Case 2:17-cv-01903-ODW-SS Document 119 Filed 02/23/22 Page 1 of 13 Page ID #:2160
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`United States District Court
`Central District of California
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`
`
`Plaintiffs,
`
`Case № 2:17-cv-01903-ODW (SSx)
`
`ORDER DENYING DEFENDANTS’
`MOTION TO DISMISS [106]
`
`UNITED STATES OF AMERICA, et al.,
`ex rel. DR. KUO CHAO,
`
`
`
`
`
`
`v.
`
`
`MEDTRONIC PLC, et al.,
`
`
`
`
`
`
`
`Defendants.
`
`I.
`INTRODUCTION
`This is a case brought under the federal False Claims Act, 31 U.S.C. §§ 3729–
`3733. Defendants Medtronic PLC; Medtronic Vascular, Inc.; Covidien LP, and
`Covidien Sales LLC (collectively, “Medtronic”) move to dismiss Plaintiff-Relator Dr.
`Kuo Chao’s Third Amended Complaint. (Mot., ECF No. 106; Third Am. Compl.
`(“TAC”), ECF No. 102.) The Motion is fully briefed. (Opp’n, ECF No. 109; Reply,
`ECF No. 111.) After carefully considering the papers filed in connection with the
`Motion, the Court deemed the matter appropriate for decision without oral argument.
`Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. For the following reasons, the Court DENIES
`Medtronic’s Motion.
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`Case 2:17-cv-01903-ODW-SS Document 119 Filed 02/23/22 Page 2 of 13 Page ID #:2161
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`II. FACTUAL BACKGROUND
`For purposes of this Rule 12(b)(6) motion, the Court accepts Dr. Chao’s
`well-pleaded allegations as true. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.
`2001).
`Medtronic is the manufacturer of a medical device called the Pipeline, a flexible
`cylinder-shaped medical device that is surgically inserted at the site of a brain aneurysm
`to help treat the aneurysm and its associated symptoms. (TAC ¶¶ 29–40.) Doctors
`order Pipeline devices for their patients; Medtronic provides the devices to the hospitals
`where the doctors work; and the hospitals seek reimbursement for the Pipeline device
`from Medicare, Medicaid, and other government health care programs. (See TAC
`¶¶ 45–46.) Dr. Chao alleges that these reimbursements are tainted with fraud because
`they are the result of a multifaceted kickback scheme in which Medtronic compensates
`doctors to induce them to order a greater number of Pipeline devices for their patients.
`(See TAC ¶ 9.)
`The kickbacks Dr. Chao alleges take four forms. First, Dr. Chao alleges that
`Medtronic maintains a proctoring program through which it regularly overpays doctors
`for professional services. Through the proctoring program, Medtronic hires doctors
`with experience inserting Pipelines as proctors to teach other doctors how to perform
`the Pipeline procedure, in part by being present for and supervising the procedure when
`performed by the trainee doctor. These proctors are themselves doctors with their own
`practices, and the gravamen of Dr. Chao’s accusation is that Medtronic systematically
`and habitually overpays its proctors for their proctoring services, which functions as a
`disguised kickback meant to incentivize the doctors to order more Pipelines for their
`own practices. (TAC ¶¶ 107–130.) As an example, Dr. Chao sets forth allegations
`regarding one Dr. Woodward, who took excessive payments for both himself and his
`companies in exchange not only for his proctoring and medical data analysis services
`but also as a disguised kickback for continuing to use a high volume of Pipeline devices
`in his own practice. (TAC ¶¶ 248–257.)
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`Case 2:17-cv-01903-ODW-SS Document 119 Filed 02/23/22 Page 3 of 13 Page ID #:2162
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`Second, Dr. Chao alleges that Medtronic acquired, at an inflated rate, companies
`in which doctors with a high volume of Pipeline usage held ownership interests. The
`result of these acquisitions was that the doctors received a substantial windfall which
`significantly exceeded the fair market value of their ownership interests. These
`windfalls, Dr. Chao argues, constitute a kickback that improperly induced these doctors
`to perform more Pipeline procedures. (TAC ¶¶ 204–240.)
`Third, Dr. Chao alleges that Medtronic maintained two data collection registries,
`IntrePED and ASPIRe, that it also used to disguise kickback payments to its Pipeline-
`using doctors. Medtronic asked doctors who performed Pipeline procedures to upload
`a small amount of patient- and procedure-related data to these registries in exchange for
`a substantial payment. This data was very easy for doctors to gather, and Medtronic
`paid the doctors for this data in excess of both the fair market value of the data and the
`value of the doctors’ collection efforts. This excess, Dr. Chao alleges, constitutes a
`kickback. (TAC ¶¶ 170–203.)
