Common Schemes by Medical Device Manufacturers that Lead to False Claims Act Liability

On Behalf of | July 9, 2018 | Whistleblower Law

Medical devices are a crucial component to health care treatment and advancements. With an increasingly competitive market, medical device manufacturers and sales personnel are under pressure to maximize their sales and outpace competitors. To accomplish these objectives, device manufacturers may engage in sales practices that violate the False Claims Act (FCA)—a federal statute that allows individuals, known as whistleblowers or relators, to recover a portion of any monetary award resulting from a successful settlement or lawsuit.

A medical device company may be found liable for Medicare and/or Medicaid fraud in a variety of scenarios.  Some of these common schemes include:

  • Providing “kickbacks” to physicians to entice use of the company’s products or services rather than those manufactured by a competitor;
  • Marketing products for “off-label” uses without obtaining approval by the Food and Drug Administration;
  • Selling defective devices or products that the manufacturer reasonably should have known was defective

Often, these schemes can be relatively straightforward, but other times they can be more complicated, clever, and, therefore, more difficult for the public or government regulators to adequately detect. Below are examples illuminating each of the three common schemes above where device manufacturers faced FCA lawsuits.

Providing Kickbacks to Physicians

If a company hosts lavish events for physicians and their families, this may qualify as providing the physicians “kickbacks”—or illegal payments to induce doctors to use its devices—thereby tainting the physicians’ independent medical judgment. A recent example is medical device-maker, Abiomed, which recently settled with the Department of Justice (DOJ) a civil FCA case for $3.1 million for buying meals and alcohol in amounts inconsistent with legitimate scientific discussion. The DOJ’s settlement announcement references the company’s noncompliance with speaker program attendees and that these events came with lavish meals and entertainment which impaired a physician’s independent judgment.

Marketing Devices for “Off-Label” Use

Federal regulations limit the promotion of medical devices for uses strictly approved by the Food and Drug Administration (FDA).[1] These rules are intended to ensure that companies only promote their products for safe and effective uses. Promoting products for uses other than those approved by the FDA is known as “off-label” use.

In one case, a company called Vascular Solutions Inc., (VSI) agreed to pay $520,000 to resolve whistleblower claims under the False Claims Act for flouting the FDA’s advertising regulations.  This caused medical providers who used VSI’s Vari-Lase Short Kits to submit false claims to health care programs for uses of the kit that should not have been lawfully reimbursed.  Here, the FDA approved the Vari-Lase Short Kit for the laser treatment of veins near the surface of the leg such as perforator veins; previously, VSI failed in its efforts to get FDA approval to market its product for the treatment of perforator veins.  However, VSI advertised the device suitable for that treatment anyways, resulting in false claims.

Selling Defective Medical Devices

A manufacturer who knows or reasonably should know that its devices are defective but fails to take prompt remedial action may also face healthcare fraud or Medicare fraud lawsuits. In one recent example, on March 23, 2018, the DOJ announced that medical device manufacturer Alere Inc. and its subsidiary Alere San Diego (Alere) agreed to pay the United States government $33.2 million to settle allegations that Alere caused medical providers to submit false claims to federal healthcare programs when it sold materially unreliable point-of-care diagnostic testing devices marketed under the trade name, Triage®.[2] According to the press release, Triage® devices aided in the diagnosis of acute coronary syndromes, heart failure, drug overdose, and other serious conditions, and the devices were frequently used in emergency departments where timely decisions are critical to ensuring proper patient care. After several customers complained to Alere that its product produced erroneous results and harmed clinical decision-making, the company failed to take appropriate corrective action.   FDA inspections in 2012 led to a national recall.

The whistleblower who filed the suit, a former senior quality control analyst at Alere, was awarded approximately $5.6 million from the government’s total monetary recovery.

Awards to Individuals Who Successfully Blow the Whistle on Medical Device Fraud

In private settlements or when a company is found liable in court, the False Claims Act provides for treble damages, or three times the monetary value of the government’s loss, in addition to civil penalties for each false claim. Whistleblowers, also known as relators, may be awarded up to 15% to 30% if the government recovers money as a result of the whistleblowers’ disclosures.

Medical device fraud is difficult to detect.  Whistleblowers play a pivotal role in exposing illegal behavior.  If you have evidence that a medical device company is defrauding government-funded healthcare programs like Medicare, Medicaid, or other public healthcare programs, you should contact an experienced qui tam attorney at Sanford Heisler Sharp today.

[1] 21 C.F.R. § 814.80.[2] United States ex rel. Amanda Wu v. Alere San Diego, et al., No. GLR-11-CV-1808.