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From Health Law Daily, November 6, 2014

Spinal implant company can’t argue its way out of FCA claims

By Sarah E. Baumann, JD

A medical device company, its distributors, and its investors will have to defend themselves against allegations that they engaged in an investment scheme that violated the federal anti-kickback statute (AKS) (42 U.S.C. sec. 1320a-7b) and the False Claims Act (FCA) (31 U.S.C. secs. 3729et seq.) The United States alleged that Reliance Medical Systems, LLC, its distributors, founders, owners, and some investors (collectively Reliance) paid illegal kickbacks to investors who used a high volume of Reliance spinal implants; it further alleged Reliance caused claims to be submitted for procedures that were medically unnecessary or were more extensive than necessary. The United States District Court for the Central District of California determined that the government’s claims were plausible and denied Reliance’s motion to dismiss (United States v Reliance Medical Systems, LLC, November 5, 2014, Pregerson, D).

Allegations. The United States alleged that Reliance offered investment opportunities in two specific distributing companies to physicians who agreed to use Reliance implants in spinal surgeries. Some physicians invested little or no capital; however, if they used a high volume of Reliance implants, they were asked to become investors and were paid a significant amount of money, despite their small investments. Physician investors who did not use a high volume of Reliance implants were pushed or bought out. The government alleged that this violated the AKS, and, in turn, the FCA through an implied false certification theory, in which a provider submitting a claim impliedly certifies that it complied with all applicable federal laws. In addition, the United States alleged that Reliance violated the FCA because it knew that some physicians would perform medically unnecessary or more extensive than necessary services in order to increase their use of Reliance implants and that those claims would be submitted to Medicare. Reliance, with the exception of a single investor, filed a motion to dismiss, alleging that the claims were implausible.

Analysis. The AKS prohibits the knowing and willful solicitation or receipt of remuneration in exchange for the referral, or the inducement to referral, of an individual to goods or services that may be reimbursed under a federal health care program. The court determined that the allegations submitted, if true, were sufficient to demonstrate that Reliance caused providers to submit claims for reimbursement, knowing that they violated the AKS, thereby violating the FCA. The court determined that the claims rose above mere allegations of referrals, and emphasized that distributors would only consider investors who used a high volume of Reliance products, regardless of the size of their investment, while refusing to deal with physicians who did not use a high volume of products. Furthermore, facts suggested that Reliance ignored legal advice advising it that its actions might violate the law.

False Claims Act tie in. Although a 2010 amendment to the AKS specifically stated that a violation of the AKS violated the FCA, the court determined that the U.S. Court of Appeals for the Ninth Circuit, along with other circuits, recognized an implied false certification theory prior to that date and that the amendment merely clarified existing policy. The court also rejected Reliance’s argument that it could only be liable for device bills, but not physicians’ bills, noting that the devices could not have been used at all had physicians not implanted them. Finally, the court found that the United States provided specific details as to procedures that may have been medically unnecessary or more extensive than necessary and demonstrated that Reliance may have known that its actions would induce physicians to perform such surgeries in order to utilize a high volume of Reliance products. As a result, the court denied Reliance’s motion to dismiss.

The case number is CV 14-06979 DDP (PJWx).

Attorneys: David M. Finkelstein, U.S. Department of Justice, for United States of America. Patric Hooper (Hooper Lundy and Bookman PC) for Reliance Medical Systems, LLC, Apex Medical Technologies, LLC, and Kronos Spinal Technologies, LLC.

Companies: United States of America; Reliance Medical Systems, LLC; Apex Medical Technologies, LLC; Kronos Spinal Technologies, LLC           

MainStory: TopStory AntikickbackNews FCANews FraudNews BillingNews MDeviceNews CaliforniaNews

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