The Top 7 Fraud Fines in Medtech

Seven medical device companies agreed to pay $119 million in fraud fines during the U.S. federal government's most recent fiscal year. Guess which ones paid the most.

Chris Newmarker

CareFusion's alleged scheme to pay an influential doctor millions to promote a surgical skin prep device and accusations that Guidant knowingly sold defective heart devices--those are two of the most significant medtech-related False Claims Act cases highlighted in a new report from federal agencies.

The seven medical device-related cases showcased in the report brought in nearly $119 million in settlements during the federal fiscal year ended September 30, 2014, according to an annual report of Health Care Fraud and Abuse Control Program from the Departments of Justice and Health and Human Services.

Overall, the federal government won or negotiated more than $2.3 billion in health care fraud judgments and settlements, down from $2.6 billion during the previous fiscal year. The report notes $62.1 million in sequestration-related budget cuts  to the fraud program over the past two years. The situation has hindered the ability of investigators to fight fraud and abuse against Medicare, Medicaid and other health care programs.

The irony is that the government in the most recent fiscal year recovered $7.70 for every dollar spent on health care-related fraud and abuse investigations.

On top of that, the report notes the medical device cases serve another important purpose because many involved allegations of kickbacks to physicians. The report states: "These cases are significant not only because of the significant dollars involved, but also because they protect Medicare and Medicaid beneficiaries by preserving the integrity of the FDA's approval process as well as the doctor-patient relationship."

The seven medtech-related cases featured in the report include:

1. CareFusion: $40.1 Million

The lawsuit settlement, announced in January 2014, included allegations that CareFusion paid $11.6 million in kickbacks to the co-chair of the Safe Practices Committee at the National Quality Forum, a nonprofit organization that reviews, endorses and recommends standardized health care performance measures and practices. The money was meant support promotion of CareFusion's ChloraPrep surgical prep devices to healthcare providers. The devices administer chlorhexidine gluconate and isopropyl alcohol to a person's skin prior to surgery. CareFusion is now part of Becton Dickinson.

2. Guidant: $30 Million

In late 2013, Boston Scientific agreed to pay $30 million to settle federal allegations that, between 2002 and 2005, Guidant knowingly sold defective heart devices to healthcare facilities that in turn implanted the devices into Medicare patients. Boston Sci bought Guidant in 2006 in a $27 billion deal that Fortune has described as the "(second) worst deal ever"--only eclipsed by AOL's notorious purchase of Time Warner in 2000.

3. Genzyme: $22.3 Million

The settlement, from December 2013, involved allegations that Genzyme marketed an unapproved version of Seprafilm, a thin film used to prevent adhesions after surgery.  Seprafilm is FDA-approved for use in open abdominal surgery. But Genzyme sales representatives reportedly taught doctors and other staff how to dissolve Seprafilm sheets in saline to create a "slurry" for use in laparoscopic surgeries. The slurry would be squirted into the abdominal cavity via a catheter. Federal health care programs were then billed for the unapproved use. Genzyme has been a fully owned subsidiary of Sanofi since 2011.

4. Medtronic: $9.98 Million

The May 2014 lawsuit settlement resolved claims that Medtronic paid kickbacks to induce physicians to use certain pacemakers and defibrillators. The government alleged that Medtronic paid implanting physicians to speak at events intended to increase the flow of referral business, gave physicians tickets to sporting events, and even developed marketing and business development plans for doctors free of charge.

5. Smith & Nephew: $8.3 Million

The settlement from August 2014 settled claims that Smith & Nephew violated the Trade Agreements Act by selling medical devices to the government that had been manufactured in Malaysia. Such devices were required to be manufactured in the United States. (Medtronic recently agreed to settle a similar type of suit for $4.4 million.)

6. Abbott Laboratories: $5.5 Million

Abbott paid up in December 2013 to resolve accusations that it knowingly paid prominent physicians unlawful kickbacks so that the doctors would arrange for their affiliated hospitals to buy Abbott's vascular products. Health care providers ended up submitting false claims to Medicare for surgical procedures involving the company's carotid and peripheral vascular stents and biliary stents.

7. Spine 360: $2.6 Million

Last year, Omni Surgical (doing business as Spine 360) and an Indiana spinal surgeon agreed to pay a combined $2.6 million to settle civil  allegations that Spine 360 paid illegal kickbacks to the physician to induce him to use the company's products. The government claims the payments were disguised as intellectual property agreements.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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