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United States ex rel. Witkin v. Medtronic, Inc.

United States District Court, D. Massachusetts

May 23, 2016

UNITED STATES OF AMERICA, ET AL, ex rel. ADAM WITKIN, Plaintiffs,
v.
MEDTRONIC, INC., and MEDTRONIC MINIMED, INC., Defendants.

          MEMORANDUM AND ORDER

          DOUGLAS P. WOODLOCK, UNITED STATES DISTRICT JUDGE

         Relator Adam Witkin brings this qui tam action against Medtronic, Inc. - and its wholly-owned subsidiary Medtronic MiniMed, Inc. (collectively, “Medtronic”) - as a relator on behalf of the United States, 26 individual states and the District of Columbia. He alleges violations of the federal False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., as well as violations of the FCAs of those states and the District of Columbia. Witkin also seeks relief under federal and state law for allegedly retaliatory discharge. Medtronic moves to dismiss the complaint for failure to state a claim.

         I. BACKGROUND

         A. Overview of the Allegations

         Medtronic sells a variety of products for the treatment and management of diabetes. Sec. Am. Compl. ¶ 73. An estimated 26 million Americans have diabetes, a condition in which the body is not able to regulate levels of glucose in the blood. Id. ¶ 61. Less than 10% of diabetes patients suffer from Type 1 diabetes, an autoimmune disease in which the body does not produce enough insulin to move glucose from the blood to the cells. Id. ¶¶ 62-63. More than 90% of diabetes patients have Type 2 diabetes, a condition in which the body has developed a resistance making insulin inefficient at moving glucose from the blood to the cells. Id. ¶¶ 63-64.

         Among the products Medtronic sells are insulin pumps allowing the continuous delivery of insulin, Sec. Am. Compl. ¶¶ 68-70, 74. These pumps serve as an alternative to multiple daily injections of insulin. Id. ¶ 67-68. Medtronic also sells “continuous glucose monitoring” devices. Id. ¶¶ 71, 74. The monitoring device is inserted under the patient’s skin with a needle. Id. ¶ 71. Medtronic sells one for professional use called the “iPro, ” id. ¶ 123. A patient is fitted with an iPro device in a physician’s office and sent home to collect glucose data over several days, after which the data can be interpreted for treatment recommendations. Id. ¶ 124. Medtronic also sells an integrated diabetes management system in which an insulin pump is paired with a glucose monitoring device. Id. ¶ 78.

         Witkin was employed with Medtronic’s diabetes division from November 2004 until his termination on February 28, 2011. Sec. Am. Compl. ¶ 45. He sold Medtronic medical devices for the treatment and management of diabetes in his capacity as a Territory Manager and Senior Territory Manager in Oregon. Id. Witkin alleges that, in the course of his employment, he learned about fraudulent behavior by Medtronic that resulted in false claims to government health care programs, including Medicare, Medicaid, CHAMPUS/TRICARE, and CHAMPVA. Id. ¶¶ 92-96.

         Many of Witkin’s allegations involve Medtronic’s efforts to expand insulin pump use among Type 2 diabetes patients. Insulin pumps historically were used by Type 1 diabetes patients, id. ¶ 69, and a small set of Type 2 diabetes patients with extreme forms of insulin resistance, id. ¶ 7. Expanding pump use among Type 2 patients more generally was, Witkin alleges, central to Medtronic’s national sales strategy. Id. ¶¶ 121. Pump therapy also allowed patients to receive more complete insurance coverage for their diabetes care, due to differences in reimbursement for insulin when purchased independently and when used in conjunction with a pump. See Id. ¶ 149.

         More specifically, Witkin alleges that Medtronic paid kickbacks and other illegal remuneration to physicians to induce them to prescribe Medtronic insulin pumps to their patients. Sec. Am. Compl. ¶¶ 121-309. He also alleges that Medtronic helped Type 2 patients falsify their qualifications for insulin pump therapy, resulting in claims to government payors for reimbursement of ineligible and unnecessary pumps. Id. ¶¶ 493-551.

