United States v. Medtronic, Inc.

Citation: 327 F. Supp. 3d 831Docket: CIVIL ACTION NO. 15-6264

Court: District Court, E.D. Pennsylvania; June 4, 2018; Federal District Court

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The relator, Cathleen Forney, alleges that Medtronic, a medical device company, engaged in illegal kickback payments to healthcare providers, violating the False Claims Act (FCA). Medtronic argues that the relator's claims were publicly disclosed before her complaint was filed, invoking the public disclosure bar, which prevents relators from pursuing cases based on publicly disclosed fraud allegations. The court notes that this bar was amended in 2010 under the Patient Protection and Affordable Care Act, narrowing the scope of what constitutes a public disclosure and broadening the original source exception, which allows relators to proceed with lawsuits if they are original sources of the information.

The Third Circuit has encountered similar issues but has not fully resolved the specific arguments raised by the parties in this case. The court must undertake a detailed analysis comparing the allegations in this case with prior public disclosures and determine if the relator qualifies as an original source. Forney submitted extensive documentation to support her original source status. 

Upon reviewing the case, the court determined that most of Forney's fraud allegations had indeed appeared in prior public disclosures. However, it also concluded that she qualifies as an original source under the Third Circuit's interpretation of the exception. Therefore, despite the existence of prior disclosures, the court denied Medtronic’s motion for summary judgment. 

The procedural history reveals that Forney filed her sealed complaint on November 20, 2015, naming the United States and 29 states as plaintiffs. The United States chose not to intervene, and the seal was lifted on December 14, 2016, allowing Forney to serve her complaint. An amended complaint was filed four months later, prompting Medtronic to respond with a motion to dismiss.

Relator Forney's initial allegations of fraud against Medtronic were deemed insufficiently specific, leading to the dismissal of her amended complaint without prejudice. Following this, she submitted a second amended complaint on July 6, 2017. Medtronic moved to dismiss this second complaint on July 27, 2017. Despite the court’s concerns regarding the viability of Forney's claims, the motion to dismiss was denied without prejudice on August 14, 2017, allowing Medtronic to later raise its arguments during summary judgment. The court then established a deadline for fact discovery to be completed by December 22, 2017.

Before discovery concluded, Medtronic filed a motion for summary judgment, citing the public disclosure bar under the False Claims Act (FCA). The court suspended all deadlines pending this motion's resolution. Following subsequent filings from both parties, the court heard oral arguments on December 20, 2017, and ordered supplemental briefs. The second amended complaint alleges that Medtronic, a major medical device manufacturer generating $8.8 to $9.2 billion annually in the U.S., engaged in a fraudulent scheme by offering free services to individuals influencing purchasing decisions, which Forney claims constitutes illegal remuneration under the FCA. She outlines specific instances of alleged misconduct categorized into device checks, implant services, and practice management consulting.

Forney's brief identifies three theories of fraud in the second amended complaint, though Relator Forney is no longer pursuing the theory related to implant services. Instead, she focuses on seeking damages for kickbacks associated with device checks and consulting services, with the United States consenting to her withdrawal from the free labor claims related to implant surgeries. 

The device check theory posits that after a physician implants a Medtronic medical device, Medtronic conducts "checks" or "interrogations" of the device. Forney cites her credentials and experience, detailing her role in performing system assessments and evaluations of Pacemakers and ICD systems. She claims Medtronic covered the credentialing costs for Clinical Specialists, which would typically be borne by healthcare providers, including expenses for background checks ranging from $60 to $250 each. This arrangement purportedly negated the need for additional staff within hospitals.

In the practice management theory, Forney asserts that Medtronic established a "lean sigma" training program aimed at enabling Clinical Specialists to provide free consulting services that integrated into healthcare providers' operations. She alleges that this program involved training for administrative tasks that healthcare providers typically manage, including assisting with data entry into hospital databases. Additionally, Forney claims Medtronic offered free reimbursement guidance to healthcare providers, which she argues constitutes fraudulent activity.

