Reliance Medical loses bid to toss spinal implant kickback suit

An empty operating room can be seen in a hospital in Maryland. REUTERS / Rosem Morton

• Summary
• Companies
• Law firms

• The court rejects an argument based on non-delegation doctrine
• Reliance Medical is accused of paying bribes to physician investors

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(Reuters) – Spinal implant maker Reliance Medical Systems has lost an offer to dismiss a U.S. government lawsuit alleging that it was paying bribes to its physician investors on the grounds that the government was on a left unconstitutional delegation from the Legislature of Congress.

Los Angeles District Judge Dean Pregerson on Friday denied the Utah-based Reliance’s argument that Congress inappropriately authorized the Department of Health’s inspector general’s office to determine what conduct violates the anti-kickback statute.

The U.S. Department of Justice and its attorney, Patric Hooper of Hooper, Lundy & Bookman, did not immediately respond to requests for comment.

Reliance was founded in 2006 and works with spinal surgeons to design bespoke spinal implants and surgical instruments. Initially, it sold implants through subsidiaries owned by physician investors, but decided in 2012 to abandon that model for fear of regulatory action, according to court documents.

The 2014 government lawsuit alleged that the business model before 2012 was to pay doctors to use their products. According to the lawsuit, Reliance offered an interest in the company to doctors who were already using Reliance products and, in some cases, asked them to provide very little money to invest.

The government said physician investors got higher returns if they used Reliance products frequently, and that those who did not use enough Reliance products bought out their interests. The agreement violates the federal anti-kickback statute and cited so-called fraud warnings from the HHS-OIG warning that doctor-owned joint ventures could break the law.

In its motion to dismiss, Reliance argued that the government had violated the constitutional non-delegation doctrine, which prohibits Congress from delegating its legislative power by relying on the HHS-OIG.

Pregerson, who denied the motion, noted that the Supreme Court found a delegation of powers unconstitutional only twice. As long as Congress provides an agency with a “guiding principle” for the application of a law, the delegation is allowed, he said.

The anti-kickback statute clearly meets this standard, he said.

“Because Congress’ delegation of power to HHS to establish safe havens and issue notices of OIG opinion on certain payment practices is governed by an understandable principle, it is not in violation of the Constitution,” the judge wrote.

The judge also stated that the fraud reports from HHS-OIG were “advisory reports” and not a binding law.

“In addition, if it is desired, the OIG has no role in determining how the law will be applied in this case, regardless of whether the government’s allegations reflect OIG’s views,” he said.

The case is United States of America v Reliance Medical Systems LLC, US District Court, Central District of California, No. 14-cv-06979.

For the government: U.S. Assistant Attorney David Finkelstein

For trust: Patric Hooper from Hooper, Lundy & Bookman

Brendan Pierson

Brendan Pierson reports on product liability disputes and all areas of health law. He can be reached at brendan.pierson@thomsonreuters.com.