         According to Witkin, Medtronic also fraudulently promoted its insulin pumps for uses not approved by the U.S. Food and Drug Administration (“off-label” uses). For example, Medtronic allegedly misrepresented the safety and efficacy of using high-concentration “U-500” insulin with its pump, when the pump was approved only for use with lower-concentration “U-100” insulin. Sec. Am. Compl. ¶¶ 310-423. The resulting claims for reimbursement as to the pump and the insulin were thereby false.

         Witkin further alleges that Medtronic used false representations to promote off-label use of its adult diabetes management systems by pediatric patients, id. ¶¶ 424-91. An earlier complaint also alleged that Medtronic used fraudulent practices to induce unnecessary orders for insulin pump upgrades and replacements, First Am. Compl. ¶¶ 428-76, although these claims were voluntarily dismissed on May 30, 2013 and have not been reasserted in the Second Amended Complaint.

         Count I seeks to hold Medtronic liable under the FCA, based on fraudulent conduct which caused or was material to false claims made to federal health care programs, and based on its avoidance of obligations to repay the government by failing to report overpayments received as a result of false claims. Count II seeks to hold Medtronic liable under false claims statutes of the 26 named states and the District of Columbia (collectively, the “state FCAs”). Count III seeks damages under California and Illinois insurance fraud statutes. Cal. Ins. Code § 1871.7; 740 Ill. Comp. Stat. § 92.

         In Count IV, Witkin alleges that his termination in February 2011 constituted illegal retaliation for his efforts to investigate and stop Medtronic’s FCA violations, in violation of the federal FCA, 31 U.S.C. § 3730(h). See Sec. Am. Compl. ¶¶ 562-94. Witkin also seeks relief for his allegedly wrongful termination under Oregon’s whistleblower protection law, Or. Rev. Stat. Ann. § 659A.199 (Count V), and the common law of Oregon and California (Count VI).

         B. Procedural History

         Witkin filed this action on May 5, 2011. The complaint was kept under seal until the United States declined to intervene in the action. Cf. 31 U.S.C. § 3730(b)(2). The states, too, have declined to intervene.

         Medtronic moved to dismiss Witkin’s initial complaint on January 7, 2013. Witkin responded by filing an Amended Complaint on February 11, 2013. Medtronic thereafter filed a motion to dismiss for failure to state a claim. Witkin opposed the motion. In doing so, he also conditionally sought leave to amend the complaint by representing that he could “provide additional factual detail” if necessary. I granted leave to amend and the operative Second Amended Complaint was filed on August 1, 2013. Medtronic has again moved to dismiss for failure to state a claim.

         At this point, I note that I am unlikely to grant any additional requests to amend the complaint in this matter. Of course, “Amendments may be permitted . . . even after a dismissal for failure to state a claim, and leave to amend is ‘freely given when justice so requires.’” Palmer v. Champion Mortgage, 465 F.3d 24, 30-31 (1st Cir. 2006) (quoting Fed.R.Civ.P. 15(a)). But it is also true that in “appropriate circumstances, ” including “undue delay, bad faith, futility, and the absence of due diligence on the movant's part, ” leave to amend may be denied. Id. The “balance of pertinent considerations” in deciding whether to allow an amendment requires an inquiry into the totality of the circumstances. Id. One important consideration is judicial economy. “[T]rial courts, in the responsible exercise of their case management functions, may refuse to allow plaintiffs an endless number of trips to the well, ” particularly where they have already “afforded the plaintiffs an ample opportunity to put their best foot forward.” Aponte-Torres v. Univ. Of Puerto Rico, 445 F.3d 50, 58 (1st Cir. 2006). This action is now on its second amended complaint - one significantly expanded from relator’s original submission - and I have already informed relator that this second amended complaint was to be his best, and final, effort at stating his claims. Accordingly, I expect that there is nothing left for relator to add that would not futilely result in another dismissal, at the expense of defendants and the legal system generally. He will not be permitted, absent circumstances unforeseen at this juncture, to try to reformulate his allegations, yet again, to avoid their legal deficiencies.