`Fourth, Dr. Chao alleges that Medtronic distributed illegal kickbacks to doctors
`and hospitals disguised as fellowships, grants, and research funds. Medtronic
`distributed these funds based in part on the doctors’ or hospitals’ volume of Pipeline
`usage. Thus, Dr. Chao alleges, these fellowships, grants, and research funds functioned
`as improper direct compensation for using more Pipeline devices—the very definition
`of a kickback. (TAC ¶¶ 241–262.)
`III. PROCEDURAL BACKGROUND
`Dr. Chao is a medical doctor with experience in the treatment of aneurysms and
`is currently affiliated with the Kaiser Permanente Los Angeles Medical Center. (TAC
`¶ 17.) He became aware of Medtronic’s business practices through his personal
`experience as a doctor interacting with Medtronic personnel and proctors. (TAC ¶ 18.)
`On March 9, 2017, believing Medtronic’s business activity to constitute a violation of
`the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, and the associated government health
`care program reimbursements to therefore constitute a fraud on the government, Dr.
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`Case 2:17-cv-01903-ODW-SS Document 119 Filed 02/23/22 Page 4 of 13 Page ID #:2163
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`Chao, as Plaintiff-Relator, filed a False Claims Act Complaint against Medtronic.
`(Compl., ECF No. 1.) According to Dr. Chao, Medtronic charges the government
`twelve to fifteen thousand dollars per Pipeline device and, as a result of Medtronic’s
`kickback scheme, millions of dollars in government health care claims have been tainted
`with fraud. (TAC ¶¶ 7–9.) He sets forth a claim under the federal False Claims Act,
`31 U.S.C. § 3729, and twenty-eight analogous state-law claims arising from various
`state versions of the False Claims Act.
`The case remained sealed for some time, and on May 28, 2020, the United States
`provided notice that it and all state plaintiffs declined to intervene.1 (Notice, ECF
`No. 41.) On May 29, 2020, the Court entered an Order unsealing the case. (Order re:
`Election, ECF No. 42.)
`Shortly thereafter, the case was transferred to Judge Scarsi. On December 4,
`2020, Dr. Chao filed a First Amended Complaint. (First Am. Compl. (“FAC”), ECF
`No. 59.) Medtronic moved to dismiss, and on April 12, 2021, Judge Scarsi dismissed
`all Dr. Chao’s claims and provided leave to amend. (Order Mot. Dismiss FAC, ECF
`No. 80.) Dr. Chao proceeded to file his Second Amended Complaint, (ECF No. 81),
`and on May 21, 2021, the case was transferred to this Court, (ECF No. 91). On June 29,
`2021, pursuant to the Court’s order granting leave, Dr. Chao filed the now-operative
`Third Amended Complaint.
`On August 2, 2021, Medtronic moved to dismiss the TAC pursuant to Federal
`Rule of Civil Procedure (“Rule”) 12(b)(6), on the grounds that Dr. Chao failed to correct
`the deficiencies that supported dismissal of the FAC and that he otherwise continues to
`fail to state a claim. (Mot. 1–3.) At the same time Dr. Chao opposed, the United States
`filed a Statement of Interest arguing that Dr. Chao states a claim for False Claims Act
`violations and urging the Court to deny Medtronic’s Motion. (Statement of Interest,
`ECF No. 108.) After Medtronic replied and the Court took the matter under submission,
`
`1 Pursuant to the Maryland False Claims Act, the effect of this Notice was to require dismissal of the
`Maryland False Claims Act claim. Md. Code Ann., Health-Gen. § 2-604(a)(7); (see Order re: Election,
`ECF No. 42 (dismissing Maryland False Claims Act claim without prejudice)).
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`Case 2:17-cv-01903-ODW-SS Document 119 Filed 02/23/22 Page 5 of 13 Page ID #:2164
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`Dr. Chao filed a Notice of Supplemental Authority. (ECF No. 113.) The Court invited
`Medtronic’s response, (Min. Order, ECF No. 115), which Medtronic provided on
`October 27, 2021, (Resp., ECF No. 117).
