The Bitter Pill

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Investigations Focus on Illegal Marketing by Medical Device and Supply Companies

Evelyn Pringle May 2007

Government law enforcement agencies have made it known that illegal marketing and promotional practices of medical device and supply companies are now the targets of investigations basically because lawmakers who oversee spending by public health care programs say the booming business in this field of medicine is a little too good to be true.

The combination of health problems that have surfaced with the new wave of medical devices and the massive bilking of public programs for the cost of products, services and off-label procedures is what ultimately drew the focus of lawmakers not only to the marketing practices of the industry but also to the doctors and medical facilities that are on the take.

Over the past 2 years, Medicare payments to hospitals for implant surgery have risen about 40%, from $10 billion to $14 billion, according to an analysis of Medicare records reported in the September 26, 2006, New York Times.

In addition, the Centers for Medicare and Medicaid Services, estimates that between April 2005 and March 2006, $700 million in improper payments by Medicare have been made for medical equipment and supplies alone.

Last summer the New York Times reported that hospital executives were being treated to extravagant resort trips, with massages and golf perks, and paid thousands of dollars to advise companies on how to sell their products and services to hospitals.

Officials in some states are investigating these types of relationships. Connecticut’s attorney general, Richard Blumenthal, told the Times that his office was looking into deals that “at the very least . . . suggest insider dealings — an insidious, incestuous, insider system” that could mean hospitals are not getting the best deals in cost or quality.

At that time, he reported that he has issued more than 100 subpoenas, mostly to hospital suppliers, related to his inquiry

As part of the fraud crackdown, the government has set up a “Medicare Fraud Strike Force,” with members including officials from the FBI, the US Department of Justice and the Department of Health and Human Services and claims it could save as much as $2.5 billion by eliminating the fraud.

And just about every major device maker has reported receiving subpoenas from Congressional investigative committees and or law enforcement agencies in SEC filings, and in most cases, the firms are being forced to respond to subpoenas related to not one, but several investigations.

The majority of the cases involve the off-label marketing of products for unapproved uses. When a medical device is approved by the FDA the labeling lists the indications for which the device may be used. Although surgeons are allowed to implant a device approved for one indication in patients for other conditions not listed on the label, device makers are prohibited by law from influencing doctors to implant their products for unapproved uses.

Device makers Johnson & Johnson and Boston Scientific have been asked to turn over documents as part of an investigation into the off-label marketing of the new drug-eluting stents implanted in patients with heart disease approved in the US for less that 3 years. In December 2006, an FDA advisory panel noted that 3 out of 5 implants of the new stents were off-label.

Investigators are finding that the off-label marketing of these devices is leading doctors to implant for profit not need. On March 7, 2007, the Salisbury Daily Times reported that at least 25 patients in Maryland had received unnecessary stenting by Dr John McLean at the Peninsula Regional Medical Center in 2006.

On May 3, 2007, the Times reported that Dr McLean is now under investigation by the FBI in conjunction with the Health and Human Services Department. “A clear majority of patients under review are seniors on Medicare,” officials told the Times.

“The average charge that Medicare pays for a drug-eluting stent procedure ranges from $11,184 to $14,287, depending upon treatment needed in the coronary artery,” a Medicare spokesperson told the Times.

As part of the investigation, the Times said, records are being seized and subpoenas are being issued to staff and personnel who worked with Dr McLean at the Medical Center.

Donna Richardson, the facility’s public relations director, released a statement saying the Center was not the target of the investigation and was fully cooperating with investigators.

Back in March 2007, the facility announced that a review of Dr McLean’s procedures found that at least 25 stent implants were questionable because alternative methods could have been used to treat blood clots.

In December 2006, Dr McLean forfeited his catheterization laboratory credentials at the Medical Center, which prevented him from diagnosing coronary artery disease and he resigned all of his staff credentials on March 2, 2007. Dr McLean is also closing his own medical office on May 31, according to an ad in the Times.

A spokesperson for the Center said the facility is willing to reimburse patients and insurance companies but according to the Times, the chief medical officer, Dr Tom Lawrence said the Center had not yet determined how much would be paid due to a complicated billing process and an unclear total of unnecessary stent implants. In 2006, he said, the Center had performed 1,800 heart catheterizations with stents divided among 20 cardiologists

The off-label marketing of the Charite artificial spinal disc by J&J subsidiary, Depuy, is also under the microscope. The device was approved in 2004 for limited use but as soon as it hit the market spine surgeons started using the disc for all kinds of off-label procedures with dire consequences for patients. Last year an FDA review found that 12 patients who developed adverse events had two Charite implants when the FDA’s approved labeling specifically allows for only one.

Following the FDA review, the CMS announced that Medicare would no longer pay for the Charite replacement disc in patients over 60, after determining that the $30,000 to $50,000 procedure would not improve net health benefits for patients with low back pain.

On August 18, 2006 the Department of Labor & Industries followed suit and said that it would not authorize the Charite, “for the care and treatment of injured workers or victims of crime.”

Federal and state anti-kickback statutes make it illegal to offer or to accept remuneration in return for a referral of a patient or services covered by public programs. But critics say the pharmaceutical industry is using sham consulting contracts and professional service agreements to funnel payments to doctors in return for using their products.

