Enforcement against medical device companies is not new and yet, these companies continue to engage in schemes that land them in hot water. Frequently the same schemes are repeated over and over- some form of payment by the device company to a physician who selects/recommends the device to patients. In some cases, the payment is in the form of an honorarium for speaking engagements. In others, the payment is an all-expense paid travel to attend device company-sponsored “CME” in exotic locations or consulting fees for assisting in the evaluation and design of the device.
Announced yesterday by the U.S. Department of Justice (DOJ), is the settlement of allegations against Florida-based Arthrex Inc., a medical device company that specializes in orthopedic products. Under the settlement agreement, Arthrex will pay $16 million for allegedly paying kickbacks to an orthopedic surgeon (Dr. Peter Millett) in Colorado. The “payment” in this case was structured as royalty payments purportedly to compensate the orthopedic surgeon for his “contributions” to the development of two of Arthrex’s products when in fact the “payment” was intended to induce the surgeon’s recommendation/selection of the Arthrex products. By offering the payments to the surgeon with the intent to induce purchase of Arthrex’ products which were then billed to Medicare, Arthrex violated the Anti-Kickback Statute (AKS) as well as the False Claims Act.
The facts alleged in the underlying case include evidence of Arthrex’s denial of Dr. Millett’s demands for royalties as early as 2006. By 2010 when Dr. Millett threatened to recommend/select competitor medical devices, Arthrex acquiesced and entered into a royalty agreement that paid Dr. Millett royalties for past and future sales at a higher percentage rate than was customary for Arthrex. The DOJ argued that one purpose of Arthrex’s payment to Millett was to induce the recommendation and purchase of Arthrex medical devices, in violation of the AKS.
Much of the fraud occurring in health care follows a formulaic pattern and involves some common elements, making it easier for the DOJ to identify and prosecute. In almost all cases there is some form of payment (or quid pro quo) between two or more health care entities and a subsequent increase in business/activity/purchasing by the party receiving the payment. Because AKS is an intent-based statute, the DOJ must then prove that one of the purposes (or the intent) of the arrangement was to induce the purchase of health care goods or services that are paid for in whole or in part by a government payer. Once the requisite intent is established, the DOJ finds an easier path to prosecution. Intent (or purpose) is often found in documents developed between the parties and can include emails and other contemporaneously maintained business records. Often, these become the evidence used by whistleblowers and the DOJ in prosecuting the cases.
The DOJ has repeatedly stated that it will continue to pursue medical device manufacturers who engage in these schemes to enhance the company’s revenues. The work of the DOJ is made easier with the help of whistleblowers. In this case, it was once again a whistleblower (Joseph Shea) who filed a qui tam action in the U.S. District Court in Massachusetts. He is expected to receive $2.5 million of the total settlement plus a percentage of the interest that will be paid by Arthrex on the settlement amount.
The common theme among these schemes is the manipulation of the government, other payers, and patients for personal financial gain. Whenever an arrangement involves a payment between two or more health care entities, absent evidence that the arrangement is commercially reasonable and reflects an arms’ length transaction for which fair market value is paid, the arrangement may give rise to regulatory issues and should be evaluated for compliance with applicable fraud and abuse statutes.