Relator Forney alleges that Medtronic instructed healthcare providers on how to enhance profits by optimizing reimbursement from government-funded healthcare programs through accurate coding of reimbursement requests. This conduct is characterized as part of a nationwide scheme where Medtronic allegedly provided free services to healthcare providers, which Forney claims are illegal kickbacks under the False Claims Act (FCA). The free services included device checks and interrogations conducted by Medtronic representatives, as well as administrative assistance and reimbursement guidance. To facilitate these services, Medtronic covered the credentialing costs for its representatives, typically an expense borne by healthcare providers.

The document also outlines the standard for summary judgment in district courts, emphasizing that summary judgment is appropriate when there are no genuine disputes regarding material facts. The movant must demonstrate the absence of genuine issues through evidence, and if successful, the onus shifts to the non-movant to present specific facts that indicate a genuine issue for trial. Vague or conclusory assertions are insufficient to counter a summary judgment motion; the non-movant must substantiate their claims with concrete evidence.

Speculation and conclusory allegations fail to meet the non-moving party's obligation to present specific facts that demonstrate a genuine issue of material fact, allowing for a reasonable factfinder to rule in their favor. The non-moving party must provide evidence beyond mere allegations to establish a genuine issue for trial. Arguments in briefs do not constitute evidence and cannot create a factual dispute sufficient to counter a summary judgment motion. The court is restricted from weighing evidence or making credibility determinations and must assess the evidence in the light most favorable to the opposing party, resolving all reasonable inferences in their favor. The court's role is not to determine if the evidence overwhelmingly favors one party but to ascertain if a fair-minded jury could return a verdict for the plaintiff based on the evidence presented. If the totality of the record does not support a rational trier of fact finding for the non-moving party, summary judgment should be granted to the moving party.

In the context of Medtronic's motion for summary judgment under the False Claims Act (FCA) public disclosure bar, the court must dismiss an action unless the Government opposes it if the allegations were publicly disclosed in specific forums, including federal hearings or reports. An "original source" is defined as someone who has voluntarily disclosed relevant information to the Government prior to public disclosure or possesses independent knowledge that materially adds to publicly disclosed allegations and provided that information to the Government before filing the action. To establish a dismissal under the public disclosure bar, a defendant must prove three elements: 1) the existence of a valid public disclosure, 2) that the prior disclosure revealed substantially the same allegations or transactions as in the current action, and 3) that the relator is not an original source.

Material facts relevant to the application of the public disclosure bar are not genuinely disputed. The court identifies two key legal inquiries: 1) whether any prior public disclosures alleged substantially the same fraud as claimed by Relator Forney, and 2) whether Forney provided information to the government that materially added to these prior disclosures. The pertinent facts are categorized into three groups: 1) prior public disclosures of fraud, 2) fraud allegations in Forney's second amended complaint, and 3) information provided by Forney to the government before filing the lawsuit. The court focuses on the first and third categories, noting that Medtronic claims five federal qui tam cases as valid prior disclosures. It concludes that two, Onwezen and Schroeder, meet the public disclosure standard. 

In Onwezen, it is alleged that Medtronic offered free device checks and follow-up care to doctors and hospitals to dominate the market. Physicians are reportedly told they would not need to handle patient follow-up, as Medtronic Representatives would manage all related inquiries and adjustments. Onwezen also claims that the free device checks constituted illegal kickbacks under the False Claims Act (FCA) and that Medtronic provided reimbursement advice and administrative support to healthcare providers. Similarly, Schroeder indicates that Medtronic offered free reimbursement guidance.

Schroeder alleges that Medtronic instructed sales representatives to assist physician offices in billing Medicare, Medicaid, and other insurers, effectively providing unpaid labor to these offices. Additionally, Medtronic is accused of offering business consulting services, including a comprehensive heart failure clinic solution for cardiologists and hospitals, with sales representatives trained to demonstrate how to utilize Medtronic's pre-printed forms and templates. 

