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United States v. Medtronic, Inc.

United States District Court, E.D. Pennsylvania

June 4, 2018

UNITED STATES OF AMERICA, CALIFORNIA, COLORADO, CONNECTICUT, DELAWARE, DISTRICT OF COLUMBIA, FLORIDA, GEORGIA, HAWAII, ILLINOIS, INDIANA, IOWA, LOUISIANA, MARYLAND, MASSACHUSETTS, MICHIGAN, MINNESOTA, MONTANA, NEVADA, NEW JERSEY, NEW MEXICO, NEW YORK, NORTH CAROLINA, OKLAHOMA, NORTH CAROLINA, RHODE ISLAND, TENNESSEE, TEXAS, VIRGINIA, and WISCONSIN, ex rel. CATHLEEN FORNEY, Plaintiffs/Relator,
v.
MEDTRONIC, INC., Defendant.

          MEMORANDUM OPINION

          EDWARD G. SMITH, J.

         In this case, the relator contends that the defendant, a medical device company, paid kickbacks to health care providers in violation of the False Claims Act. The False Claims Act, however, includes a public disclosure bar that prohibits lawsuits brought by relators where the relator's allegations of fraud have already been disclosed to the government. The company contends that the claims of fraud raised in the relator's complaint were publicly disclosed prior to the time the relator filed the complaint. Consequently, the company asks the court to enter summary judgment in its favor and dismiss the action under the public disclosure bar.

         The company's motion, however, presents numerous technical legal issues, several of which have yet to be resolved in this circuit. A number of these issues arise from the fact that in 2010, as part of the Patient Protection and Affordable Care Act, Congress amended the public disclosure bar to restrict the material that counts as a public disclosure and broadened the exception to the public disclosure bar. The exception now provides, in broad terms, that a relator may avoid dismissal under the bar if she is an original source. While the Third Circuit has had occasion to address the post amendment disclosure bar, the parties, through the outstanding work of counsel, have raised a number of creative arguments that the Third Circuit has yet to address.

         In addition to those unresolved legal questions, the motion also presents difficult factual issues. The public disclosure bar analysis involves an intricate comparison of the fraud allegations in this case to the fraud allegations in the prior public disclosures. After performing this comparison, the court must also address the original source exception. In an effort to solidify her status as an original source, the relator has submitted over two thousand pages of documents to the court.

         After reviewing the amended public disclosure bar and the applicable case law, the court concludes that the vast majority of the relator's allegations of fraud were contained in valid prior public disclosures. The court also finds, however-after a rigorous examination of the documents the relator provided to the government-that under the Third Circuit's interpretation of the original source exception, the relator qualifies as an original source. Thus, despite the presence of prior public disclosures that advanced substantially the same allegations of fraud as the relator does here, the court denies the motion for summary judgment.

         I. PROCEDURAL HISTORY

         On November 20, 2015, the relator, Cathleen Forney (“Relator Forney”), filed a sealed complaint alleging that the defendant, Medtronic, Inc. (“Medtronic”), violated the federal False Claims Act (“FCA”). Doc. No. 1. Relator Forney named the United States and 29 state governments as plaintiffs in the action. See Compl. at 1, Doc. No. 1. The United States then filed two motions seeking to extend the seal while it determined whether to intervene in the case. Doc. Nos. 2, 6. The court granted both motions and extended the seal. Doc. Nos. 3, 7. Then, on December 12, 2016, the United States and the 29 plaintiff states filed notices that they declined intervene. Doc. Nos. 8, 9. Accordingly, on December 14, 2016, the court lifted the seal and ordered Relator Forney to serve the complaint on Medtronic. See Dec. 14, 2016 Order, Doc. No. 11.

         Four months later, Relator Forney filed an amended complaint. Doc. No. 17. The court ordered Medtronic to respond to the amended complaint by April 24, 2017. See April 13, 2017 Order, Doc. No. 29. On April 24, 2017, Medtronic filed a motion to dismiss the amended complaint in which it asserted, inter alia, that Relator Forney had failed to plead fraud with sufficient particularity. See Def. Medtronic, Inc.'s Mem. of Law in Supp. of Its Mot. to Dismiss, Doc. No. 30-1; see Fed. R. Civ. P. Rule 9(b) (requiring fraud to be pled with particularity). The court found serious problems with the allegations in the amended complaint and, accordingly, granted the motion and dismissed the amended complaint without prejudice. See June 19, 2017 Mem. Op., Doc. No. 37; June 19, 2017 Order, Doc. No. 38.

         Relator Forney then filed a second amended complaint on July 6, 2017. Doc. No. 42. On July 27, 2017, Medtronic moved to dismiss the second amended complaint. Doc. No. 48. On August 14, 2017, notwithstanding the court's lingering concern that the “relator's theory of support services amounting to illegal remuneration will not ultimately prove to be viable, ” the court denied the second motion to dismiss “without prejudice to the defendant raising its arguments in a motion for summary judgment.” Aug. 14, 2017 Order, Doc. No. 52. Accordingly, the court set scheduling deadlines and ordered the parties to complete fact discovery by December 22, 2017. Aug. 14, 2017 Scheduling Order, Doc. No. 51.

