defendants' stimulators utilize different technologies, suggesting they cannot be grouped for safety and effectiveness evaluations. Different technologies necessitate specific testing for safety and effectiveness depending on the anatomical site of use, indicating that a change in the anatomical site represents a new indication for use. The defendants acknowledge that applying their stimulators to the cervical spine constitutes a new indication but argue that a manufacturer is only obligated to seek a Premarket Approval (PMA) supplement if it intends to market or label the device for this new use. They contend that merely distributing the device while knowing it may be used off-label does not create a duty to seek PMA approval. Relators cite 21 C.F.R. 801.4, which supports the notion that a manufacturer has an affirmative duty to label a device correctly if it knows the device will be used for off-label purposes. This regulation implies that if a device is intended for different uses than originally specified, the manufacturer must provide adequate labeling for those new uses. The regulation suggests that knowledge of off-label use can lead to a new intended use status, and while it appears to place an obligation on manufacturers, courts in the Ninth Circuit generally do not interpret it as imposing a duty to file for a PMA supplement solely based on knowledge of off-label prescriptions. The Ninth Circuit, in Carson, established that a manufacturer is not liable for distributing a misbranded product solely based on knowledge that a doctor intends to use it off-label. In Ramirez, the court indicated that merely alleging knowledge of off-label use, without evidence of off-label promotion by the manufacturer, does not constitute a new intended use. The Perez case further clarified that state law claims regarding misleading patients about a device's FDA approval are not preempted by the FDCA, as imposing additional disclosure requirements would conflict with federal regulations. A Minnesota district court in Riley v. Cordis Corp. determined that FDA regulations do not create an obligation for manufacturers to file a PMA supplement if they are aware their product is used off-label. The court noted that the FDA permits manufacturers to share academic literature on off-label uses without requiring PMA supplements, suggesting that a mandatory duty to file for every new off-label use would be impractical. The court reinforced the position that mere knowledge of off-label prescriptions does not trigger such an obligation. Although relators claimed that defendants profit significantly from off-label uses, no legal authority was cited to support the relevance of profits in determining the need for PMA filings. The overarching intent of FDA device regulation is to ensure safety and effectiveness. A manufacturer is not required to file a PMA supplement based solely on the knowledge that a portion of its profits comes from off-label use, as long as it does not promote such use. Increased off-label prescribing by physicians may suggest greater safety and effectiveness for the intended purpose. The court finds it inappropriate to assess whether demonstrations by employees of off-label uses constitute promotion that creates an obligation to file a PMA supplement, as this theory was not properly pleaded by the relators and defendants had no opportunity to respond. The court decides to allow relators to amend their complaint to properly articulate this theory. However, even if the relators had sufficiently alleged an implied false certification based on off-label demonstrations, the claim would still be dismissed due to their failure to meet the requirements set forth in *Ebeid*. Specifically, relators did not adequately assert that defendants explicitly committed to comply with relevant laws, nor did they specify when certifications of compliance occurred, which is necessary under Rule 9(b). The relators' argument that the failure to disclose off-label use constitutes a false claim fails because they incorrectly assert that Medicare only covers the devices for on-label use. Therefore, their claims of implied false certification also do not hold. The court permits relators to amend their false certification claim, suggesting they may demonstrate that defendants promoted stimulators for off-label uses, thereby necessitating a PMA supplement. This could substantiate a claim of implied false certification regarding compliance with regulations when submitting reimbursement claims for off-label prescribed stimulators. Regarding allegations of false claims submitted to Medicaid and other federal reimbursement programs, relators assert that defendants made false submissions, but defendants counter that relators have not sufficiently detailed these allegations. The relators must meet the heightened pleading standards of Rule 9(b), which requires them to specify what is false or misleading about the defendants' statements. Their current complaint only mentions that state Medicaid programs require medical necessity and exclude payments for devices lacking FDA PMA approval, which is deemed too vague. The relators must identify specific states and their requirements to adequately demonstrate the falsity of defendants' claims. For other federal programs, the relators' complaint only asserts that they exclude DME that is not reasonable and necessary. However, the court notes that a device can be FDA-approved for one use and still be deemed reasonable and necessary for another, indicating a failure to specifically allege how defendants’ claims were false in these contexts. Lastly, the inadequacies in pleading falsity also affect the relators' allegations of scienter. While scienter can be generally alleged in FCA cases, the relators have not provided factual support for their claim that defendants knowingly submitted false