Relator Forney asserts that she submitted several documents to the government before the litigation began, specifically identified by their bates numbers (1-152, 258-429, 458-784, and 1072-2274), as evidence of Medtronic's actions. Despite Forney's sworn declaration affirming the submission of these documents, Medtronic contests their consideration in court, yet fails to provide evidence challenging their authenticity. The court finds no genuine dispute regarding the authenticity of the documents, confirming that Forney indeed provided them to the government.

The court also evaluates the validity of prior public disclosures under section 3730(e)(4)(A). It concludes that only the disclosures from Onwezen and Schroeder qualify, as they involved federal civil hearings with government participation, unlike the other three qui tam cases where the government did not intervene. Medtronic argues that relators act as the government’s agents in such cases, but the court disagrees, asserting that a qui tam relator does not qualify as the government’s agent as defined by the statute.

The statute does not provide any terms suggesting that "agent" should have a meaning other than its common definition—a representative authorized to act on behalf of another. An agency relationship exists when a principal grants authority to an agent to act on their behalf, subject to the principal's control, and the agent agrees to do so. An agent's actions can have legal implications for the principal if they act within their actual or apparent authority, or if the principal ratifies the action. 

In the context of a qui tam suit, a relator does not qualify as the government's agent because there is no evidence that the government has authorized the relator to represent it. Under 31 U.S.C. § 3730(b)(1), a person may initiate a civil action for violations on their own behalf and for the United States, indicating that the relator acts independently rather than as an agent. This interpretation aligns with the Supreme Court's ruling in Vermont Agency of Natural Resources v. United States ex rel. Stevens, where the Court determined that the relator does not act as a statutorily designated agent, as the relator has a personal stake in the lawsuit rather than merely serving the government's interests.

Furthermore, in a typical agency scenario, the agent is compensated by the principal and does not have a direct interest in the outcome of the litigation. In contrast, the relator shares the recovery with the government, rather than the government retaining all benefits. Additionally, the relator acts independently rather than under the principal's control, further distinguishing the relationship from a traditional agency.

In cases where the government opts not to intervene in a qui tam action, the relator, or whistleblower, retains the right to conduct the lawsuit independently, as stated in 31 U.S.C. § 3730(c)(3). The government cannot dictate the relator's actions, including specific litigation strategies or requests to withdraw the lawsuit. If the government does proceed with the action, it assumes primary responsibility for prosecution and is not bound by any actions of the relator. This lack of control by the government indicates that a relator does not act as the government's agent under 31 U.S.C. § 3730(e)(4)(A)(i). Furthermore, unlike typical agency relationships where agents owe fiduciary duties to their principals, there is no legal precedent holding that a relator could be sued by the government for failing to act in good faith. Consequently, the court concludes that a relator is not considered the government's agent for purposes of the public disclosure bar. Applying this conclusion, the court finds that prior disclosures in the cases of Burns, Stokes, and Doe do not involve government intervention, thus disqualifying them as prior public disclosures. Out of five potential prior public disclosures noted by Medtronic, the government only intervened in the cases of Onwezen and Schroeder. Relator Forney challenges the notion of government involvement, asserting that it should only be recognized as a party to the portions of these lawsuits where it actually intervened.

The United States, upon partial intervention in a qui tam False Claims Act (FCA) case, is considered a party to the entire action, including claims it did not pursue. This interpretation is supported by case law, specifically United States ex rel. Estate of Gadbois v. PharMerica Corp. and United States ex rel. Bennett v. Biotronik, Inc., which establish that the government’s intervention in part does not limit its status as a party. The relevant statute, 31 U.S.C. § 3730(e)(4)(A)(i), does not differentiate between total and partial government interventions, suggesting an "all or nothing" approach to party status. The government’s control over the action reinforces this conclusion, as it is granted primary responsibility for prosecution upon intervention. 

In this context, the government’s involvement in cases Onwezen and Schroeder meets the requirement for prior public disclosures, despite only intervening partially. Conversely, cases involving Burns, Doe, and Stokes do not meet the government-involvement requirement due to the absence of government intervention. Lastly, relator Forney argues that Onwezen and Schroeder do not meet the statutory definition of "civil hearings," asserting that unserved or unlitigated complaints cannot be equated to civil hearings.

