A new tea party may be brewing in Boston . Two plaintiffs recently fired a major salvo against physicians in a False Claims Act lawsuit in Boston . Historically, actions for improper consulting or royalty payments to physicians have focused on the manufacturer. In 2006, Medtronic Sofamor Danek (MSD) agreed to pay $40 million to settle charges that it had violated the False Claims Act through improper consulting and royalty agreements with physicians.

Plaintiffs are now targeting the recipients of those payments. Two ex-employees of MSD have sued well over 100 physicians, asserting that these physicians improperly induced Medicare to pay for unnecessary medical devices and procedures. According to the plaintiffs, the various physicians violated the Anti-Kickback Statute by, among other actions:

  • Accepting consulting fees when no services were performed
  • Accepting consulting fees for more than the fair market value of their services
  • Accepting royalties for patents on which they were not the true inventor
  • Accepting, both directly and indirectly, improper gifts, including textbooks
  • Accepting excessive travel
  • Accepting consulting compensation based on the amount of business they created

The complaint, however, doesn’t stop here. In a major departure from past practice, the plaintiffs also assert that the physicians induced false claims by encouraging off-label use of the MSD product. The plaintiffs argue that the off-label use was not medically appropriate and thus not reimbursable by CMS. This is a major departure from long-standing concepts that physicians can freely use a product for any use the physician believes is in the best medical interest of the patient and be reimbursed for that use irrespective of whether the use is on or off-label. (For example, approximately 70 percent of all cancer patients and pediatric patients and 50 percent of cardiac patients get off-label prescriptions and most of those are reimbursed.) The plaintiffs allege that physicians violated the False Claims Act by improper off-label promotion when:

  • Physicians gave presentations advocating the off-label use
  • Physicians published (and often had help from MSD in publishing) medical articles advocating off-label uses
  • Physicians conducted biased research on off-label uses
  • Physicians knew of negative data and didn’t disclose it
  • Physicians profited through royalties from off-label uses
  • Physicians conducted training programs on off-label uses (often using a research and education institute that was a MSD front)
  • Physicians were paid agents of MSD due to the consulting fees and royalty payments

The plaintiffs then also linked the physician consulting and royalty compensation arrangements with the Stark Act prohibition on self-referral. Given that at least some physicians got compensation based on the level of product usage, the plaintiffs assert that encouraging off-label use or actually using the product off-label constitutes a self referral.

Finally, the plaintiffs sued a number of MSD distributors alleging that they served as conduits for funneling money from MSD to physicians.

This lawsuit is clearly plowing new legal ground. We have only seen the complaint and certainly there are other facts – both good and bad – which will influence the outcome of the case. One key risk is that, if the plaintiffs are successful, this case could have unprecedented and uncertain negative impacts on the freedom of physicians to practice medicine. Even if unsuccessful, the defendants will no doubt incur substantial legal expenses.

So, until the outcome is more certain, what should health care providers and manufacturers do? This suit reinforces the need for both manufacturers and health care providers to ensure that all relations between them satisfy legitimate business needs, are for fair market value only and comply with all applicable laws. This lawsuit also reconfirms the need to have in place robust internal controls and documentation systems to prevent anti-kickback violations, self-referrals or any other improper promotional activities or arrangements.