         Prior to the conclusion of fact discovery, Medtronic filed an early motion for summary judgment. See Def. Medtronic Inc.'s Mot. for Summ. J. Due to Public Disclosure Bar (“Def.'s Mot.”), Doc. No. 64. In the motion, Medtronic contends that it is entitled to summary judgment in its favor because of the FCA's public disclosure bar. See Id. Accordingly, the court placed all scheduling deadlines in suspense pending resolution of the motion for summary judgment. See Nov. 29, 2017 Order, Doc. No. 67. Relator Forney filed a response to the motion on December 8, 2017, and Medtronic filed a reply in further support of the motion on December 20, 2017. Doc. Nos. 69, 70. On December 20, 2017, the court heard oral argument on the motion for summary judgment.

         The court ordered supplemental briefing on April 3, 2018. See Apr. 3, 2018 Order, Doc. No. 74. Relator Forney filed a supplemental memorandum on April 17, 2018. Doc. No. 75. Medtronic filed a response to the supplemental memorandum on May 1, 2018. Doc. No. 76. The motion for summary judgment is now ripe for adjudication.

         II. FACTUAL BACKGROUND

         The second amended complaint sets forth the following allegations: Medtronic is a massive international medical device manufacturer that, in the United States alone, “generate[s] between 8.8 and 9.2 billion dollars per year.” Second Am. Compl. at 4, Doc. No. 42. Relator Forney worked at Medtronic for 16 years-from 1996 until 2012 when Medtronic terminated her employment. See Id. at 2. At the time of her termination, Relator Forney was working as a District Service Manager for the Cardio and Vascular Group, where she reported to the District Manager for the Eastern Pennsylvania District. See Id. at 2, 4.

         Relator Forney contends that during her time at Medtronic she observed Medtronic engage in an extensive illegal fraud scheme. See Id. at 1-2, 4. In broad terms, she contends that Medtronic provided free services to people “who made purchasing decisions about Medtronic devices” and that these free services were “intended to persuade health care providers to purchase Medtronic devices.” Id. at 4. Relator Forney contends that these services constitute illegal remuneration under the FCA. See Id. at 15.

         Relator Forney references a number of instances where Medtronic allegedly provided services as an incentive to convince health care providers to purchase devices from it. These instances can be grouped into three categories: (1) device checks and device interrogations; (2) implant services; and (3) practice management consulting. See Second Am. Compl. at 4-19; see also Relator Forney's Opp. to Medtronic's Mot. for Summ. J. Based on Public Disclosure Bar at 19 (“Forney's Br.”) (characterizing the second amended complaint as alleging these three theories of fraud), Doc. No. 69-1. Relator Forney is apparently no longer pursuing her implant services theory. See Forney's Br. at 19 n.3 (“Relator intends to seek only damages for kickbacks paid in the form of device checks and consulting services. Relator has conferred with the United States, which does not object to Relator ceasing to prosecute the free labor at implant surgeries.”). Accordingly, the court will address the remaining two theories in turn.

         Beginning with Relator Forney's device check theory, she contends that after a physician implanted a Medtronic medical device, Medtronic provided “checks” or “interrogations” of the device. See Second Am. Compl. at 9-10. Relator Forney offers her own experience and training as an example of these device checks:

Ms. Forney was credentialed to perform the following services at one hospital: (1) performing system assessments on Pacemakers through the use of packing system analyzers and programmers, (2) evaluation and reprogramming of Pacemaker devices at bedside, evaluation and reprogramming of devices at bedside, (3) performing system assessments on ICD Systems through the use of system analyzers and programmers, (4) evaluation and reprogramming of ICD devices at bedsides, and (5) evaluation and reprogramming of IC [sic] devices at procedural and surgical suites off-site from hospitals.

Id. at 10. Relator Forney also contends that, in order to facilitate these free device checks, Medtronic paid “the necessary costs involved in credentialing” its Clinical Specialists. Id. at 11. These costs included background checks. See Id. Costs of the background checks range from $60 to $250 each. See Id. Relator Forney contends that this is a cost that the health care provider would have had to bear if Medtronic had not covered it. See Id. Moreover, the Clinical Specialists themselves obviate the need for health care providers to require one additional staff member. See Id. As stated by Relator Forney: “This free staff person eliminated the need of the hospital to pay to credential a staff member, as well as eliminating the need to hire the necessary staff.” Id.

         Turning to Relator Forney's practice management theory, Relator Forney alleges that

Medtronic created an entire structure of ‘lean sigma' training that taught Ms. Forney and others how to provide free consulting services as a means to integrate their services into the health care provider's practice management tasks. Medtronic offered free assistance on reimbursement, and free consulting on all sorts of practice management topics.

