Consumer Fraud

The Fraud List: Medtronic Inc. – A Cheating Heart

the fraud list 370x210 The Fraud List: Medtronic Inc.    A Cheating HeartGo to Medtronic’s website and you’ll see lots of features touting how this Minneapolis-based medical device manufacturer builds communities, gives to people in need, enhances life for people in all reaches of the globe, and other philanthropic achievements.

Not as widely advertised is its history of chronic corporate misconduct – a long rap sheet that includes violating government contracts and trade laws, engaging in illegal kickback schemes to boost its sales, and submitting false claims to Medicare and other government health care programs – a scheme that effectively takes money out of taxpayers’ pockets and deposits it into Medtronic’s multi-billion-dollar bank account, which pulls in nearly $30 billion every year.

On April 2 of this year, a False Claims Act case filed by three whistleblowers against Medtronic Inc. and its subsidiary companies Medtronic USA and Medtronic Sofamor Danek USA resulted in a $4.41-million settlement. The whistleblowers alleged that Medtronic lied to the U.S. Department of Veterans Affairs and the U.S. Department of Defense about the country of origin of certain products they sold to the U.S.

The complaint accused the Medtronic companies of selling certain cardiac and spinal surgery devices and instruments to the Veterans Administration (VA) and Department of Defense (DOD) that they falsely certified would be made in the U.S. or in other approved countries.

In actuality, the Medtronic companies sourced the devices from China and Malaysia — two countries that are prohibited sources for such devices bound for the VA or DOD under the Trade Agreement Act of 1979. The complaint alleged this activity lasted from Jan. 1, 2007, through September 2014.

The April settlement came on the heels of another settlement the U.S. Justice Department announced on Feb. 6, in which Medtronic agreed to pay the U.S. $2.8 million to resolve allegations that it caused physicians in more than 20 states to submit false claims to federal health care programs for an unapproved medical procedure known as “SubQ stimulation.”

In SubQ procedures, surgeons place Medtronic’s spinal cord stimulation devices just beneath the skin near an area of pain, most often in the lower back, where the devices emit electrical impulses and create a “tingling” sensation intended to alleviate chronic pain.

Former Medtronic sales representative Jason Nickel suspected Medtronic was willfully disregarding U.S. laws with its SubQ scheme and sued the company under the whistleblower provisions of the False Claims Act, alleging that from 2007 through 2011 Medtronic promoted this procedure by arranging to have physician-customers attend “on-site training programs” it sponsored. In these events, Medtronic demonstrated the use of its spinal cord stimulation devices, even though their safety and efficacy had not been established as required by the U.S. Food and Drug Administration (FDA).

“Patients should be able to trust that their health care providers only use – and bill Medicare for – medical procedures that have been shown to be safe and effective,” said one Health and Human Services special agent who helped prosecute the case.

Companies that make the best products at the fairest prices gain a competitive advantage in the U.S. marketplace. Too often, however, companies such as Medtronic turn to illegal tactics in an effort to boost their sales.

Don’t go breaking my heart

On May 13, 2013, Medtronic agreed to pay the U.S. $9.9 million to resolve allegations that it was essentially paying doctors to use and promote Medtronic products, regardless of cost or the needs of patients.

Adolfo Schroeder, a former Medtronic employee, filed a whistleblower lawsuit against his employer when he found it was paying illegal kickbacks to doctors in exchange for sales, recommendations, referrals. Mr. Schroeder also alleged the company paid doctors to get them to continue using Medtronic devices or to switch patients using a competitor’s products to Medtronic devices.

The U.S. Justice Department, which actively joined the lawsuit, alleged that Medtronic’s fraudulent kickback schemes put profits over the critical needs of cardiac patients and cost taxpayers millions of dollars in false claims to Medicare and Medicaid. Announcing the settlement, the Justice Department said that Medtronic’s kickback schemes also undermined the integrity of medical decisions and created an unfair disadvantage to competitors that played by the rules.

In December 2011, Medtronic agreed to pay the U.S. $23.5 million to resolve two other whistleblower lawsuits alleging it engaged in an illegal kickback scheme designed to boost sales of its pacemakers and defibrillators. According to the complaints, Medtronic used post-market studies intended to assess the performance of its medical devices in patients as a means of paying doctors up to $2,000 per patient to implant only Medtronic-brand pacemakers and defibrillators.

The U.S. government, which intervened in the lawsuit, asserted the kickback scheme “solicited physicians for the studies … in order to convert their business from a competitor’s product and/or persuade the physicians to continue using Medtronic products.”

Medtronic settled its largest whistleblower lawsuit in May 2008 when it agreed to pay the U.S. $75 million. The agreement resolved allegations made by two former employees of Kyphon Inc., a company Medtronic acquired in 2007, that Kyphon orchestrated a seven-year marketing scheme for kyphoplasty spinal procedures that resulted in the submission of false claims to the Medicare.

The whistleblowers alleged that Kyphon induced certain hospitals to treat the outpatient procedures as more costly inpatient procedures so that they could falsely bill Medicare for more costly, unnecessary hospital stays. The whistleblowers in this case split a $14.9-million award for helping the U.S. recover the vital Medicare funds.

Alleged kickback schemes formed the basis of another whistleblower lawsuit that Medtronic settled with the U.S. government in July 2006 for $40 million. A whistleblower in that case accused Medtronic of paying physicians kickbacks in the form of fake consulting agreements, bogus royalties, and lavish vacations to exotic destinations as incentives to get them to use spinal products made by its Medtronic Sofamor Danek division.

“Kickbacks to physicians are incompatible with a properly functioning health care system,” said the U.S. Justice Department said in a release about the case. “They corrupt physicians’ medical judgment and they cause overutilization and misallocation of vital health care resources.”

The settlement also required Medtronic to enter a Corporate Integrity Agreement with the Health and Human Services Office of the Inspector General, which required the company to take certain measures “to ensure compliance with Medicare regulations and policies in the future,” the Justice Department said in a statement.

Coming Up Next:

Next week’s installment of The Fraud List will feature another repeat offender of the False Claims Act, Fresenius Medical Care. A new story in this series will be published each Thursday. Follow #thefraudlist on Google+, Facebook and Twitter.

Sources:

U.S. Department of Justice: Medtronic to Pay $4.41 Million to Resolve Allegations that it Unlawfully Sold Medical Devices Manufactured Overseas

U.S. Department of Justice: Medtronic Inc. to Pay $2.8 Million to Resolve False Claims Act Allegations Related to “SubQ Stimulation” Procedures

U.S. Department of Justice: Minnesota-Based Medtronic Inc. to Pay $9.9 Million to Resolve Claims That Company Paid Kickbacks to Physicians

U.S. Department of Justice: Minnesota-Based Medtronic Inc. Pays US $23.5 Million to Settle Claims That Company Paid Kickbacks to Physicians

U.S. Department of Justice: Medtronic Spine, Formerly Kyphon Inc., to Pay U.S. $75 Million to Resolve Allegations of Defrauding Medicare

U.S. Department of Justice: Medtronic to Pay United States $40 Million to Settle Kickback Allegations

Righting Injustice: Medtronic Whistleblower Gets $1.73 Million For Exposing Illegal Kickbacks, False Claims

Righting Injustice: Whistleblower Lawsuit Leads To $4.41-Million Recovery From Medtronic

Righting Injustice: Medtronic Resolves Whistleblower Lawsuit Alleging It Promoted Device For Unapproved Uses

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