Turnabout is fair play for Boston Scientific in Guidant lawsuit

Boston Scientific's Guidant subsidiary

For Boston Scientific (NYSE:BSX) and its ongoing legal woes over the blockbuster acquisition of Guidant Corp. , you win some and you lose some.

The Natick, Mass.-based medical device company won a bid in December to compel the release of Medicare documents in a whistleblower lawsuit accusing Guidant and its corporate parent of concealing problems with Guidant’s implantable cardiac defibrillators.

But last week a judge in Minnesota ruled that Boston Scientific must allow its employees to be deposed for the lawsuit, for testimony on the design and testing of the allegedly faulty implants, according to court documents.

James Allen sued Guidant and Boston Scientific in July 2008 under the False Claims Act, alleging that they knew of problems with the Ventak Prizm and Renewal implantable cardiac defibrillators but failed to disclose them.

After initially declining to join Allen’s qui tam suit, the federal government signed on in December 2010. Boston Scientific asked Chief Magistrate Judge Arthur Boylan of the U.S. District Court for Minnesota to force the government’s lawyers to release documents covering Centers for Medicare & Medicaid Services rules. Boylan granted the motion to compel production of CMS’s reimbursement criteria for ICDs.

Boylan ruled Feb. 12 that Boston Scientific must make its employees available for deposition on a specific design change made in 2004, according to the documents.

It’s the latest development in the lawsuit, after Boston Scientific lost a bid to quash the case in March. The case dates back to 2002, when Guidant discovered a design flaw in the Ventak Prizm after receiving reports of device failures in February of that year. By April 2002, according to court records, it had fixed the flaws and begun producing a corrected version of the device – but didn’t recall the defective products. Boston Scientific spent $26 billion acquiring Guidant Corp. in 2006.

Allen’s lawsuit accuses Guidant of making false claims about the defibrillators. Allen was implanted in August 2002 with a Ventak Prizm model 1861, which allegedly failed twice, first in December 2002, delivering 7 unnecessary, 750-volt shocks that knocked Allen unconscious. The second alleged failure, resulting in a "storm-shocking," allegedly caused Allen to fall down a flight of stairs.

Seeking to have the device replaced, Allen scheduled an implantation with a competing device made by St. Jude Medical (NYSE:STJ), according to the documents. But a Guidant salesman allegedly persuaded the surgeon to cancel the procedure, saying Allen’s Ventak Prizm was not defective and that his insurance would not cover the operation (the salesman also allegedly contacted the insurance company, seeking to convince it not to cover explantations of the devices).

Allen allegedly found another surgeon to perform the explantation of the Guidant device and implant the St. Jude defibrillator, which was covered by his insurance policy, according to court documents.

The Guidant acquisition has led to a raft of legal problems for its corporate parent. Boston Scientific settled a DoJ lawsuit in November 2009, agreeing to pay penalties of $296 million and pleading guilty to 2 misdemeanor counts of failing to supply certain information to U.S. regulators.

The DoJ settlement followed a federal appeals court upholding the dismissal of a shareholders lawsuit against Guidant, accusing it and former management of malfeasance in failing to disclose the problems with the defibrillators. In 2010, Guidant pleaded guilty to criminal charges in April 2010 related to its ICDs.

Like the gift that keeps on giving, the Guidant deal delivered another legal blow in September 2011, when Boston Scientific agreed to cough up more than $9 million to settle a DoJ case accusing it of overcharging federal health programs.

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