Boston Scientific Corp. (NYSE:BSX) asked a federal court to dismiss a false claims lawsuit against its Guidant Corp. subsidiary over an allegedly defective defibrillator, arguing that the case is founded on “parasitic claims” based on media reports.
In February 2002, Guidant discovered a design flaw in one of its implantable cardiac defibrillators, the Ventak Prizm, after receiving reports of device failures. By April 2002, according to court documents, it fixed the flaws and begun producing a corrected version of the device — but didn’t recall the defective products. Boston Scientific spent $26 billion on Guidant Corp. in 2006.
The lawsuit, filed in the U.S. District Court for Western New York, accuses Guidant of making false claims about the defibrillators. James Allen was implanted with a Ventak Prizm model 1861 in August 2002. The defibrillator allegedly failed twice, first in December 2002, delivering seven unnecessary, 750-volt shocks that knocked Allen unconscious. The second alleged failure, resulting in a “storm-shocking,” caused Allen to fall down a flight of stairs.
Seeking to have the allegedly defective device replaced, Allen scheduled a surgery to be implanted with a competing device made by St. Jude Medical Inc. (NYSE:STJ), according to court 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.
Allen sued Guidant and Boston Scientific in July 2008 under the False Claims Act, alleging that the company knew of problems with the device but failed to disclose them.
“In selling and causing the sale of these devices, Guidant represented to the United States that these units of the Prizm 1861 defibrillator were free of defects, and/or that the safety and efficacy of the devices had been appropriately tested prior to their sale. At the time that Guidant made these representations, Guidant knew these representations were false,” according to court documents. “Guidant’s false, and fraudulent, representations caused hospitals, physicians, and other providers to submit false claims to Medicare and the Veterans Administration for the approximately 19,541 original devices, totaling in excess of $726,436,675.00. These false claims were reimbursed by Medicare and the Veterans Administration from the United States Treasury.”
But Guidant and Boston Scientific argued that Allen’s suit is unfounded because it’s based on public information gleaned from media reports and other sources, according to court documents. Courts do not have jurisdiction over lawsuits brought under the False Claims Act if the suits are “based based upon the public disclosure of allegations or transactions [1] in a criminal, civil, or administrative hearing; [2] in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation; or [3] 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,” according to federal law.
“Guidant moves to dismiss Relator’s ‘parasitic’ FCA claims, since the facts on which they are based — to the extent they are actionable at all — have been publicly available since 2005,” according to court documents. “Read as a whole, it is indisputably clear that the Amended Complaint’s allegations are substantially similar to, or essentially the same as, public information concerning the failure in the Model 1861 that appeared in the media, in the FDA’s report, and in litigation. Thus, the allegations are based upon prior public disclosures. The Relator cannot avail himself of the original source exception because he has no direct and independent information concerning the alleged defect. Accordingly, under the public disclosure bar of the FCA, this Court lacks subject matter jurisdiction over Relator’s FCA claim, which must be dismissed with prejudice.”
If the court agrees it will be a win in Guidant’s star-crossed legal history. Boston Scientific settled a case with the U.S. Justice Dept. in November 2009, agreeing to pay penalties of $296 million and to Guidant pleading guilty to two 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.