The DOJ turned up the heat on device makers last year by issuing subpoenas to major manufacturers including Biomet, DePuy; Smith & Nephew; Stryker; and Zimmer, demanding consulting contracts, professional services agreements, and other documents related to financial arrangements with orthopedic surgeons.

On September 11, 2006, Dow Jones reported that the subpoenas sought several years’ worth of documents regarding possible federal criminal and antitrust-law violations, and that the same 5 companies reported receiving a separate batch of subpoenas in a probe of consulting or professional services agreements with orthopedics surgeons in early 2005.

“A number of investigations are under way,” Lewis Morris, chief counsel to the inspector general for the DHHS told the New York Time on September 22, 2006.

“The potential for inappropriately steering medical decisions is always at play, and there is always the risk that doctors will prescribe a particular device because of their own financial interest and not the interest of the patient,” Mr Morris said in the Times.

Device maker Medtronic reported in its filing with the SEC for the period ending January 27, 2007, that it is complying with a subpoena from the US attorney for the District of Massachusetts requesting documents related to defibrillators, pacemakers, and related components and services; and the provision of benefits to persons in a position to recommend the purchase of such devices; as well as training and compliance materials relating to the fraud and abuse and the federal Anti-Kickback statutes.

Medtronic just paid $40 million in 2005 to settle charges by the DOJ that a subsidiary paid doctors kickbacks in exchange for using the firm’s spinal surgery products.

In what legal experts are calling a preemptive effort to avoid being barred from having Medicare and Medicaid pay for any of its products, on February 12, 2007, J&J informed the DOJ and the SEC that subsidiaries in other countries made improper payments related to the sale of medical devices which may fall under the jurisdiction of the Foreign Corrupt Practices Act.

A major kickback scheme involving doctors was recently revealed in a January 17, 2007 press release by Illinois Attorney General Lisa Madigan to announce that her office had intervened in a lawsuit brought by a whistleblower private plaintiff against several Chicago area radiology centers over their payment of illegal kickbacks to doctors.

In 2006, the private plaintiff, John Donaldson, the owner of radiology centers in Illinois, filed the lawsuit on behalf of the State and the complaint remained under seal while the Attorney’s office investigated the allegations and determined whether to intervene.

The lawsuit was filed against MIDI, LLC, a Virginia-based company that operates 13 Open Advanced MRI facilities in Chicago, Crystal Lake, Bannockburn, Deer Park, Schaumberg, Elk Grove Village, Buffalo Grover, Niles, Skokie and other areas, and lists more than 20 MRI Centers as defendants in violating the Consumer Fraud and Deceptive Business Practices Act, the Illinois’ anti-kickback law and Insurance Fraud Prevention Act.

The lawsuit says the MRI Centers used “sham” lease agreements to benefit doctors in return for referrals, sometimes for unnecessary testing, and provides the details of how some MRI centers marketed and trained sales people to lure doctors into the lease deals.

According to the complaint, the leases purport to provide for the rental of a particular facility by the referring physician for the performance of the MRI services when in fact, “the MRI imaging services are done solely by the operator of the MRI Service Center and their employees, and not the physician.”

“Under the scheme,” the lawsuit explains, “the insurers pay the physicians and the payment is then divided and split between the MRI Service Center operator and the referring physician.”

The complaint charges that the schemes “involve thousands of fraudulent claims submitted to private insurers in Illinois for MRI scans done on numerous Illinois citizens.”

“The only activity by the referring physician,” it alleges, “is referring patients, billing the services as his own and receiving a kickback.”

On May 10, 2007, the Chicago Tribune reported that Chicago area doctors were told they could make over $130,000 a year by referring patients to these MRI centers. Under the largest payment plan, the Tribune said, doctors could earn “a potential fee of $277 per MRI for each patient referred for a scan.”

Critics say company executives had also better beware because the sanctions for engaging in illegal marketing schemes is no longer merely a matter of civil penalties and fines. In the recent Federal case of the United States v Caputo (ND Ill., 10/16/06), the compliance officer of a device company accused of marketing a product illegally was sentenced to prison for 7-years.

The surgeons involved in the schemes are also becoming targets of litigation. A class action lawsuit was filed in January 2007, against Arkansas neurosurgeon, Patrick Chan, accusing him of performing unnecessary surgeries in exchange for kickbacks from medical supply companies including Orthofix, Osteotech, Alphatec, and Signus.

The Medicare Fraud Task Force investigations are beginning to bear fruit. On May 9, 2007, the DOJ announced the arrest of 38 people as a result of an investigation that found sham companies had billed Medicare for $142 million worth of unnecessary or nonexistent medical equipment or supplies.

One person arrested, Eduardo Moreno, the owner of several medical supply firms who had his Rolls Royce seized last month, is accused of submitted false claims to Medicare for more than $1.9 million including billings for “powered pressure-reducing air mattresses” at a cost of $868.85 per item.

Filed under: 2007, Boston Scientific, Charite, DePuy, Johnson and Johnson, MEDICAID, medical devices, medical supply, MEDICARE, Medtronic, MRI, Smith, stents, Stryker, Zimmer

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