Page 1
Ninth Circuit Revives Kickback Claims Against Cedars-Sinai
Opinion Says Allegations in Whistleblower Complaint That Manufacturer Paid Agent $1 Million in Commissions for Heart Devices Implanted by His Brother-Physician Were Not Barred as Duplicative of Public Data
By Kimber Cooley, associate editor
|
|
|
JEFFREY GOODMAN cardiologist |
The Ninth U.S. Circuit Court of Appeals yesterday resurrected a lawsuit asserting violations of the False Claims Act by Cedars-Sinai Medical Center, one of the hospital’s cardiologists, and a medical device company over an alleged kickback scheme under which the manufacturer purportedly paid the treating doctor’s brother more than $1 million in commissions on heart devices that the physician selected for surgical implantation.
Saying that the trial judge erred in finding that the action is barred by a so-called “public disclosure” rule, the court found that the whistleblower complaint raises genuinely new allegations of fraud against Biotronik Inc. and are not duplicative of information found in a 2011 New York Times story raising concerns over the company’s sales tactics or to earlier litigation challenging a purported practice of rewarding doctors with lavish gifts and parties.
At issue is a provision of the False Claims Act (“FCA”), codified at 31 U.S.C. §3729 et seq., which allows private citizens, as “relators,” to bring qui tam actions on behalf of the government for “knowingly present[ing]…a false of fraudulent claim for payment or approval” to the U.S. government, such as by submitting a request for reimbursement to Medicare or other federal public insurance programs.
In the operative complaint, filed in March 2022, Sam Jones Company LLC—founded by Leo Williams and Mark O’Connor, two former Biotronik sales agents—alleges that the defendants violated the statute by a “three-way compensation arrangement” whereby a salesman, Brian Goodman, would recommend the company’s cardiac rhythm management devices to his brother, Cedars’ employee Dr. Jeffrey Goodman, in exchange for commission payments.
Sales Agent Relationship
According to the pleading, cardioloigist Jeffrey Goodman had never utilized Biotronik implants before his brother’s appointment as a sales agent for the company in 2008. Sam Jones claims that between 2013 and 2018, Medicare paid for at least 692 of the manufacturer’s devices implanted or replaced by Jeffrey Goodman at Cedars.
The operative complaint alleges:
“E]ach Defendant entered into…agreements involving the selection of Biotronik’s…devices by Dr. Goodman for the…surgeries he performed at Cedars-Sinai, the purchase of Biotronik’s…devices for Dr. Goodman’s surgeries by Cedars-Sinai, the submission of a claim for coverage to Medicare, Medicaid, other federal health insurance programs…, and the payment of commissions to Biotronik employee Brian Goodman in amounts that varied with the number of devices his brother Dr. Goodman implanted.”
Sam Jones asserts that the defendants’ arrangement was fraudulent within the meaning of the FCA because Brian Goodman’s compensation varied with the number of devices his brother prescribed, making it an unlawful inducement scheme that generated Medicare claims in violation of the Anti-Kickback Statute, found at 42 U.S.C. §1320 et seq., and amounted to an improper financial medical relationship under the Stark Law, codified at §1395nn.
In 2011, Biotronik was featured in multiple New York Times stories raising concerns about the company’s tactics, including an article by Barry Meier detailing allegations that doctors were being paid to recommend the company’s products over those offered by competitors. Meier also pointed to a “widely used industry practice” of “hiring…a doctor’s spouse or other relative” but did not make any specific accusations that Biotronik used such tactics.
In July 2022, the company agreed to pay $12.95 million to settle allegations raised in a separate qui tam lawsuit relating to incentive payments and “lavish” gifts heaped on prescribing doctors.
Motion to Dismiss
On Jan. 4, 2023, then-District Court Judge Philip S. Gutierrez of the Central District of California (now in private mediation) granted the defendants’ motion to dismiss Sam Jones’ complaint, without leave to amend, under Federal Rule of Civil Procedure 12(b)(6), finding that the complaint was barred by the “public disclosure” rule based on the Times stories.
That rule, found at §3730(e)(4)(A), requires a court to dismiss, subject to certain exceptions, an action filed under the FCA “if substantially the same allegations” were publicly disclosed in “the news media” or in previous judicial proceedings “in which the Government or its agent is a party. Gutierrez opined:
“[W]hile the SAC does provide additional details about the arrangement, such as how many devices were implanted by Dr. Goodman and the specific names of other physicians involved in the alleged fraud, the prior disclosure and complaint need not be identical….It is enough that ‘[t]hey are close enough in kind and degree to have put the government on notice to investigate the alleged fraud before [relator] filed his complaint.’ ” Yesterday’s opinion, authored by Circuit Judge Morgan B. Christen and joined in by Circuit Judges Johnnie B. Rawlinson and Anthony D. Johnstone, reverses the dismissal.
Public Disclosure Bar
Christen opined that “[t]he parties’ dispute boils down to whether the June 1, 2011 New York Times article triggered the public disclosure bar” and pointed out that the rule was meant to strike a balance between the desire to encourage whistleblowers to come forward and the need to disincentivize the filing of lawsuits that do little more than repackage previously disclosed frauds.
Saying that certain amendments to the section, adopted in 2010, did not materially alter the elements of the rule, she remarked that the bar applies “[w]hen the ‘critical mass of the underlying facts…in the qui tam complaint have been disclosed.’ ”
Applying that standard, she wrote:
“The New York Times article reported that Biotronik aggressively sought to sell more of its CRM devices by providing significant financial incentives to doctors who prescribe them,…but the specific strategies the article described differ markedly from those alleged in the operative complaint….It also mentioned hiring ‘a doctor’s spouse or other relative’ without indicating the position for which they might be hired and without any suggestion of employing family members as sales representatives who would be compensated on a commission basis according to the number of Biotronik devices implanted by their family member doctor.”
She continued: “The article said nothing about the Stark Law or the Anti-Kickback Statute; it did not explicitly state or even imply that Biotronik’s alleged practice of hiring doctors’ relatives violates federal law or constitutes an improper billing practice….The article refers to hospitals and doctors in Tucson, Arizona, Sacramento, California, and Las Vegas, Nevada, but nowhere does it refer to any hospital or doctor in Southern California.”
Under those circumstances, she said:
“Fairly characterized, the transactions described in Sam Jones’s complaint do not merely repeat what the public already knew about Biotronik’s tactics to increase its sales. When viewed with the appropriate level of generality… Sam Jones’s complaint provided genuinely new and material information.”
Rejecting the defendants’ assertion that the earlier litigation against the company also triggered the public disclosure bar, she said:
“[Those] complaints…alleged that Biotronik paid consulting fees to physicians for referring patients, paid fees to physicians for referring patients to participate in sham studies, and incentivized physicians with sports tickets, travel, and expensive dinners. Sam Jones’s original complaint included these allegations, but it voluntarily dismissed those allegations from its operative complaint.”
The case is Sam Jones Company LLC v. Biotronik Inc., 23-55361.
Biotronik Inc. was sold to another medical technology company, Teleflex Incorporated, in July.
Copyright 2025, Metropolitan News Company