`IV. LEGAL STANDARD
`A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable
`legal theory or insufficient facts pleaded to support an otherwise cognizable legal
`theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). A
`complaint need only satisfy the minimal notice pleading requirements of Rule 8(a)(2)—
`a short and plain statement of the claim—to survive a dismissal motion. Porter v. Jones,
`319 F.3d 483, 494 (9th Cir. 2003). The factual “allegations must be enough to raise a
`right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
`555 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (holding that a claim must be
`“plausible on its face” to avoid dismissal).
`The determination of whether a complaint satisfies the plausibility standard is a
`“context-specific task that requires the reviewing court to draw on its judicial
`experience and common sense.” Iqbal, 556 U.S. at 679. A court is generally limited to
`the pleadings and must construe all “factual allegations set forth in the complaint . . . as
`true and . . . in the light most favorable” to the plaintiff. Lee, 250 F.3d at 679. However,
`a court need not blindly accept conclusory allegations, unwarranted deductions of fact,
`and unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988
`(9th Cir. 2001). Ultimately, there must be sufficient factual allegations “to give fair
`notice and to enable the opposing party to defend itself effectively,” and the “allegations
`that are taken as true must plausibly suggest an entitlement to relief, such that it is not
`unfair to require the opposing party to be subjected to the expense of discovery and
`continued litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
`V. DISCUSSION
`As a preliminary matter, the government’s decision not to intervene has no
`relevance to the resolution of this Motion. This is because “[i]n any given case, the
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`government may have a host of reasons for not pursuing a claim.” United States ex rel.
`Atkins v. McInteer, 470 F.3d 1350, 1360 n.17 (11th Cir. 2006). While the government
`did not intervene, it also did not seek to have this case dismissed, as it had the right to
`do. See 31 U.S.C. § 3730(c)(2)(A). “[T]he simple fact that the government did not
`intervene has no probative value and is not relevant,” United States ex rel. El-Amin v
`George Washington Univ., 533 F. Supp. 2d 12, 21 (D.D.C. 2008), including at the
`pleading stage, and the Court should not and will not consider the government’s election
`in determining whether Dr. Chao states a claim.
`Substantively, the parties do not dispute the basic legal framework supporting Dr.
`Chao’s claims. As is relevant to this case, the federal Anti-Kickback Statute provides
`civil liability for those who “knowingly and willfully solicit[], receive[], offer[], or pay[]
`any remuneration (including any kickback, bribe, or rebate) . . . in return for
`purchasing . . . or arranging for or recommending purchasing” a medical device subject
`to reimbursement under a federal health care program such as Medicare or Medicaid.
`42 U.S.C. § 1320a-7b(b)(1). A payor violates the Anti-Kickback Statute whenever one
`purpose of the remuneration was to induce future referrals or orders, “even if the
`payments were also intended to compensate for professional services.” United States
`ex rel. Brown v. Celgene Corp., 226 F. Supp. 3d 1032, 1053 (C.D. Cal. 2016) (quoting
`United States v. Kats, 871 F.2d 105, 108 (9th Cir. 1989)). The False Claims Act, in turn
`and in relevant part, makes it unlawful for any person to (1) “knowingly . . . cause[] to
`be presented[] a false or fraudulent claim for payment or approval”; (2) knowingly cause
`a false statement to be made or used in such a claim; or (3) conspire to accomplish (1)
`or (2). 31 U.S.C. § 3729(a)(1)(A)–(C).
`When the procurement of medical supplies is tainted by a knowing violation of
`the Anti-Kickback Statute and the violator knows those supplies are subject to
`reimbursement by a federal health care program, the submission to the government of
`a reimbursement claim for those supplies turns the Anti-Kickback Statute violator into
`a False Claims Act violator as well. 42 U.S.C. § 1320a-7b(g) (“[A] claim that includes
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`items or services resulting from a violation of this section constitutes a false or
`fraudulent claim for the purposes of [the federal False Claims Act].”); United States ex
`rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89, 96 (3d Cir. 2018) (confirming
`that the purpose of this amendment to the False Claims Act is to “strengthen[]
`whistleblower actions based on medical care kickbacks” and “to ensure that all claims
`resulting from illegal kickbacks are considered false claims” (quoting 155 Cong. Rec.
`S10852–54 (daily ed. Oct. 28, 2009) (statement of Rep. Kaufman))). Kickbacks taint
`medical judgment, which is material to the government’s decision to pay a particular
`claim. United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 53, 54
`(D. Mass. 2011) (collecting cases). To submit a claim tainted by a kickback “is in effect
`to ask the government to fund criminality retroactively, a result specifically proscribed
`by the Anti–Kickback Statute.” Id. at 55.
