Device manufacturer Blackstone Medical will have to stand trial over a former employee's allegations that its payments to spine surgeons violated the federal False Claims Act, an appeals court has ruled, overturning a lower court's dismissal of the whistleblower lawsuit.

Once a regional manager for the Springfield, Mass., company, Susan Hutcheson filed the lawsuit against Blackstone after her termination in 2006. She alleges that the company's management supervised a scheme through which surgeons nationwide were paid in exchange for using its products in their surgeries.

Ms. Hutcheson's suit alleged that surgeons were offered "monthly payments under sham consulting agreements; paid development projects; research grants; royalties; exorbitant and sometimes illicit entertainment expenses; high-end travel and accommodations; speaking engagements and seminars[;] and other illegal incentives," according to court documents.

Since many surgeons used Blackstone's implants in Medicare and Medicaid patients' surgeries, the lawsuit argues, these payments constituted violations of the False Claims Act, the federal law that prohibits any party from knowingly making fraudulent claims for government payment.

Blackstone requested and won a dismissal of the suit from a federal trial court by arguing that the lawsuit failed to identify "a materially false or fraudulent claim within the meaning of the FCA," and that it hadn't proved Blackstone had influenced hospitals' and physicians' actions.

Ms. Hutcheson's appeal, backed by the U.S. Department of Justice, found favor with a higher court, however. In its ruling earlier this month, the appeals court found that Medicare's provider agreement and hospital cost report forms clearly forbid such kickbacks. The appeals court sent the case back to trial for further action.

Attorneys for the 2 sides did not immediately return requests for comment.

David Bernard