Last week, Gainesville, Florida-based medical device company Exactech Inc. agreed to pay $8 million to resolve allegations that it violated the False Claims Act (FCA) by knowingly selling defective total knee-replacement systems used in knee-replacement surgeries performed on Medicare, Medicaid and Veterans Affairs (VA) beneficiaries.
Because Exactech has filed for bankruptcy under Chapter 11, the $8 million settlement amount is based on Exactech’s compromised financial condition, and does not represent the Government’s typical damages calculus in a False Claims Act settlement, which is a multiplier of the actual damages the Government sustained by not receiving the benefit of the fully functional knee replacements it had contracted for and paid to receive.
This case is unusual in that the whistle sounded not once, as is the typical situation in a qui tam case, but twice. The $8 million settlement resolves two separate FCA lawsuits brought by two sets of whistleblowers – a case filed in the Northern District of Alabama by three whistleblowers (Brooks Wallace, Robert Farley, and Dr. Manuel Fuentes) and a case filed in the District of Maryland by Dr. Pasquale Petrera.
In the Alabama case, whistleblowers Wallace and Farley were sales representatives at Exactech, and Dr. Fuentes was a senior member of Exactech’s marketing team. In the Maryland case, whistleblower Dr. Pasquale Petrera is a Maryland orthopedic surgeon who performed knee replacement surgeries using the Exactech devices.
The Alabama whistleblowers will receive a whistleblower award of $1.3 million, and Dr. Petrera will receive a reward of $565,000.
The whistleblowers alleged that during the 10-year period between 2008 and 2018, there were two separate components of Exactech’s total-knee replacement systems that were defective. The finned tibial tray – a metal component of Exactech’s knee replacement system that fits into a patient’s tibia – as well as polyethylene components were both alleged to have failed prematurely at a higher-than-acceptable rate.
Products must be both medically reasonable and necessary for the Centers for Medicare & Medicaid Services (CMS) to reimburse medical device companies. According to the Government, the two Exactech components were not reasonable and necessary for use during total-knee replacement surgeries on Medicare, Medicaid, and VA beneficiaries because of the high premature failure rates.
In the U.S. Department of Justice’s (DOJ’s) press release, U.S. Attorney for the District of Maryland Kelly Hayes articulated this standard, noting that “when a manufacturer learns that its device is defective, it must promptly and transparently address the problem.”
In a 1920 U.S. Supreme Court case, Justice Oliver Wendell Holmes Jr. famously said, “men must turn square corners when they deal with the Government,” a phrase that has become known as the “square corners” doctrine. It means that when a person or entity deals with the government, they must adhere to all rules precisely and without shortcuts.
Judging by the allegations levelled in the two qui tam complaints and the subsequent settlement, Exactech appears to have been less than exact in how it turned its corners with the Government in this case.
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