114 F. Supp. 3d 993
C.D. Cal.2015Background
- Qui‑tam relators Modglin and Milko sued manufacturers/distributors of bone‑growth stimulators (DJO, Biomet, EBI) under the False Claims Act (FCA), alleging defendants caused federal programs (Medicare, Medicaid, FEHB, Tricare, CHAMPVA, federal workers’ comp) to pay for stimulators used off‑label (cervical) though FDA PMA approvals were for lumbar use only.
- The United States and 29 states declined intervention; defendants moved to dismiss. The district court previously dismissed the second amended complaint but granted narrow leave to amend limited to an implied‑false‑certification theory based on off‑label promotion and failure to file PMA supplements.
- Relators’ corrected third amended complaint (TAC) reasserted claims that defendants submitted false claims by failing to disclose off‑label use and by certifying compliance with rules (including PMA supplement obligations), and added factual allegations drawn from relators’ experience as sales/industry participants and anecdotal reports of off‑label sales and payments.
- Medicare coverage framework: FDA PMA approval is necessary for marketing Class III devices, but Medicare coverage is governed separately by CMS (NCDs/LCDs); FDA approval for at least one indication is a factor but not dispositive and CMS sometimes reimburses off‑label uses when reasonable and necessary (NCD 150.2 and related LCDs for stimulators do not limit coverage to on‑label lumbar use).
- Court treated defendants’ RJN materials as judicially noticeable government documents and evaluated the TAC under Rule 12(b)(6) and the heightened fraud pleading standard of Rule 9(b), applying Twombly/Iqbal/FCA precedents on implied false certification and materiality.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether relators pleaded FCA false‑claim liability for Medicare claims based on failure to disclose off‑label use or failure to file PMA supplements | Relators: defendants billed Medicare for stimulators while knowing they would be used off‑label (cervical); by listing PMA numbers and certifying compliance they made express/implied false certifications and caused false claims | Defendants: Medicare does not condition payment on manufacturer PMA‑supplement compliance; relators fail Rule 9(b) particularity and scienter; NCDs/LCDs do not bar off‑label reimbursement | Court: Dismissed Medicare FCA claim with prejudice — failure to plead off‑label promotion particularity, failure to show Medicare conditions payment on PMA supplement compliance, inadequate scienter and particularity for certifications |
| Whether relators pleaded FCA liability for claims to Medicaid and state programs | Relators: many state Medicaid rules limit payment to FDA‑approved uses or exclude experimental uses, so claims for off‑label use were false | Defendants: TAC lacks particularized allegations that defendants submitted claims to specific state programs or that those states excluded the alleged use at the time of submission; fails Rule 9(b) and scienter | Court: Dismissed Medicaid/state aspects for failing Rule 9(b) particularity and scienter; relators did not show specific false claims or applicable state rules at relevant times |
| Whether relators pleaded FCA claims against other federal programs (FEHB, Tricare, CHAMPVA, federal workers’ comp) | Relators: same theory as to Medicare/Medicaid — defendants caused false payments to other federal programs | Defendants: TAC contains no program‑specific reimbursement rules, no representative false claims, no certifications, and insufficient scienter | Court: Dismissed these claims for the same pleading and scienter defects as to Medicare/Medicaid |
| Whether the court should exercise supplemental jurisdiction over state FCA claims after dismissal of federal claims | Relators: (implicit) seek to keep state claims in federal court | Defendants: move to dismiss federal claims with prejudice; if federal claims fail, state claims should be dismissed without prejudice | Held: Court declined supplemental jurisdiction and dismissed state claims without prejudice to refiling in state court |
Key Cases Cited
- Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (recognizing FDCA core objective of assuring device safety and effectiveness)
- Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (1983) (FDA does not directly regulate practice of medicine; off‑label use not generally subject to FDCA regulation of physicians)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (Iqbal standard applied to plausibility and legal conclusions)
- United States v. Neifert‑White Co., 390 U.S. 228 (1968) (FCA is remedial and reaches fraudulent attempts to cause government payment)
- Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010) (elements and Rule 9(b) particularity for implied‑false‑certification FCA claims)
- United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995 (9th Cir. 2002) (actual false claim is sine qua non of FCA liability)
- United States ex rel. Williams v. Renal Care Group, Inc., 696 F.3d 518 (6th Cir. 2012) (certification to obtain billing privileges under 42 C.F.R. § 424.57 are conditions of participation and not a basis for FCA liability when not prerequisites for payment)