Relator Forney asserts that the cases Onwezen and Schroeder were dismissed shortly after unsealing and did not undergo extensive public litigation, thus failing to meet the requirement for a "civil hearing." Despite Forney's arguments, the court finds that the definition of "civil hearing" was not significantly altered by the 2010 amendments to the statute under the Patient Protection and Affordable Care Act (PPACA). The pre- and post-PPACA versions both encompass civil actions as falling within the context of public disclosures. The Third Circuit previously determined that a civil complaint constitutes a public disclosure, which the court agrees with. Consequently, both Onwezen and Schroeder qualify as prior public disclosures under the post-PPACA public disclosure bar.

The next consideration is whether the allegations in Forney's action are "substantially the same" as those publicly disclosed in Onwezen and Schroeder. The Third Circuit elaborates that fraud allegations consist of misrepresented facts and the true state of facts. Forney's remaining allegations of fraud primarily involve two categories: 1) kickbacks to healthcare providers through free device checks and interrogations, and 2) free practice management consulting. Specifically, Forney claims that Medtronic provides these free device checks as a means of offering kickbacks, also covering credentialing costs that healthcare providers would otherwise incur.

Relator Forney's allegations against Medtronic consist of two primary fraud theories: reimbursement guidance and administrative work. Under the reimbursement guidance theory, Forney claims that Medtronic offers kickbacks to medical providers through reimbursement support. The administrative work theory posits that Medtronic provides kickbacks in the form of free administrative services and consulting.

Forney's device check theory alleges that Medtronic trained clinical specialists to conduct device checks, thus relieving physicians of the burden of follow-up care. This practice is said to incentivize providers to choose Medtronic devices by promising that Medtronic will handle all follow-up care. The court notes that this allegation is similar to claims made in the Onwezen case, where it was asserted that Medtronic's practices constituted fraud under the False Claims Act (FCA).

Additionally, Forney claims that Medtronic funded the credentialing of its clinical specialists, which included background checks, alleging that these payments represent separate kickbacks to healthcare providers who received free credentialed specialists. This credentialing allegation does not appear to be barred by previous cases.

Forney also accuses Medtronic of providing free consulting services through a program called "lean sigma," arguing that these services serve as kickbacks. The allegations of free reimbursement guidance have been disclosed in previous cases, Onwezen and Schroeder, indicating that some elements of her claims are not entirely original but may still hold merit in court.

Relator Forney alleges that Medtronic engaged in fraudulent practices by teaching healthcare providers to increase profits through maximizing reimbursements from government-funded programs. Medtronic reportedly provided free consulting, training representatives to help doctors identify under-billing and manage billing responsibilities. Relators Onwezen and Schroeder also claimed Medtronic offered similar reimbursement consulting services, effectively giving unpaid assistance to physician offices in navigating Medicare and Medicaid billing.

Forney further claims that Medtronic paid kickbacks through free administrative work, such as clerical data entry tasks intended to relieve hospitals of their billing responsibilities. Although the specific examples of administrative assistance differ between Forney and Onwezen, the essence of the allegations remains consistent: Medtronic provided kickbacks in the form of free administrative support that healthcare providers would otherwise have to perform.

Additionally, Schroeder’s allegations include that Medtronic offered a comprehensive business solution for heart failure clinics, training sales representatives to guide cardiologists on using Medtronic’s templates. This claim parallels Forney's assertion regarding free consulting services provided by Medtronic. The court will assess whether Forney qualifies as an original source for these allegations of fraud relating to administrative assistance.

