The U.S. Court of Appeals for the Eighth Circuit rejected a whistleblower suit against Stryker Corp. and other pain pump manufacturers because the allegations were based on information that had already been made public. The Court upheld the District Court in ruling that the plaintiff failed to pass the “public disclosure bar” necessary for whistleblowers to recover under the False Claims Act (FCA). Whistleblowers are able to share in the government’s recovery when they are integral to the discovery of the fraud.
The Eighth Circuit referenced a frequently cited quote in its opinion, which describes the public disclosure bar’s function:
“In principle, the FCA’s qui tam provision ‘is designed to promote private citizen involvement in exposing fraud against the government, while at the same time,’ the public disclosure bar works to ‘prevent parasitic suits by opportunistic late-comers who add nothing to the exposure of the fraud.’” (emphasis added)
Background
In the early 2000’s, doctors saw a spike in the number of patients developing chondrolysis, a rare and painful medical condition where the individual loses cartilage in their joints. Doctors began to suspect the spike was related to the use of medical devices known as “pain pumps” to deliver anesthetics via catheter into patients’ joint spaces. This concern triggered several studies on the effects of placing pain pumps in patients’ joint spaces and also spawned numerous product liability lawsuits against pain pump manufacturers like Stryker Corporation and I-Flow Corporation.
“Unlike most pain pump litigants, who raise product liability claims, Dr. Lonnie Paulos (an orthopedic surgeon and former consultant at Stryker) alleges Stryker and I-Flow violated the False Claims Act (FCA) by marketing their pain pumps to encourage the placement of pain pumps directly into patients’ joint spaces after orthopedic procedures,” the Appeals Court noted.
Public Disclosure Bar
The district court dismissed Dr. Paulos’s claims under the False Claims Act because the court found that the doctor’s allegations had been publicly disclosed. Furthermore, Dr. Paulos’s claim was not excepted under the statute as an “original source” of the information. The appeals court affirmed this decision.
The Public Disclosure Bar, including the definition of “Original Source,” language of the False Claims Act, 31 U.S.C. § 3730(e)(4), is as follows:
Stryker Case
Dr. Paulos alleged Stryker and I-Flow Corporation violated the FCA by marketing their pain pumps for placement specifically in joint spaces while knowingly (1) failing to disclose the dangers of using pain pumps in joint spaces or to disclose the lack of safety testing for joint space use; (2) providing false indications that the pain pumps were approved by the FDA for use in joint spaces; and (3) providing false labeling and promotion materials suggesting such use.
These marketing efforts, according to the complaint, constituted intentional fraud, and induced many healthcare providers to use pain pumps in their patients’ joint spaces. Dr. Paulos claimed that because many of these healthcare providers sought reimbursement for the pain pumps through federal programs like Medicaid or Tricare, Stryker and I-Flow thereby caused the submission of “false or fraudulent claim[s] for payment” in violation of the FCA.
Dr. Paulos also argued that he and a colleague, Dr. Charles Beck, were among the first to suspect and investigate the placement of pain pumps as a cause for chondrolysis. He claims Stryker knew of the increased risk early on and alleged that he warned Stryker of his and Dr. Beck’s concern that the uptick in chondrolysis could be related to the use of pain pumps.
As laid out in the statute above, Dr. Paulos’s claims were publicly disclosed “if substantially the same allegations or transactions” as he alleged were “publicly disclosed” in any of the enumerated channels.
The district court found these requirements were met because numerous media reports, FDA reports, and federal regulatory disclosures essentially revealed the allegations of fraudulent marketing forming the basis for Dr. Paulos’s claims.
The court found that the independent sources had already revealed the following allegations and transactions:
- (1) Various pain pump manufacturers attempted numerous times to obtain FDA approval to market pain pumps for placement in joint spaces, and in every instance the FDA refused approval;
- (2) Stryker and I-Flow nevertheless encouraged healthcare providers to use pain pumps in joint spaces;
- (3) Neither company disclosed the lack of FDA approval for this use;
- (4) Both companies knew the pumps had never been safety-tested for such use; and
- (5) Both companies continued to market pain pumps for such use even after learning of a possible connection to chondrolysis.
