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Medical device companies, Medicare fraud and the False Claims Act

Sales and marketing tactics used by medical device companies, such as lucrative consulting agreements with doctors and off-label marketing, could violate the False Claims Act and could be the basis for a qui tam (whistleblower) lawsuit.

Both the pharmaceutical and medical device industries follow some of the same sales and marketing practices that have been found in the case of pharmaceutical companies to be violations of the False Claims Act and other federal and state statutes. As a result of qui tam lawsuits and federal and state investigations, drug companies have paid more than $30 billion to settle allegations of Medicare and Medicaid fraud.

A medical device company could be liable under the False Claims Act for Medicare and Medicaid fraud if it:

  • Has financial arrangements with doctors that essentially are kickbacks for using a company’s implant or other medical device. Some financial arrangements that are coming under federal scrutiny include royalty payments on new devices, paying the cost of educational conferences, sponsoring fellowships and providing unrestricted grants.
  • Markets the implant or other medical device for uses that haven’t been approved by the U.S. Food and Drug Administration.
  • Sells implants or other medical devices that are defective or the company has reason to believe are defective. In a qui tam case brought by Phillips & Cohen, Hewlett Packard Co. and Agilent Technologies Inc. paid $7 million to settle a whistleblower lawsuit that alleged the companies knowingly sold defective monitoring equipment to federal agencies.

Sales representatives and their companies in segments of the medical device industry that are highly lucrative and competitive probably face the greatest pressure to win market share. There may be more pressure to offer kickbacks to doctors to win their business. This includes markets for implantable cardioverter defibrillators and pacemakers, stents, prosthetic heart valves and other cardiac implant devices; orthopedic implants (including artificial hips and artificial knees); spinal disks; cochlear implants; and robotic surgery machines.

Hospitals and other healthcare providers could be liable under the False Claims Act if they bill Medicare and Medicaid for medical devices that haven’t been approved by the FDA. The University of California at San Diego and the University of Washington at Seattle paid $4.7 million and $3.6 million respectively in 1999 to settle a whistleblower lawsuit brought by a sales representative who alleged the university hospitals had billed Medicare for cardiac devices the FDA hadn’t approved.

Kickbacks to doctors

Sales representatives, medical device companies and doctors should evaluate their financial relationships to determine whether doctors are being paid legitimate compensation for valuable services rendered in the development of the devices or whether the companies are making the payments to secure competitive advantage in the highly lucrative and competitive medical device field and are kickbacks. Payments to physicians could be considered improper financial inducements if they could influence the doctors’ choice of implants and other medical devices. Free vacations, unrestricted grants and consulting agreements could be considered kickbacks as they might influence doctors’ choices of implants and other medical devices.

P&C