It’s been a difficult year for medical device maker Stryker. The company agreed last month to pay $1.43 billion to settle thousands of lawsuits claiming its metal-on-metal hip replacement was defective, causing injuries and poisoning patients who had them. This week, following a federal criminal investigation, Stryker subsidiary OtisMed Corp. and its former CEO pleaded guilty to selling unapproved surgical products and agreed to paying penalties that, along with a settlement of a related action, add up to more than $80 million.
The latest development involves OtisMed’s OtisKnee guides used in knee replacement procedures to help surgeons make more accurate bone cuts. The company had begun selling the guides in 2006 but didn’t seek approval from the Food and Drug Administration (FDA) to market the devices until 2008. In September 2009, the FDA refused to approve the devices, and OtisMed admitted that it had already distributed hundreds of the guides in the United States.
Former OtisMed CEO Charlie Chi pleaded guilty to three counts of introducing adulterated medical devices into interstate commerce. He is scheduled to be sentenced on March 18 and faces a maximum of one year in prison and a $100,000 penalty on each count. OtisMed was fined $34.4 million and ordered to pay a $5.16 million criminal forfeiture.
The civil settlement also resolves a False Claims Act lawsuit waged by Stryker employee Richard Adrian, who alleged that OtisMed, Stryker and Howmedica Osteonics, another Stryker subsidiary, “engaged in a scheme to defraud patients and government health care programs by marketing and causing to be used the unapproved cutting guide and billing the government millions of dollars for knee replacements that utilized it and the MRIs used to customize the guides for each knee patient,” the New Jersey Law Journal reported.
The complaint also claimed that the companies withheld from federal authorities unfavorable information involving the devices and gave others the incorrect impression that the guides were approved. The settlement calls for OtisMed to pay about $41.2 million to resolve false claims allegations regarding Medicare, Medicaid and other federal programs. About $7 million of that will go to Adrian as the whistleblower.