         II. LEGAL FRAMEWORK

         In order to survive a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation and internal quotation marks omitted). Dismissal for failure to state a claim is appropriate when the pleadings fail to set forth “factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory.” Berner v. Delahanty, 129 F.3d 20, 25 (1st Cir. 1997) (quoting Gooley v. Mobil Oil Corp., 851 F.2d 513, 515 (1st Cir. 1988) (internal quotation marks omitted)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]’ - ‘that the pleader is entitled to relief.’” Maldonado v. Fontanes, 568 F.3d 263, 269 (1st Cir. 2009) (quoting Iqbal, 556 U.S. at 679).

         FCA allegations and their state counterparts are also subject to the heightened pleading standards of Fed.R.Civ.P. 9(b). U.S. ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 29 (1st Cir. 2009). Rule 9(b) requires that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” To satisfy Rule 9(b), “a complaint must specify the time, place, and content of an alleged false representation.” U.S. ex rel. Rost v. Pfizer, Inc., 507 F.3d at 720, 731 (1st Cir. 2007) (citations and internal quotation marks omitted).[1] Conclusory allegations are insufficient, but Rule 9(b) may be satisfied “when some questions remain unanswered, provided the complaint as a whole is sufficiently particular to pass muster.” U.S. ex rel. Gagne v. City of Worcester, 565 F.3d 40, 45 (1st Cir. 2009) (citation omitted).

         The First Circuit has recognized a “distinction between a qui tam action alleging that the defendant made false claims to the government, and a qui tam action in which the defendant induced third parties to file false claims with the government.” Duxbury, 579 F.3d at 29. In the latter case, a relator may satisfy Rule 9(b) by providing “factual or statistical evidence to strengthen the inference of fraud beyond possibility without necessarily providing details as to each false claim.” Id. (internal quotation omitted).

         III. FALSE CLAIMS ACT

         The FCA imposes liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval, ” 31 U.S.C. § 3729(a)(1)(A), or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim, ” id. § 3729(a)(1)(B). The FCA also prohibits what have come to be called “reverse” false claims, and imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” Id. § 3729(a)(1)(G).[2]

         I discuss in turn the various ways in which Witkin alleges Medtronic is subject to false claims liability to determine if any satisfy the pleading requirements of Rule 9(b).

         A. Illegal Remuneration

         The federal Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b, broadly prohibits the offer or payment of “any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind” in return for referrals to any individual for the purpose of furnishing items or services reimbursable by federal health care programs, id. § 1320a-7b(b)(1)(A), or in return for recommendations for purchasing items reimbursable by federal health care programs, id. § 1320a-7b(b)(1)(B). The Stark Act, 42 U.S.C. § 1395nn, prohibits physicians having “compensation arrangement[s]” with any entity, involving “any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, ” from making a referral to that entity for furnishing health services, id. § 1395nn(a), (h)(1)(B); 42 C.F.R. § 411.351 (“remuneration” includes “any payment or other benefit”).

         Liability under the AKS also requires intent to induce a referral or recommendation. 42 U.S.C. § 1320a-7b(b)(2). The Stark Act contains no such intent requirement but prohibits referrals based solely on the existence of a specified compensation arrangement. 42 U.S.C. § 1395nn(a). Safe harbors are available under both statutes for compensation for part-time services, provided a variety of requirements are met, including, as relevant here, that payment be established in advance at a fair market value rate. See 42 U.S.C. § 1395nn(e)(3); 42 C.F.R. § 1001.952(d).[3]

         Central to Witkin’s kickback allegations are so-called “iPro clinics.” An “iPro clinic” refers to a session in a doctor’s office in which diabetes patients were invited to be fitted with the iPro device to evaluate their current diabetes management. Sec. Am. Compl. ¶ 126. Medtronic used the clinics to gain “one-on-one access” to patients who had been treating their diabetes through multiple daily injections, in hopes of converting them to use Medtronic insulin pumps and, allegedly, to compensate providers in order to generate additional pump orders. Id. ¶¶ 127, 142, 148-54.