`The parties also agree that Rule 9(b)’s requirement that fraud be pleaded “with
`particularity” applies to False Claims Act claims. (See Mot. 7; Opp’n 6–7); see Cafasso,
`United States ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 (9th Cir.
`2011). “This means the plaintiff must allege the who, what, when, where, and how of
`the misconduct charged, including what is false or misleading about a statement, and
`why it is false. Knowledge, however, may be pled generally.” United States v. United
`Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016) (cleaned up2); see also United
`States ex rel. Winter v. Gardens Reg’l Hosp. & Med. Ctr., 953 F.3d 1108, 1122 (9th Cir.
`2020) (“A complaint needs only to allege facts supporting a plausible inference of
`scienter.”).
`The False Claims Act “does not require absolute particularity or a recital of the
`evidence,” and “a complaint need not allege a precise time frame, describe in detail a
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`2 This Order uses (cleaned up) to indicate that internal quotation marks, alterations, and citations have
`been omitted from quotations. See, e.g., Mo. State Conference of the Nat’l Assn. for the Advancement
`of Colored People v. Ferguson-Florissant Sch. Dist., 894 F.3d 924, 930 (8th Cir. 2018); United States
`v. Reyes, 866 F.3d 316, 321 (5th Cir. 2017); Guevara v. Chaffey Joint Union High Sch. Dist., No. ED
`CV 20-1929 FMO (SPx), 2021 WL 4439230, at *4 (C.D. Cal. Aug. 10, 2021).
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`single specific transaction[,] or identify the precise method used to carry out the fraud.”
`Id. Similarly, a relator is not required to recite the details of “representative examples
`of false claims”; it is enough to allege the details of the scheme itself “paired with
`reliable indicia that lead to a strong inference that claims were actually submitted.” Id.
`Beyond these basic agreements, though, Dr. Chao and Medtronic largely argue
`past one another. Medtronic argues that Dr. Chao fails to address the deficiencies the
`Court described in its Order dismissing Dr. Chao’s FAC. (Mot. 2–3.) And while Dr.
`Chao argues that his new allegations address the previously described deficiencies, he
`nevertheless maintains that the legal standards previously applied were too stringent or
`otherwise erroneous. (See Opp’n 8, 21.)
`This Court finds it appropriate to conduct an analysis of the TAC from the ground
`up, unbound by any prior legal determinations made in connection with a now-
`inoperative pleading. See Balla v. Idaho State Bd. of Corr., 869 F.2d 461, 465 (9th Cir.
`1989) (confirming courts have inherent power to modify interlocutory orders before
`entering a final judgment); see also United States v. Desert Gold Mining Co., 433 F.2d
`713, 715 (9th Cir. 1970) (affirming second judge’s vacating of first judge’s summary
`judgment order, where second judge had taken over case after first judge’s passing). In
`so doing, this Court finds that Dr. Chao states a claim for a health care kickback and
`reimbursement scheme that is “plausible on its face.” Iqbal, 556 U.S. at 678.
`1.
`Dr. Chao states a plausible, particularized claim for an illegal health
`care reimbursement kickback scheme and a corresponding False Claims
`Act violation.
`The elements of a False Claims Act claim are “1) a false statement or fraudulent
`course of conduct, 2) made with scienter, 3) that was material, causing 4) the
`government to pay out money or forfeit moneys due.” United States ex rel. Campie v.
`Gilead Scis., Inc., 862 F.3d 890, 902 (9th Cir. 2017). The disputed elements here are
`the first and third—whether Medtronic engaged in a materially fraudulent course of
`conduct. As for the other elements, scienter (that is, knowledge) need not be pleaded
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`with particularity, and no one disputes that the government actually did pay out money
`to healthcare providers who submitted claims for Pipeline devices.
`The question whether Medtronic engaged in a materially fraudulent course of
`conduct is no more and no less than the question whether it violated the Anti-Kickback
`Statute, so the issue is whether Dr. Chao sufficiently alleges Medtronic’s violation of
`the Anti-Kickback Statute. The elements of the Anti-Kickback Statute violation Dr.
`Chao asserts are as follows: “(1) [the defendant] knowingly and willfully makes a
`payment (2) as inducement to the payee (3) to purchase or recommend for purchase
`(4) any good or service that is reimbursable under a federal healthcare program.”
