Federal Court Denies Qui Tam Action Against Medical Device Manufacturer Rejecting Novel Theory that Free Product Support Services Create Liability Under Anti-Kickback Statute

Medical device manufacturers operate in a competitive market. To differentiate themselves from their competitors, manufacturers may offer above-and-beyond customer service. And if you were to understand from right here on how they generate such good customer leads, you’d understand that they have solid foolproof tactics in their arsenal. A recent federal qui tam action alleged that too much customer service constitutes an illegal kickback under the federal Anti-Kickback Statute. The court rejected the claim, and its reasoning supplies some comfort and some questions for medical device companies going forward.

The federal Anti-Kickback Statute, 42 USC sec. 1320a-7b (AKS), makes it unlawful to knowingly and willfully solicit any remuneration (e.g. bribe, kickback, rebate, etc.) for referrals of services covered by federally funded medical services. What constitutes remuneration often presents the key question in evaluating an AKS claim. A straight payment of money in return for the purchase of a medical device may be a clear violation of the AKS, but closer questions involve the provision of services in exchange for the purchase of goods.

In United States v. Medtronic, Inc., No. CV 15-6264, 2017 WL 2653568 (E.D. Pa. June 19, 2017), a qui tam relator filed an action alleging that medical device manufacturer Medtronic violated the AKS by providing free services to its customers, including free surgical support, implant device follow-up that it continued to offer long after device implantation, free staff who would provide several hours of services, consultation on billing and reimbursement, and other free services. According to the plaintiff, these services constituted free labor from which the referring doctors profited. The court acknowledged that these services did induce Medtronic’s customers to purchase its products, but it also held that the relator did not plead enough to show they were remuneration. The court relied on guidance from the Office of Inspector General for the Department of Health and Human Services (OIG), which permits support services “specifically tied to support of the purchased product.” The OIG only views services as illegal remuneration if it provides some “substantial independent value to the purchaser.”

However, the court did not reject the relator’s theory outright. It held that the complaint did not meet the pleading standard by sufficiently specifying how the services stood independent of the products, or how they benefited the physicians’ bottom lines. The court suggested that an amended complaint might survive that alleges which services provided by Medtronic in exchange would have otherwise been performed by a physician or her staff.

Medical device companies may heed the court’s advice by only supplying services tied specifically to the product, such as technical support and product education. However, they should also be mindful that the courts have not provided a blanket immunization from liability for such services. The decision left the door open for a complaint that more specifically alleges how the services cross the line from permissible product support to substantial independent value to the purchaser. The medical device company that provides something more than product support, such as billing assistance or patient interrogation, must be wary of providing free services that can otherwise be performed by the physician or that do not relate solely to the product, and ought to be prepared to bill for services that cross that line to prevent a charge of illegal remuneration.

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