Former Medtech CEO Gets 2 Years for Selling Unapproved Devices

Charlie Chi ran OtisMed, a knee replacement surgery cutting guides company that Stryker acquired in 2009. Stryker has had to pay tens of millions of dollars to settle related criminal and civil cases.

Chris Newmarker

A federal judge in New Jersey recently sentenced former OtisMed CEO Charlie Chi, 46, to two years in prison for intentionally distributing a knee replacement surgery cutting guide even after FDA had declined to clear it.

Chi pleaded guilty in December to three counts of distributing adulterated medical devices in interstate commerce in violation of the federal Food, Drug, and Cosmetic Act. Chi went against the instructions of FDA, legal counsel, and his own board of directors, according to federal prosecutors.

Chi's actions took place before Stryker acquired California-based OtisMed in 2009. But Stryker still ended up stuck with a criminal fine of $34.4 million, as well as $5.16 million in criminal forfeiture, over the case last year. Stryker also paid $41.2 million, including interest, to resolve its civil liability for OtisMed submitting false claims to federal health insurance programs.

"Today's sentencing of OtisMed's CEO ought to send a clear message to others in positions of authority within the medical device and pharmaceutical industries: the Department of Justice will vigorously prosecute not only corporations, but also the individuals at their helm who are responsible for endangering public health and safety in pursuit of profit," principal deputy assistant attorney general Benjamin C. Mizer said in a news release.

OtisMed sold more than 18,000 of its OtisKnee devices between 2006 and 2009, generating about $27.1 million in revenue. The OtisKnee was meant as a cutting guide to enable bone cuts specific to individual patients' anatomies during knee replacement surgeries. MRIs performed before surgeries determined the OtisKnee's dimensions.

However, none of the claims OtisMed made in its advertisements and promotional materials were evaluated by FDA, according to federal prosecutors.

OtisMed filed for FDA clearance in late 2008, even though it had previously claimed to physicians and other potential purchasers that the OtisKnee was exempt from such pre-market requirements.

When FDA denied OtisMed's submission in September 2009, it warned that OtisMed could no longer distribute the OtisKnee. Legal and regulatory counsel confirmed to Chi and others at OtisMed that this was the case, and the company's board of directors unanimously decided to stop further OtisKnee shipments.

Chi, however, was worried about the negative marketing that would result from inconveniencing surgeons who were already planning to use the OtisKnee in scheduled surgeries. So he directed a mass shipment of approximately 218 OtisKnee guides that had been manufactured but not yet shipped, according to federal prosecutors. Chi even suggested ways for employees to hide the shipments from FDA regulators.

"With more than 600,000 knee replacements performed each year, patients rely on FDA to help ensure that the devices are safe and work as intended," said director George M. Karavetsos of the FDA's Office of Criminal Investigations. 

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

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