claims. The court observes that no relevant laws or regulations require defendants to disclose seeking reimbursement for off-label use, undermining the relators' assertion of scienter. Defendants were not put on notice regarding potential legal issues related to their reimbursement claims. Relators presented no substantial facts to suggest that defendants were aware of any unlawful reimbursement practices for off-label use of stimulators. Although relators indicated that defendants knew they were supplying devices for off-label use, they failed to demonstrate that defendants understood such submissions violated Medicare or federal program regulations. The only relevant allegation involved a query by Milko to a former distributor about reimbursement for a lumbar device used off-label for cervical applications, which did not imply knowledge of wrongdoing. Relators argued that a 1997 FDA warning letter to Orthofix indicated that any cervical use of stimulators required a PMA supplement. However, this warning did not equate to an understanding that Medicare would not reimburse for such use. Without specific factual support for their claims of the defendants' knowledge of false claims submission, the allegation that defendants knowingly submitted false claims was deemed too vague to meet the pleading standards of Rule 8(a) and the heightened standards of Rule 9(b) applicable to False Claims Act (FCA) cases. Even if relators could argue that claims submitted for off-label use were false, they did not provide specific examples of false claims made by defendants to federal programs, which is necessary to satisfy the pleading requirements. Relators claim that on specific dates, DJO, Biomet, and EBI submitted claims for stimulators to the Minnesota Health Care Programs, indicated for off-label use. However, they fail to establish the necessary details regarding claims submitted to federal programs, lacking specific allegations about the submission process and whether off-label use was disclosed. The relators' references to physician orders do not constitute actual claims submitted to Medicare, as they are merely prescriptions and do not meet the pleading requirements under FRCP 9(b), which necessitates detailed facts supporting allegations of fraud. Additionally, claims based on mere belief must be backed by specific facts, which the relators have not provided. Even if a scheme to submit false claims were sufficiently alleged, the relators still do not offer reliable evidence that false claims were actually submitted to federal programs. Consequently, the relators have not adequately articulated examples of false claims by either defendant. Relators have sufficiently alleged that DJO submitted claims to Medicare and Medicaid, as well as that Biomet and EBI submitted claims to Medicare. However, they have not presented adequate evidence that these companies submitted claims to other federal programs. Specifically regarding DJO, relators claim there is strong evidence suggesting the company distributed its stimulator, SpinaLogic, for off-label use, including reports from a sales representative and two patients indicating the device was used post-cervical surgery. Allegations include DJO's representation that a significant portion of its SpinaLogic business involved off-label cervical use, and claims submitted to Medicare and Medicaid for such use. Nonetheless, the only claim supporting the inference that DJO submitted similar claims to other federal programs is a vague statement regarding billing federally-sponsored programs, which is insufficient for establishing claims to programs like the Federal Employees Health Benefit Program or Tricare. For Biomet and EBI, relators allege these companies also distributed SpinalPak for cervical use and submitted claims to Medicare. Evidence includes confirmation from a Minnesota clinic about routine prescriptions for cervical fusions and testimonies from Medicare patients. Furthermore, claims submitted to Minnesota Health Care Programs for off-label use were reimbursed. On May 20, 2013, a former Biomet distributor informed Milko that Biomet received Medicare payments for off-label use of its stimulator, as CMS 847 does not require specific disclosures regarding the spine level, and the relevant HCPCS code includes both lumbar and cervical applications. Additional claims by former sales representatives on May 29 and May 31, 2013, indicated that devices were sold to Medicare patients for off-label cervical use. These admissions suggest that Biomet and EBI likely submitted claims to Medicare, but the relators have not substantiated claims regarding Medicaid or other federal programs, resulting in the dismissal of those allegations. Defendants seek dismissal with prejudice, while relators request leave to amend the complaint for clarity regarding their FCA theories. The court recognizes a viable theory that defendants may have implicitly misrepresented compliance by submitting claims without a required PMA supplement, as their promotional activities indicated a need for one. However, this theory was inadequately pled, and the court permits relators to amend the complaint exclusively for this theory. Any other proposed amendments regarding Medicare claims would be deemed futile, aligning with legal precedents on dismissal and leave to amend. Relators are granted permission to amend their federal False Claims Act (FCA) claim regarding potential false submissions to Medicaid and other federal health programs, provided they can address the deficiencies identified by the court. The court declines to exercise supplemental jurisdiction over the relators’ state law claims due to uncertainty surrounding the viability of the federal claim, following precedent that suggests dismissing state claims without prejudice when federal claims are dismissed. The court emphasizes the importance