`Brown, 226 F. Supp. 3d at 1053 (citing United States v. Miles, 360 F.3d 472, 479–80
`(5th Cir. 2004)). The parties do not dispute that Rule 9(b) requires parties to plead the
`Anti-Kickback Statute violations underlying the False Claims Act claim with
`particularity. (See Mot. 7; Opp’n 6–7.) What the parties dispute is exactly how much
`particularity is required.
`Dr. Chao pleads each of the elements of an Anti-Kickback Statute violation
`sufficiently and with sufficient particularity. He alleges that Medtronic routinely paid
`doctors who proctored Pipeline procedures a $3,200 stipend based on eight hours per
`day at $400 per hour for a procedure that is known to take less than two hours. (TAC
`¶ 133.) It may be, as Medtronic argues, that these proctors indeed worked an eight-hour
`day or its equivalent providing ancillary services and that these $3,200 payments
`therefore represent fair market value for proctor services and not an illegal kickback
`disguised as a payment for services. However, it is also plausible that these payments
`were overpayments, and as such, it is equally plausible that Medtronic intended that
`these overpayments induce their proctors to utilize more Pipeline devices in their own
`practices.
`The Court must stop there; Dr. Chao alleges the kickback scheme in sufficient
`detail, and no more is required. Rule 12(b)(6) Motions are not for resolving factual
`disputes, Arellano v. Santos, No. 3:18-cv-02391-BTM-WVG, 2020 WL 1275650, at *3
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`Case 2:17-cv-01903-ODW-SS Document 119 Filed 02/23/22 Page 10 of 13 Page ID #:2169
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`(S.D. Cal. Mar. 16, 2020), nor are they for testing whether the plaintiff will be able to
`“find evidence to support the pleadings,” Tracy v. United States, 243 F.R.D. 662, 664
`(D. Nev. 2007) (citing Lee, 250 F.3d at 688). For these reasons, at this stage the Court
`declines to enter into an inquiry about specific individual payments to doctors, (see,
`e.g., TAC ¶ 141), or how Dr. Chao first learned about these potential overpayments to
`proctors, (see id. ¶ 137). These are granular evidentiary facts, and whether or not they
`are included in the TAC means very little in determining whether Dr. Chao alleges a
`kickback scheme with particularity. Dismissing Dr. Chao’s claim based on the
`insufficiency of these granular facts would signal that the Court was not “accept[ing]
`the[] allegations as true and draw[ing] all reasonable inferences in [Dr. Chao’s] favor,”
`Lee, 250 F.3d at 690, and was instead testing the truth of Dr. Chao’s allegations by
`weighing evidence.
`2.
`The personal services safe harbor does not defeat Dr. Chao’s claims.
`Medtronic nevertheless argues that Dr. Chao fails to plead Medtronic’s
`noncompliance with the Anti-Kickback Statute’s personal services safe harbor
`provision. This argument is based on a provision of the Anti-Kickback Statute that, for
`purposes of this case, provides3 an exception to liability under the Anti-Kickback
`Statute when, among other things,
`[t]he aggregate compensation paid to the agent over the term of the
`agreement is set in advance, is consistent with fair market value in arms-
`length transactions and is not determined in a manner that takes into
`account the volume or value of any referrals or business between the
`parties for which payment may be made in whole or in part under
`Medicare, Medicaid or other Federal health care programs.
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`42 C.F.R. § 1001.952(d)(5). This safe harbor also requires that “[t]he aggregate
`services contracted for do not exceed those which are reasonably necessary to
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`3 The personal services safe harbor was amended effective January 19, 2021. 85 Fed. Reg. 77,684
`(Dec. 2, 2020). The parties do not dispute that the prior version of the personal services safe harbor
`quoted herein is the one that governs this dispute.
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`accomplish the commercially reasonable business purpose of the services.” 42 C.F.R.
`§ 1001.952(d)(7).
`Medtronic argues that the Court must dismiss the TAC because Dr. Chao fails to
`address the potential applicability of this safe harbor, including principally by failing to
`allege that the payments Medtronic made to its proctors exceeded the fair market value
`of the proctors’ services. Medtronic’s position on this issue, however, is somewhat
`internally inconsistent. On one hand, Medtronic admits, as the United States urges, that
`fair market value, or lack thereof, is not an element of an Anti-Kickback Statute claim.
`(Reply 6 (expressly conceding as much); Statement of Interest 6–8.) On the other hand,
`Medtronic argues that Dr. Chao fails to “negate the safe harbor” with his allegations,
`(Mot. 17), suggesting that it is Dr. Chao’s burden to plead specific facts negating the
`safe harbor.
