This post is from the non-Reed Smith side of the blog.

Modglin v. DJO Global Inc., 2015 U.S. Dist. LEXIS 60812 (C.D. Cal. May 8, 2015) is one of those cases that has so much good stuff going on, we just want to dive right in.  It is the complete dismissal with prejudice of an attempt to state a False Claims Act (“FCA”) case against the manufacturers of Pre-Market Approved (“PMA”) bone-growth stimulators based on allegations that the manufacturers were aware their products were being used off-label – a fact they failed to disclose to Medicare and other federal healthcare plans when submitting claims for reimbursement.  We’ve got allegations of fraud, connected to off-label promotion, surrounding a PMA medical device and all tied up in a dismissal with prejudice.  It’s like package wrapped in shiny paper with a big red bow on top.  As pretty as the trappings are, we’re still going to rip them off to see what’s inside.  And we don’t think you’ll be disappointed.

Relators’ specific allegations are that defendants requested reimbursement for stimulators approved for lumbar spine use when they knew that the stimulators were being used with the cervical spine – an off-label use – which they claim is not allowed.  Id. at *25.  So, what is allowed?  Under the Medicare Act, to be reimbursed, the device must be “reasonable and necessary” for diagnosis or treatment.  Id. at *13.  The Department of Health and Human Services (“HHS”) has decided that PMA devices generally can be reimbursed.  Id. at *15.  So far so good for stimulators.

Next, HHS has authority to make “up-front rules” regarding the scope of coverage for certain devices.  There are National Coverage Decisions (NCD) and Local Coverage Determinations (LCD).  Id. at *16.  Stimulators are covered by both.  The NCD for stimulators states that they are covered by Medicare for six uses, including “as an adjunct to spinal fusion surgery.”  Id. at *17.  The 4 LCDs for stimulators mirror the NCD language.  Id.  Neither the NCD nor the LCDs distinguish between use in one part of the spine versus another; nor do they distinguish between on and off-label use.  Id.  Still looking good.

When the manufacturers submit the form required for reimbursement, they must provide the PMA number for the device.  Here is where relators try to create an issue.  They allege that by identifying the PMA number for a stimulator  that is approved only for lumbar use, defendants misrepresent “that the stimulator will be used will be used on the lumbar spine when they know it will be used on the cervical spine instead.”  Id. at *25.   According to relators, this gives rise to a false certification claim under the FCA because defendants certified to a government agency that they had complied with applicable rules and regulations governing reimbursement when they in fact had not.  Id. at *40.

Because we are talking about fraud claims in the context of a motion to dismiss, we are also talking about the heightened pleadings requirements of Federal Rule of Civil Procedure 9(b). To satisfy that heightened standard, relators

must specify the content of the fraudulent representation, the person who made it, when and where the representation was made, and the manner in which it was untrue and misleading, or the circumstances indicating that it was false.

Id. at *42.  Now, roll all that together and we get to the really good parts.

First, we need to point out that relators’ claims had already been dismissed once before.  Relators were given a limited opportunity to re-plead their claims to try to assert a claim “premised on the theory that defendants made implied false certifications by unlawfully promoting their devices for off-label uses.”  Id. at *4.  That’s because all of their other theories failed.  But relators either failed to appreciate that their other claims had been dismissed or chose to ignore it because they re-pleaded the same FCA claims.  So, the court once again dismissed them, giving us a chance to share that ruling as well.

In their prior complaint, relators made two claims: (1) that defendants submitted a false claim by failing to affirmatively disclose that the devices were prescribed for off-label uses and (2) that under 21 C.F.R. §§801.4 and 814.39, defendants were obligated to seek a PMA supplement based on their knowledge that the devices were sometimes put to off-label use.  Id. at *43.    On argument one, the court relied on the HHS provisions cited above which do not bar reimbursement for devices used for off-label purposes.  Id. at *43-44.  In other words, where Medicare does not prohibit reimbursement of off-label use, the fact of off-label use is not material.  On this point, the court also embraced an argument that we advance every time we talk about off-label use – the FDA approves devices, not uses:

In its prior order dismissing the second amended complaint, the court explained that the Medicare Benefit Policy Manual clearly states that devices approved through the PMA process are eligible for coverage, not that the use of a device that has been approved by the FDA is eligible for coverage. 

Id. at *69.

On argument two, the court joined others in ruling that §801.4 does not “impose an affirmative duty on manufacturers to file a PMA supplement . . . every time they know or should know that a . . . physician has prescribed or will prescribe, a device for off-label use.”  Id. at *44.

After re-dismissing those claims, the court reiterated that the only issue left for it to address was whether relators “could allege that defendants engaged in off-label promotion of the type that would trigger a duty to file PMA supplement, and hence permit them to plead submission of false claims.”  Id. at *45-46.  Regardless of whether they “could,” the court found that they “didn’t.”

Relators’ claims fell apart for failing to plead fraud with sufficient specificity.  None of their allegations rose to the Rule 9(b) level.  For example, relators alleged defendants had a “corporate-wide policy and practice to train their representatives to tell physicians that all stimulators were the same and therefore that their lumbar devices could be safely used on the cervical spine.”  While that gives some detail on the content, it doesn’t provide any information on the “who” (at a minimum need to identify speaker by job title or responsibility); the “where” (“at trade conventions” without providing name, location and date not enough); or the “when” (“over time” insufficient).  Id. at *53-57.

Relators’ failure to distinguish among the defendants was also instrumental in their failure to meet the fraud pleading standards:

Not only are the agents or employees unidentified, but the allegation fails to distinguish between defendants. Rule 9(b) does not allow a complaint . . . merely [to] lump multiple defendants together but require[s] plaintiffs to differentiate their allegations when suing more than one defendant . . . and inform each defendant separately of the allegations surrounding his alleged participation in the fraud.

Id. at *59.  All of this is great language for use in products liability off-label cases as well where plaintiffs face the same pleadings standards as the relators here.