On February 23, 2022, the United States District Court for the Central District of California denied Medtronic’s motion to dismiss a qui tam suit against the company, alleging that Medtronic engaged in alleged Anti-Kickback Statute (AKS) violations, finding that “Even some fair-market-value payments will qualify as illegal kickbacks.”
Medtronic manufactures a medical device called the Pipeline, a flexible cylinder-shaped medical device that is surgically inserted at the site of a brain aneurysm to help treat the aneurysm and associated symptoms. Generally speaking, doctors will prescribe/order the Pipeline device for their patients, Medtronic provides the devices to the hospitals where the doctors work, and the hospitals seek reimbursement of the Pipeline device from Medicare, Medicaid, and other government and private health care payors.
The case was initially brought by Dr. Kuo Chao, who argued that Medtronic violated the False Claims Act by offering kickbacks to physicians for using its devices. Dr. Chao alleges that the Medicare, Medicaid, and other government health care program reimbursements are “tainted with fraud because they are the result of a multifaceted kickback scheme in which Medtronic compensates doctors to induce them to order a greater number of Pipeline devices for their patients.”
One part of the kickback scheme alleged by Dr. Chao involves a proctoring program through which Medtronic hires doctors with experience inserting Pipelines to serve as proctors to teach other doctors how to perform the Pipeline procedure, in part by being present for and supervising the procedure when performed by the trainee. Dr. Chao alleges that Medtronic “systematically and habitually overpays its proctors for their proctoring services,” which serves as a kickback meant to incentivize the proctors to order more Pipelines for their own practices.
Medtronic filed a motion to dismiss, in part by saying the relator failed to allege that certain payments to physicians for proctoring other physicians on how ot use the medical devices exceeded fair market value (FMV), and that the relator did not address the applicability of the AKS’ personal services safe harbor.
In its decision, however, the Court found that the relator only needs to allege facts that “make it plausible that the safe harbor will not defeat his claim,” and that Dr. Chao had done that, therefore the personal services safe harbor could not be used as a basis for dismissal on the pleadings.
The Court went on to note that even if the payments were consistent with FMV, that does not immunize the defendant from any FCA liability, as FMV payments can qualify as illegal kickbacks when “the payor has considered the volume of reimbursable business between the parties in providing compensation and otherwise intends for the compensation to function as an inducement for more business.” It is that consideration and intent that removes the payments from the safe harbor, not whether they were FMV or not.
This decision by the Court aligns with a Department of Justice (DOJ) Statement of Interest that states if payments are made and intended to compensate for referrals, they can be made in violation of the AKS, even if the payments are at FMV. Even offering someone “an opportunity to earn money may well be an inducement to that person to channel potential Medicare payments towards a particular recipient” in violation of the AKS.
For a more in-depth view of this opinion by the Court and the Medtronic case – including the other three parts of the kickback system as alleged by Dr. Chao – visit our sister publication, Policy & Medicine Compliance Update.