         Witkin alleges illegal remuneration in essentially two forms. First, Witkin alleges that Medtronic paid or offered remuneration by running iPro clinics in doctors’ offices, often without physician involvement, e.g., Sec. Am. Compl. ¶¶ 127-61 (describing clinics), ¶¶ 210-212 (Medtronic paying nurses to staff clinics), while promoting the ways in which the physician could bill Medicare for patient iPro clinic visits, see id. ¶¶ 131-41.

         Second, Witkin alleges that Medtronic paid providers at above-market rates to train patients in the use of Medtronic’s insulin pumps, id. ¶¶ 178-98, and also provided a variety of other collateral benefits such as free sample devices, meals, and travel and accommodations for conferences at luxury venues. Id. ¶¶ 213-20.

         Such remuneration, Witkin argues, led providers to refer patients to Medtronic for the purchase of insulin pumps and to recommend the purchase of Medtronic insulin pumps, payment for which would be made by federal health care programs. The resulting claims, tainted by the antecedent kickbacks, were thereby false. Cf. 42 U.S.C. § 1320a-7b(g) (“[A] claim that includes items or services resulting from a violation of [the federal anti-kickback statute] constitutes a false or fraudulent claim [for purposes of the FCA].”); New York v. Amgen Inc., 652 F.3d 103, 110-11 (1st Cir. 2011) (claims induced by kickbacks false when they “misrepresent[] compliance with a material precondition of payment forbidding the alleged kickbacks”).

         I first address whether Witkin has stated a claim under this theory before turning to whether he has pled fraud in this respect with adequate particularity to satisfy Rule 9(b).

         1. Remuneration

         a. iPro Clinics

         I agree with Medtronic that merely explaining to physicians the manner in which iPro services could be billed to Medicare does not in itself constitute an offer of remuneration by Medtronic. Cf. United States v. Shaw, 106 F.Supp.2d 103, 120 (D. Mass. 2000) (“profit motive does not necessarily trigger criminal liability”). The Department of Health and Human Services Office of the Inspector General has indicated that a manufacturer’s “reimbursement support services in connection with its own products” have “no independent value.” OIG Compliance Program Guidance for Pharmaceutical Manufacturers, 68 Fed. Reg. 23731, 23735 (2003). Medtronic’s alleged activity here is a step removed from reimbursement support for a product user; Witkin alleges primarily promotional activity regarding reimbursement rather than active support for a product user. Medtronic’s explanation of the benefits to physicians of using the iPro device does not in and of itself confer a benefit on those physicians.

         That said, the character of these promotional activities changes when combined with Witkin’s allegation that Medtronic staff often ran iPro clinics at no cost to the host physicians and entirely independently of a physician or his or her staff. See, e.g., Sec. Am. Compl. ¶¶ 154-62. The allegation that Medtronic effectively instructed physicians on billing Medicare for procedures that Medtronic provided for free transforms what would be an otherwise innocuous patient-promotion practice into an offer of remuneration to the physicians. Medtronic responds by outlining the circumstances in which physicians are permitted to bill for services provided by ancillary professionals like nurses or diabetes educators. That would be a legitimate defense against the independent falseness of claims by physicians for reimbursement of iPro services. Witkin, however, does not pursue this theory of false claims and, even if he did, there are no particularized allegations to support this theory. See Part III.A.3, infra.

         Rather, the theory of false claims pursued here involves claims for reimbursement of insulin pumps, the falsity of which derived from referrals or recommendations by doctors who had in turn been influenced by kickbacks from Medtronic. And, more importantly for present purposes, even a physician legitimately billing Medicare for properly-supervised iPro clinic services has received remuneration when he otherwise would have had to expend additional money or time to administer the services himself or pay staff to do so. Witkin has therefore adequately alleged remuneration through the iPro clinics.

         b. Pump Training

         Witkin also alleges that Medtronic paid providers to train patients in the use of its insulin pumps. Medtronic relies on the statutory safe harbors to argue that these payments do not amount to illegal remuneration. See 42 U.S.C. § 1395nn(e)(3); 42 C.F.R. § 1001.952(d). The Amended Complaint itself indicates that many of the requirements of the safe harbors would be ...


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