of allowing state courts to handle state law issues to avoid unnecessary rulings on state law and to promote justice. The court dismisses the relators’ federal FCA claim based on Medicare submissions with prejudice, except for a claim regarding implied false certifications related to compliance regulations, which can be amended. Claims related to Medicaid and other programs are dismissed without prejudice, allowing relators 20 days to submit a second amended complaint to rectify the noted deficiencies. The court confirms that the parties agree EBI LLC and EBI, L.P. are the same entity. The document references multiple docket entries related to a legal case involving EBI, including motions and orders concerning the dismissal of defendants DJO Finance and DJO Global, as well as a motion to stay discovery. Notably, the court acknowledges that relators submitted an opposition memorandum exceeding the local rule limit of 25 pages without prior authorization. Although the court could strike this opposition due to non-compliance, it chooses not to do so but warns that future submissions must adhere to local rules or face potential dismissal. The document also discusses the requirements for manufacturers to obtain premarket approval for Class III medical devices and submit a 510(k) form for Class I or II devices, referencing relevant legal precedent. Additionally, the court takes judicial notice of various documents cited related to medical device regulations and standards of care for off-label uses. All bone growth stimulators are classified as significant risk devices due to the potential serious risks associated with chronic exposure to electrical, electromagnetic, and ultrasound energies at the cellular and molecular levels, as per FDA guidance. The lumbar spine refers to the lower back vertebrae, while the cervical spine pertains to the neck vertebrae. The court acknowledges the Medicare Program Integrity Manual and various Local Coverage Determination (LCD) documents relevant to spinal electrical osteogenesis stimulators (E0748), which are covered under specific criteria, such as following spinal fusion surgery. Judicial notice is taken of multiple documents, including the National Coverage Determination for Osteogenic Stimulators and several LCDs that cover various states and territories. These documents provide guidance on the coverage parameters for these medical devices. Modifier KF is designated as a pricing modifier for items recognized by the FDA as class III devices, which is acknowledged by the court through an official CMS document. The court also takes judicial notice of various documents related to medical necessity and claims processing, including CMS Forms and Local Coverage Determinations (LCDs). Relators allege that certain physicians did not complete the necessary CMS 847 forms for specific medical orders, but they do not assert that the defendants forged signatures or wrongfully completed the forms. Additionally, the relators provide multiple exhibits, including FDA guidance documents and comments opposing the reclassification of bone-growth stimulators, alongside information regarding premarket approvals and related regulatory processes. Various forms of documentation, including Medicare policy manuals and financial filings, are referenced to support the claims and arguments presented. Relators must prove that defendants submitted false claims to Medicare as part of their federal False Claims Act (FCA) claim. While the court acknowledges the relevance of certain SEC documents, they do not substantiate the relators' assertions of false claims. Defendants' acknowledgment of submitting claims does not imply those claims were false, nor do the documents support the relators' argument regarding unlawful marketing or labeling of devices. The court finds these SEC documents of limited relevance to the case. The FCA allows the government to file civil actions against alleged false claimants or permits private individuals, known as relators, to initiate qui tam actions on behalf of the government. The government has a 60-day window to decide whether to intervene in a relator's action. If the government intervenes, the relator may receive 15 to 25 percent of any recovery; if it does not intervene, the relator may receive 25 to 30 percent. The relators contended that off-label use of a device could be relevant, but this argument needs further substantiation. The manufacturer has not submitted a PMA supplement for cervical use of their stimulators, leading to the classification of this use as experimental and non-reimbursable by Medicare. The court sought supplemental briefing on Medicare's criteria for classifying a device as experimental. Relators argued that the stimulators should be considered experimental (Category A) due to lack of prior FDA approval for such use, while Category B devices are those with established safety and effectiveness, typically supported by FDA premarket approval. They contended that the distinction in technology from an FDA-approved device by another manufacturer did not establish reimbursement eligibility. However, the court disagreed, noting that devices are categorized as A or B within the context of a clinical study that has an IDE, which the defendants are not conducting. The FDA exempts manufacturers from IDE requirements for off-label uses when the intent is medical practice rather than investigational. Since relators did not allege that defendants are involved in clinical studies for the cervical application of their stimulators, the court found no basis for categorizing the devices as Category A or B. Additionally, relators claimed that even if the cervical use is not experimental, it would still be excluded from coverage under 42 C.F.R. 411.15(o). The court rejected this argument, clarifying that only Category B devices are reimbursable if used