Id. at 13; see also Relator Forney's Opp. to Medtronic's Mot. for Summ. J. Based on Public Disclosure Bar, Ex. 1 at ECF pp. 23-29 (describing the lean sigma training / approach), Doc. No. 69-3. Under the umbrella of the practice management theory, Relator Forney raised two distinct allegations of fraud.[1] First, Medtronic trained Clinical Specialists to handle administrative tasks that the health care provider would normally handle. See Second Am. Compl. at 11-12. For example, Relator Forney drafted a worksheet to track remote monitoring. See Id. She also alleges she assisted health care providers with data entry: “Medtronic Clinical Specialists [entered] data [] into [] hospital databases maintained by St. Luke's Hospital and Lehigh Valley Hospital Muhlenberg.” Id. (alterations to original). Relator Forney contends that “Medtronic [] directed its employees to engage in these clerical data-entry tasks as a means of providing value to the hospitals.” Id. at 12 (alteration to original).

         Second, Relator Forney contends that Medtronic provided free reimbursement guidance to health care providers. See Id. at 12. Specifically, she alleges that “Medtronic taught health care providers how to increase profits by maximizing their revenue from government-funded health care programs.” Id. In other words, Medtronic taught health care providers how to accurately code their reimbursement requests so that the health care providers were able to recover maximum reimbursement from government-sponsored health care programs. See id.

         In sum, Relator Forney has alleged that Medtronic engaged in a nationwide scheme to provide free services to health care providers. Relator Forney contends that these free services are illegal kickbacks under the FCA. These free services included device checks and device interrogations provided by Medtronic Representatives. To facilitate these free checks, Medtronic paid to have its representatives credentialed-a cost that the health care provider would typically have paid. And finally, Medtronic also provided free administrative assistance and reimbursement guidance to health care providers.

         III. DISCUSSION

         A. Standard of Review - Motions for Summary Judgment

         A district court “shall grant summary judgment if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Additionally, “[s]ummary judgment is appropriate when ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'” Wright v. Corning, 679 F.3d 101, 103 (3d Cir. 2012) (quoting Orsatti v. New Jersey State Police, 71 F.3d 480, 482 (3d Cir. 1995)). An issue of fact is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 248 (1986). A fact is “material” if it “might affect the outcome of the suit under the governing law.” Id.

         The party moving for summary judgment has the initial burden “of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted). Once the moving party has met this burden, the non-moving party must counter with “‘specific facts showing that there is a genuine issue for trial.'” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted); see Fed. R. Civ. P. 56(c) (stating that “[a] party asserting that a fact . . . is genuinely disputed must support the assertion by . . . citing to particular parts of materials in the record . . .; or . . . [by] showing that the materials cited do not establish the absence . . . of a genuine dispute” (alterations to original)). The non-movant must show more than the “mere existence of a scintilla of evidence” for elements on which the non-movant bears the burden of production. Anderson, 477 U.S. at 252 (1986). Bare assertions, conclusory allegations, or suspicions are insufficient to defeat summary judgment. See Fireman's Ins. Co. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982) (indicating that a party opposing a motion for summary judgment may not “rely merely upon bare assertions, conclusory allegations or suspicions”); Ridgewood Bd. of Educ. v. N.E. for M.E., 172 F.3d 238, 252 (3d Cir. 1999) (explaining that “speculation and conclusory allegations” do not satisfy non-moving party's duty to “set forth specific facts showing that a genuine issue of material fact exists and that a reasonable factfinder could rule in its favor”). Additionally, the non-moving party “cannot rely on unsupported allegations, but must go beyond pleadings and provide some evidence that would show that there exists a genuine issue for trial.” Jones v. United Parcel Serv., 214 F.3d 402, 407 (3d Cir. 2000). Moreover, arguments made in briefs “are not evidence and cannot by themselves create a factual dispute sufficient to defeat a summary judgment motion.” Jersey Cent. Power & Light Co. v. Township of Lacey, 772 F.2d 1103, 1109-10 (3d Cir. 1985).

         The court “may not weigh the evidence or make credibility determinations.” Boyle v. County of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998) (citing Petruzzi's IGA Supermarkets., Inc. v. Darling-Del. Co. Inc., 998 F.2d 1224, 1230 (3d Cir. 1993)). Instead, “[w]hen considering whether there exist genuine issues of material fact, the court is required to examine the evidence of record in the light most favorable to the party opposing summary judgment, and resolve all reasonable inferences in that party's favor.” Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007). The court must decide “not whether . . . the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.” Anderson, 477 U.S. at 252. “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial'” and the court should grant summary judgment in favor of the moving party. Matsushita Elec. Indus. Co., 475 U.S. at 587 (citation omitted).

         B. Analysis

         In its motion for summary judgment, Medtronic generally contends that the court should grant summary judgment under the FCA's public disclosure bar. The relevant portion of the FCA states:

(4)(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed--
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or
(iii) from the news media,
unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, “original source” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.

31 U.S.C. § 3730(e)(4)(A), (B) (footnote removed).[2] Per this portion of the FCA, a defendant seeking to have the court dismiss an action under the public disclosure bar must prove three elements: (1) a valid public disclosure exists; (2) the prior public disclosure revealed “substantially the same allegations or transactions” of fraud alleged in the present action; and (3) the relator is not an original source. See ...


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