The appeals court noted that “Dr. Paulos [did] not challenge the district court’s use of these sources as falling within the statute’s listed channels of disclosure.” Dr. Paulos instead argued that “the specific fraudulent acts at issue here were not publicly disclosed and only appear substantially similar to the public disclosures at the ‘highest level of generality.’”
Having determined that the information alleged by Dr. Paulos had already been publicly disclosed, the court looked at whether his information fell into the Original Source exception ((B) in the table above). Specifically, since Dr. Paulos did not claim to have volunteered his information to the government before the public disclosures of fraud, the court only needed to discuss his potential qualification as the second type of “original source;” specifically, that he had “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and . . . has voluntarily provided the information to the Government before filing [this] action.”
The court acknowledged Dr. Paulous’s claim that he was among the first to suspect and investigate a causal connection between pain pumps and chondrolysis. However, the court stated that “[a] relator is not an original source of information under the statute simply because he discovered or suspected it first.” The Original Source carve-out contains “no requirement or exception for early discoveries or suspicions,” they stated.
“The connection between the device and disease (and details of the science and studies supporting it) can be found in numerous news media and FDA reports. Other than the causal connection itself, Dr. Paulos has not clarified what information his own conversations or research revealed, what these details add to the public knowledge base, or how any such additions are material to his FCA claims. With the key facts to Dr. Paulos’s FCA claims—i.e., the lack of safety testing and causal connection between device and disease—already thoroughly revealed and without any clear sense about what new information Dr. Paulos brings to the table, we cannot say his knowledge (even if gained early and independently) materially contributes anything of import to the public knowledge about the alleged fraud.”
The court also examined Dr. Paulos’s assertion that he had independent knowledge relating to Stryker’s “scienter” in that he warned Stryker executives of a connection between the pain pumps and chondrolysis. Dr. Paulos sent a fax and e-mail in 2005 in which he claimed to know of several cases in which patients unexpectedly developed chondrolysis and explained “[t]he only common link [wa]s the pain-dripping devices [pain pumps] with Marcaine or Lidocaine and Epinephrine.”
This also didn’t hold much sway with the Eighth Circuit: “Although scienter in presenting false or fraudulent claims is certainly a necessary and important element in any FCA claim,” the court stated, “[we] determine Dr. Paulos’s warnings on the use of certain anesthetics in pain pumps was unhelpful and largely irrelevant in assessing whether Stryker knew the dangers of using pain pumps in joint spaces. (emphasis added)
“To the extent Dr. Paulos’s independent warning can be said to have put Stryker on notice of the chondrolysis issue generally, the public reports discussed above indicate Stryker already had reason to know of the pain pumps’ connection to chondrolysis after orthopedic uses,” the court stated.
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For an interesting history on the public disclosure bar, access R. Scott Oswald’s article, which notes that “[i]n the over 25 years since the 1986 amendments, Congress has continued to narrow the public disclosure bar and broaden incentives for true whistleblowers, while federal courts continue to struggle with interpreting the language of the FCA.” Indeed the Stryker whistleblower case shows that courts will thoroughly examine the public information before rewarding the relator with a share of the recovery.
View the Stryker lawsuit here.
Sunshine Act application
We previously discussed the public disclosure bar and its application to the Sunshine Act here. In April, we commented: “[L]awyers still need to find clients who have insider knowledge of alleged fraud. The False Claim Act contains a ‘public disclosure bar,’ which is triggered when the fraud allegations were in the public domain before a qui tam relator filed suit. Since Medicare data is now in the public domain, whistleblowers still need some firsthand information.”
“However, no company will want to be an outlier when it comes to Medicare billing. Once the Sunshine Act payment data is public, we suspect that attorneys will be able to correlate (and perhaps manipulate) the Medicare and Sunshine information to make an allegation of fraud. For example, the Medicare database could show that a doctor prescribed Drug X a hundred times in 2013. The Sunshine database would reveal that the company who manufactured Drug X also paid the prescribing doctor $1,000 in meals or other transfers of value during the same year.”