`The parties frame this issue as whether the personal services safe harbor is an
`affirmative defense, but this argument misses the issue’s essence. To be sure, by
`pleading that Medtronic’s kickbacks were also payments for the proctors’ personal
`services, Dr. Chao raises the question of whether these personal services qualified for
`the Anti-Kickback Statute’s safe harbor. Accord U.S. Commodity Futures Trading
`Comm’n v. Monex Credit Co., 931 F.3d 966, 972 (9th Cir. 2019) (explaining that courts
`may “consider an affirmative defense on a motion to dismiss when there is some
`obvious bar to securing relief on the face of the complaint” (internal quotation marks
`removed)), cert. denied, 141 S. Ct. 158 (2020). Therefore, regardless of whether this
`safe harbor is an affirmative defense, Dr. Chao must allege facts that make it plausible
`that the safe harbor will not defeat his claim. See id. (“[D]ismissal based on an
`affirmative defense is permitted when the complaint establishes the defense.”). And he
`must allege these facts with particularity. Fed. R. Civ. P. 9(b). This is not the same as
`what Medtronic wants the Court to require Dr. Chao to do: set forth the negation of one
`or more of the elements of the affirmative defense with particularity.
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`Here, it is plausible based on Dr. Chao’s allegations that the payments and
`benefits Medtronic provided its proctors exceeded the fair market value of the services
`the proctors provided. Thus, it is plausible that the personal services safe harbor does
`not apply. The Court need go no further; the affirmative defense does not, at this stage,
`defeat the claim.
`Moreover, as the United States points out, even some fair-market-value payments
`will qualify as illegal kickbacks, such as when the payor has considered the volume of
`reimbursable business between the parties in providing compensation and otherwise
`intends for the compensation to function as an inducement for more business.
`(Statement of Interest 7); see United States ex rel. STF LLC v. Vibrant Am. LLC, No. 16-
`cv-2487-JCS, 2020 WL 4818706, at *7 (N.D. Cal. 2020) (noting that remuneration may
`violate the Anti-Kickback Statute “regardless of whether the payment is fair market
`value for services rendered”); 70 Fed. Reg. 4858, 4864 (Jan. 31, 2005) (explaining that,
`under the Anti-Kickback Statute, “neither a legitimate business purpose for the
`arrangement, nor a fair market value payment, will legitimize a payment if there is also
`an illegal purpose (i.e., inducing Federal health care program business).”). Here, Dr.
`Chao alleges that Medtronic’s practice of engaging and paying proctors was a
`“system . . . designed to reward doctors for using Pipelines,” perpetuated by an
`aggressive sales team co-opting purported clinical programs in order to pay high-
`volume physicians as remuneration for their Pipeline usage. (TAC ¶ 129.) This is a
`plausible assertion which, if true, would take the payments out of the safe harbor,
`regardless of whether those payments were made at fair market value. Accord United
`States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.3d 20, 31 (1st Cir.
`1989) (observing that the personal services safe harbor exempts “only a small subset”
`of fair market value transactions).
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`For these reasons, the Court finds that Dr. Chao states a plausible, particularized
`claim for Medtronic’s violations of the federal False Claims Act. In reaching this
`conclusion, the Court focused primarily on Dr. Chao’s allegations regarding
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`Medtronic’s proctoring program. At this phase, the Court need not and does not
`determine whether the other alleged aspects of the kickback scheme—purchasing
`companies at inflated prices, overpaying Pipeline-utilizing doctors for cheap data, and
`providing fellowships and grants as inducement for Pipeline usage—are validly a part
`of Dr. Chao’s claims.
`To complete the analysis, both parties appear to agree, at least for now, that Dr.
`Chao’s twenty-seven remaining state-law analogue claims all rise or fall with his federal
`claim. (Mot. 25; see generally Opp’n.) Accordingly, the entire TAC survives, and
`Medtronic’s Motion to Dismiss is DENIED in its entirety.
`VI. CONCLUSION
`For these reasons, Medtronic’s Motion to Dismiss the Third Amended Complaint
`is DENIED. (ECF No. 106.) Medtronic shall answer within twenty-one (21) days.
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`IT IS SO ORDERED.
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`February 23, 2022
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` ____________________________________
` OTIS D. WRIGHT, II
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` UNITED STATES DISTRICT JUDGE
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