Onwezen and Schroeder have disclosed all of Relator Forney's allegations of fraud except for her credentialing allegation. The court will evaluate whether Forney qualifies as an original source for her allegations concerning (1) device checks, (2) reimbursement counseling, and (3) administrative assistance. Under the public disclosure bar (31 U.S.C. 3730(e)(4)(A)), an action may be dismissed if it involves allegations substantially similar to prior public disclosures unless the relator is an original source. An original source is defined as someone who has either disclosed information to the government prior to public disclosure or possesses independent knowledge that materially adds to previously disclosed allegations (31 U.S.C. 3730(e)(4)(B)). Forney did not provide information to the government prior to the complaints, thus the first option is not applicable; the focus shifts to whether her information is independent and materially adds to prior disclosures.

The Third Circuit's ruling in Moore establishes a two-part test for determining whether a relator materially adds to publicly disclosed information: (1) the information must be independent of prior disclosures, and (2) it must significantly enhance the quality of the publicly disclosed allegations by contributing critical facts regarding the events in question. Medtronic does not contest the independence of Forney's information but argues that it does not materially add to the existing public disclosures. The court will assess whether Forney's information enhances the understanding of the "who, what, when, where, and how" of the allegations. Medtronic contends that the requirement for "materially adding" is stringent, dependent on whether the information would influence government decisions.

Medtronic's argument relies on two court cases: Universal Health Services, Inc. v. United States and United States ex rel. Winkelman v. CVS Caremark Corp. However, the court finds Medtronic's reliance on these cases unconvincing. Universal Health addressed the definition of "material" in the context of a fraud claim under 31 U.S.C. § 3729(a)(1), establishing that materiality must significantly influence a decision-maker. Medtronic argues that this interpretation should apply to "materially adds" in section 3730, despite acknowledging the different contexts. The court, however, concludes that the Supreme Court's interpretation in Universal Health is not relevant for understanding "materially adds" in section 3730, as they pertain to distinct legal concepts.

In Winkelman, the First Circuit applied Universal Health's definition of materiality to an original source question but did not justify this application, nor was it bound to do so. Medtronic contends that Winkelman should guide this court's decision due to its temporal proximity to Universal Health. Nonetheless, the court emphasizes that it is constrained by the Third Circuit's decision in Moore, rendering Winkelman's interpretation less persuasive. The court maintains that "material" in the fraud context and "materially adds" in the original source analysis are fundamentally different, thus limiting the applicability of the Supreme Court's definition from Universal Health to the current case.

Moore and Winkelman apply differing standards of materiality in legal proceedings, with Moore adopting a broad definition while Winkelman follows a narrower one from Universal Health. In the absence of a controlling precedent that would contradict this approach, the court adheres to the Third Circuit's decision in Moore, which establishes that a relator must provide information that significantly contributes to the essential factual background of the events in question. Relator Forney argues that her information enhances the understanding of the "who, what, when, where, and how" of the events related to Medtronic.

Forney references documentation of device checks performed by Medtronic representatives across various healthcare providers, detailing the representatives' names, dates, times, patient names, and healthcare provider locations. While these documents are deemed accurate representations of Medtronic’s activities, Medtronic counters that Forney's disclosures do not achieve original source status because prior public disclosures were sufficiently broad to include the same information.

Medtronic asserts that the earlier Onwezen complaint outlined the principal players, locations, and timeline of the alleged scheme in generalized terms. The complaint described an ongoing practice involving comprehensive post-implant care and management. Medtronic argues that Forney's disclosures do not materially enhance the allegations previously outlined in the Onwezen complaint. Although the Onwezen allegations are broad, the court emphasizes that, according to Moore, relators should provide detailed information that supplements what the government already knows. The court finds it unreasonable to allow a broad prior allegation to negate the significance of detailed disclosures that Forney provided, which consist of extensive documentation.

To meet the standard established in Moore, details must significantly enhance the government's existing background information. The court assessed documents provided by Relator Forney, confirming Medtronic's practice of offering free device checks and determining that this information substantially contributes to prior public disclosures. The court noted that Forney's allegations are more detailed and specific compared to the broader allegations in Onwezen, thereby establishing her as an original source regarding her device check fraud claims.

