Medical device and healthcare fines in general were down last year, according to a report from the U.S. Department of Health and Human Services. But the present year could see a significant increase, if Olympus' recent $646 million settlement over endoscope kickbacks is any indication.
Chris Newmarker and Brian Buntz
The present year could shape up to be a rebound for federal investigators seeking to root out healthcare fraud. They scored a major win in March with a whopping $646 million settlement with Olympus over endoscope kickbacks.
Overall, healthcare fraud fines have been down in recent years as investigators have struggled to work effectively under $101.2 million in sequestration-related budget cuts over the past three years, according to an annual government report.
For the fiscal year ended September 30, 2015, there were $53.6 million in fraud fines related specifically to medical device companies, down from $118.78 million a year before, according to the annual health care fraud report. Overall healthcare fraud judgements and settlements were $1.9 billion for the past year, down from $2.3 billion in the fiscal year 2014 and $2.6 billion in the fiscal year 2013.
Besides the budget constraints that have hindered investigators, it is also possible that a growing number of medical device companies that are charged with fraud charges related to off-label promotion of their products will argue that their actions were supported by the First Amendment. Vascular Solutions CEO Howard Root used that strategy when faced with alleged off-label promotion of its Vari-Lase Short Kit and was ultimately acquitted of all charges.
Two former executives at Acclarent plan on making a similar First Amendment argument in a fraud case in federal court in Massachusetts.
Federal investigators, though, are not going gently into that good night. They touted the recent Olympus settlement as the largest total amount paid in U.S. history for violations involving the Anti-Kickback Statute by a medical device company. More settlements could be on the way: Shortly after Abbott announced its desire to acquire Alere for $6 billion, Alere revealed that it received a grand jury subpoena from U.S. Department of Justice.
The budget situation could be easing, too. The December 2015 tax and spending deal reached in Congress saw a move away from sequestration. HHS is proposing $199 million in new mandatory and discretionary investments to address healthcare fraud, waste, and abuse in the fiscal year 2017--an investment the department says will yield $23.8 billion in savings for Medicare and Medicaid over ten years.
The situation matters because fraud is one of the major causes of medical device company defaults, according to a recent report from Standard & Poor's. Preventing healthcare fraud can also save billions of dollars for federal health insurance programs funded by taxpayers.
Here are five major medical device-related fraud settlements seen over the past year and a half:
Olympus: $646 Million
Olympus, the biggest seller of endoscopes in the United States, stands to pay nearly $650 million to settle charges related to the Anti-Kickback Statute and Foreign Corrupt Practices Act--the largest amount ever paid by a medical device company. Of that total, $623.2 million would be spent to settle criminal charges and civil claims related to kickbacks. The remaining $22.8 million will go to resolve criminal charges relating to the Foreign Corrupt Practices Act in Latin America.
The federal government says that the Olympus kickbacks covered everything from consulting payments, foreign travel, lavish meals, millions of dollars in grants, and free endoscopes.
"For years, Olympus Corporation of the Americas and Olympus Latin America dropped the compliance ball and failed to have in place policies and practices that would have prevented the substantial kickbacks and bribes they paid," explained U.S. Attorney Fishman in a statement. "It is appropriate that they be punished for that. At the same time, the deferred prosecution agreement takes into account the companies' cooperation and commitment to fully functional corporate compliance."
OtisMed Corp: $80 Million
Stryker Corp. in December 2014 agreed to pay about $80 million to settle federal criminal and civil cases alleging that OtisMed--a company it acquired--sold surgical devices without FDA approval, and billed Medicare, Medicaid, and other federal programs for them.
Stryker was not accused of any wrongdoing. The blame was on OtisMed, a privately-held company that Stryker acquired in 2009. OtisMed allegedly told surgeons that its knee replacement surgery cutting guides did not need FDA approval. Between May 2006 and September 2009, OtisMed sold more than 18,000 OtisKnee devices, generating revenue of approximately $27.1 million, according to a U.S. Department of Justice statement.
A federal judge in Newark, NJ, fined OtisMed $34.4 million (the amount included in the annual fraud abuse report) and ordered $5.16 million in criminal forfeiture. In a separate civil settlement, OtisMed agreed to pay $40 million plus interest to resolve claims filed under the whistleblower provisions of the False Claims Act, which permit private parties to file suit on behalf of the United States and obtain a portion of the government's recovery. The company did not admit wrongdoing in the civil case.
NuVasive: $13.5 Million
In July 2015, San Diego-based NuVasive agreed to pay $13.5 million to resolve allegations that it promoted its CoRoent System for surgical uses that were not approved or cleared by the FDA and paid kickbacks to induce physicians to use the corpectomy device. The government alleged that, between 2008 and 2013, NuVasive promoted its CoRoent
system for certain surgical uses, including for use in treating two complex spine deformities: severe scoliosis and severe spondylolisthesis. These two uses were not approved or
cleared by the FDA, according to federal investigators. So claims submitted to Medicare and Medicaid from physicians and hospitals for the spine surgeries were not eligible for reimbursement.
Interestingly enough, the CoRoent System was one of the predicate devices for a 510(k) clearance that NuVasive received in fall 2015 for a spinal implant for cervical corpectomy, the first time that the agency had approved or cleared a medical device for this intended use.
Medtronic: $4.4 Million
In April 2015, Medtronic agreed to pay $4.4 million to settle a federal whistleblower lawsuit that claimed the medtech giant violated the False Claims Act by claiming to the military that devices made in China and Malaysia were made in the United States.
A Medtronic spokeswoman told media outlets including the Star Tribune of Minneapolis that the Dublin, Ireland-based company made no admission that any of its activities were improper or unlawful. The company says most of its products are made in the United States or by trading partners such as Ireland and Mexico.
Medtronic products involved in the case included anchoring sleeves sold with cardiac, instruments and devices used in spine surgeries, and a handheld patient assistant used with a wireless cardiac device. The devices were sold from 2007 through 2013, and in the case of patient assistant, the first nine months of 2014.
ev3: $1.3 Million
In February 2015, Medtronic subsidiary ev3 (inherited through Medtronic's roughly $50 billion acquisition of Covidien) settled with the U.S. for $1.25 million to resolve claims that its predecessor Fox Hollow Technologies caused certain hospitals to submit false claims to Medicare. According to prosecutors, the false claims involved unnecessary inpatient admissions related to minimally-invasive atherectomy procedures.
The government alleged that to increase hospital purchases of its atherectomy devices, Fox Hollow advised hospitals to bill atherectomy procedures as more expensive inpatient claims, instead of less costly outpatient claims.