according to FDA-approved protocols, and that experimental or investigational devices are generally excluded from coverage. The FDA categorizes the device as a non-experimental/investigational (Category B) device, which is provided according to FDA-approved clinical trial protocols. Relators misinterpret this section, as it does not apply if the device is not part of a clinical study, thus affecting coverage. The FDA approves Premarket Approvals (PMAs) and 510(k) clearances. Relators assert that not all off-label uses are excluded from Medicare coverage, which contradicts their earlier claims that the cervical use of the devices is non-reimbursable without FDA approval and that off-label uses do not meet safety and effectiveness criteria under the PMA process. If the relators' interpretation of coverage restrictions for PMA-approved devices excludes off-label use, the National Coverage Determinations (NCDs) would not apply. The interpretation of "device approved for marketing by the FDA" in NCD 280.1 is crucial and should align with the Medicare Manual's guidelines. Additionally, a false assertion can be constituted by omission of material facts. A Durable Medical Equipment (DME) supplier must meet quality standards set by HHS, which include compliance with FDA regulations and effectiveness standards. To receive Medicare reimbursement, a DME supplier must provide all necessary documentation for claim processing. Relators argue that due to the high risk associated with Class III devices, CMS treats them differently regarding Medicare coverage; however, the court finds no regulatory basis for this distinction. The relators’ concerns about the safety and effectiveness of the devices for off-label use relate to their implied false certification claim, suggesting that defendants were required to obtain PMA approval for these uses and failed to comply. A policy argument regarding the non-coverage of off-label uses of Class III devices, specifically defendants' stimulators, must be directed to CMS, as the court cannot mandate conditions on CMS. Relators contend that NCD 150.2 focuses solely on patient circumstances rather than the safety and effectiveness of devices, whereas the court disagrees, affirming that the FDA evaluates marketing safety and effectiveness, while CMS assesses whether a device's use is reasonable and necessary for Medicare reimbursement. CMS considers FDA approval and other authoritative evidence when determining safety and effectiveness. NCD 150.2 establishes that FDA-approved stimulators are reimbursable when used as an adjunct to spinal fusion surgery, reflecting CMS's nationwide determination of their safety and effectiveness in the medical community. Relators contend that CMS is unable to predetermine the safety and effectiveness of all undisclosed, off-label uses of medical devices. However, the court believes this issue should be directed to CMS, suggesting that if relators find it unsafe to cover all uses of stimulators, they should request CMS to modify NCD 150.2 to limit coverage to on-label uses. The court emphasizes it cannot deviate from the clear language of NCD 150.2. The argument that NCD 150.2 and NCD 280.1 must be read together is rejected, as NCD 280.1 is merely a reference tool and mandates that contractors refer to the specific NCD covering a device for coverage determinations. Relators fail to provide any supporting citations for their claims regarding additional limitations imposed by NCD 280.1. Relators argue that interpreting NCD 150.2 in isolation would lead to absurd outcomes, such as any device meeting a basic description being reimbursable, even if improperly constructed. However, the court refutes this, clarifying that only stimulators classified under one of the four eligible categories in the Medicare Manual, including those approved by the FDA, qualify for reimbursement. A device not approved by the FDA cannot be considered for reimbursement under NCD 150.2. The court notes that it has taken judicial notice of PMA approval orders for the defendants' stimulators, which require compliance with FDA standards, despite relators’ allegations not being present in the original complaint. The court acknowledges relators’ references to FDA guidance, asserting the necessity of tailored testing for different stimulator modalities and intended uses. The FDA has highlighted that even minor changes to stimulator devices, such as waveforms or designs, can negatively affect their safety and effectiveness. The court notes it will reserve judgment on whether claims regarding the promotion of off-label device use are legally valid until full briefings are submitted. The court previously determined that since Medicare covers stimulators for both on-label and off-label uses, defendants were not obligated to inform Medicare about off-label prescriptions, thus their failure to disclose such information was not material to Medicare’s reimbursement decisions. Materiality is assessed based on whether the false assertion is relevant to the government’s benefit decision. The absence of a requirement on Medicare forms to specify the intended use of stimulators further supports this conclusion. Additionally, the relators, while arguing against unlawful marketing practices, explicitly state they are not claiming the defendants unlawfully marketed their devices. The relators also fail to demonstrate that the defendants made false certifications or specify the content of any such certifications related to their claims under federal programs. A referenced FDA warning letter about marketing restrictions does not indicate that Medicare would deny coverage for spinal uses of devices. Moreover, testimony from two physicians regarding their orders for stimulators does not substantiate claims that these were for cervical use or that reimbursement claims were submitted to Medicare by DJO.