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REGULATORY OUTLOOK

Return to Article: Crossing the Line: Kickbacks Come Under Increased Government Scrutiny

On July 18, 2006, Medtronic reached a settlement agreement with the U.S. Department of Justice. In the settlement, Medtronic agreed to pay $40 million to the United States and participating states to settle allegations stemming from two qui tam lawsuits. These lawsuits, which were brought under the FCA, allege that Medtronic made illegal payments to physicians to promote its spinal products in violation of the federal healthcare program antikickback statute.

The suits alleged that, between 1998 and 2003, Medtronic Sofamor Danek, USA Inc., the spinal products subdivision of Medtronic, paid for physicians to attend meetings and events at lavish resort locations, provided free or discounted services to physicians, and paid physicians under sham consulting and royalty agreements. A supplement to one of the plaintiff’s complaints alleges that Medtronic paid more than half a million dollars to a single physician over a four-month period.

Additionally, Medtronic entered into a corporate integrity agreement (CIA) with the Office of the Inspector General of HHS. The CIA requires the designation of a compliance officer, formation of a compliance committee, promulgation of a code of conduct, and implementation of policies designed to prevent illegal conduct in the future. These policies include a procedure to track payments made by the company to outside parties. This is to ensure that consultants actually perform the services for which they are being compensated. The CIA also mandates a training program for all Medtronic employees to educate them on the applicability of the antikickback statute to Medtronic activities and the sanctions for violating the statute. Additionally, the CIA requires Medtronic to train all independent distributors of Medtronic products with regard to the antikickback statute.

This settlement agreement, however, depends on dismissal of both of the qui tam lawsuits. Agreement was reached only with the parties to the first suit. The second qui tam action, brought by a different entity (Poteet), is currently unresolved. The government has moved to dismiss the second complaint, claiming that Poteet simply made the same accusations as the first whistleblower, but Poteet is opposing government settlement of the case. If the second complaint is not dismissed, the settlement could be rescinded.