Forney also presented a practice management theory, identifying Medtronic employees as lean sigma consultants and detailing worksheets and consulting examples provided to local healthcare providers. Although the court found some of Forney's characterizations exaggerated, it acknowledged that the documents largely contained the information she claimed. 

Additionally, Forney provided "value-based workbooks" that purportedly outline Medtronic's strategy to incentivize healthcare providers through free services. Medtronic contested the relevance of these workbooks, arguing they are outdated (from 2006 and 2008), benign in nature, and that Forney misrepresented their context. The court found these arguments insufficient; it noted that while Medtronic claimed no evidence existed showing the workbooks were used after March 2010, there was also no proof they weren’t. Furthermore, the workbooks elucidated Medtronic's sales strategy relevant to the period in question, supporting Forney's assertions about the company's service-based selling plan.

Medtronic aimed to reduce practice costs for hospitals and healthcare providers by training all Clinical Specialists to discuss overhead expenses. The workbooks used in this training serve as corroborating evidence, enhancing the government's understanding based on prior public disclosures. Medtronic argues that the information in these materials is harmless and does not indicate a fraudulent scheme, reiterating its previous claim that Relator Forney's allegations of fraud are not actionable. However, courts in this circuit do not evaluate the actionability of alleged fraud when considering the public disclosure bar. The court expressed concern over the viability of the theory that support services constitute illegal remuneration, indicating that the focus of the appeal is not on the actionability of the fraud. Medtronic also contends that Forney misinterpreted workbook statements, clarifying that the intent was to teach representatives to recommend appropriate devices rather than solely focusing on price. The workbooks highlight that less expensive products may lack adequate support, implying that Medtronic should emphasize its provision of free services to healthcare providers. While the workbooks do not conclusively prove wrongdoing, they reveal an extensive training initiative aimed at promoting non-price criteria in sales, thereby contributing to the factual backdrop of the fraud allegations. Additionally, Forney claims to have disclosed information regarding Medtronic's advice on coding.

The court has reviewed specific documents related to Medtronic that detail their coding procedures given to physicians and hospitals, primarily training materials for Medtronic representatives. These documents provide insight into the exact advice offered by Medtronic, contributing significantly to Relator Forney's claims of fraud regarding reimbursement guidance and administrative practices. Forney is deemed an original source due to her extensive factual contributions, which enhance the government's existing knowledge from prior disclosures by Onwezen and Schroeder, despite some overlap in allegations. 

Medtronic identified these prior public disclosures but maintained that Forney's new allegations regarding credentialing payments as kickbacks differ. The court noted that Forney's claims of ongoing kickbacks through various services remain valid, especially after Congress amended the False Claims Act (FCA) public disclosure bar in 2010, which is no longer seen as a jurisdictional barrier. The motion to dismiss Forney's claims is denied, and a separate order will be issued. The court also clarified that Forney's assertion of a singular fraudulent scheme lacks support in her amended complaint, which articulates multiple distinct allegations of kickbacks. The government previously opted not to intervene in related cases, including Stokes, Doe, and Burns.

A Notice of Election to Decline Intervention was filed by the United States on June 17, 2016, indicating its decision not to intervene at that time. The court recognizes that while the statute (31 U.S.C. § 3730(c)(3), (4), (5)) provides some protections to the government in non-intervention scenarios, these do not equate to the control typically held by a principal over an agent. This perspective diverges from the recent district court ruling in Alabama (United States ex rel. Gilbert v. Virginia Coll. LLC, 305 F. Supp. 3d 1315, 1324-25 (N.D. Ala. 2018)), which viewed the qui tam relator as an agent of the government, illustrating the complexity of the issue. Medtronic has categorized Relator Forney's allegations of fraud into three areas: practice management, reimbursement guidance, and administrative assistance. The court excludes the practice management allegation as it overlaps with the other two, finding no distinct fraud claim within the second amended complaint. This exclusion does not alter the overall analysis, as creating a separate practice management allegation would still be barred by the same disclosures affecting the other allegations. The court concludes that Relator Forney qualifies as an original source for all her allegations, even if they are not substantially similar to previous fraud claims.