Labs In Court

A roundup of recent cases and enforcement actions involving the diagnostics industry

Magnolia Wins Round One of False Advertising Suit against Rival Collection Device Maker

Case: Score one, maybe two, for Magnolia Medical Technologies, Inc. in its ongoing litigation war with rival blood and bodily fluid collection device maker Kurin, Inc. In addition to patent infringement, the firms have accused each other of false advertising. Kurin began the suit by claiming Magnolia misrepresented the capabilities of its Steripath collection device; Magnolia countersued Kurin for falsely advertising its Kurin Lock device. On July 23, a Southern California US District Court handed Magnolia a double win, dismissing all of Kurin’s false advertising claims against Magnolia while allowing Magnolia to take its own claims against Kurin to trial.

Significance: The court found that Magnolia’s claims about Steripath’s “virtually eliminating” blood culture contamination were appropriately supported by controlled clinical studies demonstrating that the device eliminates “all but less than 1% of false positives.” Corresponding claims about Steripath’s demonstrated 92% and 93% reductions in the contamination rate were also backed by clinical studies, the court said. By contrast, it held that the “blended rate” results that Kurin uses in advertising the Kurin Lock device are “the opposite of controlled study results, because the study does not control for the use of the relevant device.”  

Can Lab Suing Vendor for Defective MS Equipment Change Its Legal Theory at the Last Minute?

 Case: A Brooklyn medical lab purchased turn-key mass spectrometry equipment and support services from a New Jersey vendor for $534,000 so it could begin providing clinical toxicology services. But kinks in the equipment/service package caused the lab to fail its initial Proficiency Tests with the New York Department of Health and sued the vendor for conspiracy, fraud and falsely misrepresenting the capabilities of the package. Five years into the litigation with the discovery completed and the case set to go to trial, the lab wanted to add a new claim to its complaint: breach of contract. The vendor cried foul, noting that this was the third time the lab had changed its legal case; but the New York federal court shrugged off the vendor’s objections and let the lab amend its claim.

Significance: The new claim would delay the trial, the court acknowledged, but it wouldn’t be an “undue delay” or cause the vendor “undue prejudice.” A lot of extra discovery wouldn’t be necessary given how frequently issues of contract had already been addressed during the previous depositions, the court reasoned. And the breach of contract claim wouldn’t be futile since it had sufficient merit and would probably survive a motion to dismiss, the court concluded [Lenco Diagnostic Labs., Inc. v. McKinley Sci., Inc., 2020 U.S. Dist. LEXIS 119922, 2020 WL 3840562].

Rhode Island Health System Fined +$1 Million for Failure to Encrypt Laptops

 Case: The trouble began when Lifespan Corporation, the parent company of a Rhode Island-based non-profit health system filed a breach report after a laptop containing medical record numbers, medication and other electronic protected health information (ePHI) on more than 20,000 individuals was stolen from one of its hospital employees. HHS Office for Civil Rights (OCR) officials called in to investigate uncovered a slew of systemic HIPAA Rules violations at Lifespan, including not only widespread failure to encrypt ePHI on laptops but also a lack of device and media controls. In addition to a $1,040,000 fine, Lifespan had to sign a corrective action plan that included two years of monitoring.

Significance: Laptops, cellphones and mobile devices are stolen every day. That’s why it’s so critical to ensure that those devices are encrypted so that thieves can’t use the ePHI they contain to commit identity theft. While these might seem like obvious points, the Lifespan case is a reminder that systemic breakdowns remain all too common at large healthcare entities and how costly to patients and providers alike they can be when they occur.