5 Medical Device Companies on Santa's Naughty List

It’s that time of year. Santa is making his list and checking it twice, looking at which medtech firms were naughty or nice in 2013. These five firms fall into the former category and can likely look forward to lumps of coal rather than presents under the tree come Christmas morning.

Imaging3 Inc.

Back in 2010, Burbank, CA-based Imaging3 received its third denial of clearance from FDA for its proprietary 3-D imaging device. The agency cited concerns about the device’s safety and the quality of the images it produced, but the firm’s CEO, Dean Janes sugar-coated the news when he delivered it to shareholders via a conference call, telling them regulators’ concerns were “not substantive” and largely “administrative,” according to an SEC news release.

That got Janes and Imaging3 slapped with fraud charges filed by the SEC this past June.

“Shareholders have a right to trust corporate officers to tell them the truth about the business,” Michele Wein Layne, regional director of SEC’s Los Angeles regional office, said in a statement. “When CEOs abuse that trust and make misstatements, innocent shareholders are victimized. The SEC will hold corporate officers accountable for misleading shareholders.”

23andMe

MD+DI named 23andMe CEO Ann Wojcicki among the 10 people who changed the medtech industry earlier this year, but by fall the firm found itself butting heads with FDA.

On November 22, the agency sent a warning letter ordering the company to immediately halt sales of its personal genome service (PGS). Perhaps the most recognizable name in genetic testing marketed to consumers, 23andMe ran afoul of FDA for selling its saliva collection kit and PGS without marketing clearance or approval in violation of the Federal Food, Drug, and Cosmetic Act.

The firm had submitted two 510(k) submissions but failed to address the agency’s concerns about its products, according to the warning letter. FDA also said its Office of In Vitro Diagnostics and Radiological Health has worked with the company since 2009 to help it meet regulatory requirements but still has not received “any assurance that the firm has analytically or clinically validated the PGS for its intended uses.”

According to a statement on its Web site, 23andMe has suspended its health-related genetic tests but continues to provide ancestry-related genetic tests and raw genetic data.

Stryker

In October, the SEC busted foreign subsidiaries of Michigan-based device maker Stryker for allegedly greasing the palms of doctors, healthcare professionals, and government officials in five markets outside the United States to win or keep business. The SEC accused Stryker’s subsidiaries in Argentina, Greece, Mexico, Poland, and Romania of doling out more than $2 million in illicit payments that the company disguised as legitimate expenses such as a charitable donation and travel expenses.

“Stryker’s misconduct involved hundreds of improper payments over a number of years during which the company’s internal controls were fatally flawed,” Andrew M. Calamari, director of the SEC’s New York regional office, said in a statement. “Companies that allow corruption to occur by failing to implement robust compliance programs will not be allowed to profit from their misconduct.”

The company shelled out $13.2 million to settle the charges but refused to admit or deny the allegations, according to the SEC.

Johnson & Johnson

Patients have long alleged that J&J’s DePuy Orthopaedics unit sold faulty metal-on-metal hip implants for years, and those chickens finally came home to roost in 2013. In November, the device maker agreed to pay $2.5 billion to settle cases brought by patients who had to have their ASR hip replacements, which were recalled in 2010, removed or replaced. More than 90,000 ASR hip replacement systems were sold worldwide, but the settlement only covers around 8000 patients.
“
…some lawsuits in the U.S. will remain,” the company admitted in a statement. “DePuy will continue to defend against remaining claims and believes its actions related to the ASR Hip System have been appropriate and responsible.”

J&J also offered up a monetary mea culpa this year to settle charges that it marketed schizophrenia and heart failure drugs for off-label uses and paid kickbacks to doctors and nursing homes. The $2.2-billion settlement is among the largest healthcare settlements ever in the United States.

Psalms23-DME

This little-known Louisiana company selling medical equipment made waves this year by allegedly ripping off the U.S. government to the tune of $3 million.

Psalms 23-DME owner Tracy Brown was indicted in November for allegedly running a Medicare fraud scheme in which CMS was billed for wheeelchairs and other medical equipment provided to beneficiaries who didn’t need them. Brown is accused of paying kickbacks to “marketers” who obtained fake prescriptions from a pair of physicians who have already pleaded guilty to fraud.

The 18-count indictment also included charges of conspiracy to commit healthcare fraud, conspiracy to pay and receive healthcare fraud kickbacks, and illegal remuneration. Brown and codefendent Sandra Parkman Thompson face prison time if convicted.

—Jamie Hartford, managing editor, MD+DI
[email protected] 

[image courtesy of DAN/FREEDIGITALPHOTOS.NET]