Orthofix to Pay $42 Million in False Claims Settlement

Lewsiville, Texas-based Orthofix International N.V. has agreed to pay $42 million to the U.S. Department of Justice (DOJ) to resolve a lawsuit and a six-year criminal probe of allegations it paid kickbacks to doctors who used its bone- growth stimulators. Orthofix has not admitted to any wrongdoing and does not assume liability in the settlement but the company nevertheless agreed to plead guilty to charges of obstruction of a federal audit.

The settlement includes a $7.7 million criminal fine.

This civil settlement resolves a whistleblower lawsuit filed by Jeffrey Bierman in December 2010 in U.S. District Court in Boston, Mass. The suit alleged that Orthofix participated in shady business practices: improperly waiving patient co-pays, thereby misrepresenting their true costs which resulted in overpayments from such federal programs as Medicare; providing kickbacks to physicians and staff to boost the use of Orthofix products; causing the submission of falsified certificates of medical necessity; and failing to adequately inform patients of their option to rent rather than buy the product. The lawsuit points out that the bone device in question only is needed by a patient for three to six months, deactivating after nine. “No rational patient would ever choose the purchase option,” the filing states, claiming Orthofix did not present all relevant information to the patients.

Bierman will receive more than $9 million from the suit (under the False Claims Act citizens can file suit on behalf of the government and share in the settlement). Bierman is co-owner of a business that provides medical billing and related services to health care providers. He is protected from retaliation by whistleblower laws.

“The Justice Department has longstanding concerns about kickbacks and the routine waiver of co-payments, because they can impose significant costs on federal health programs that are not medically justified,” said Stuart F. Delery, acting assistant attorney general for the Civil Division. “The resolution of this matter yielded a substantial recovery for taxpayers, and should deter other companies from engaging in such conduct in the future.”

Non-invasive bone growth stimulators are designed to help bones heal by applying a weak electrical current or ultrasonic wave to a fracture or surgical site. Patients wear them over a cast, brace or clothing for between two and six months in most cases. Medicare pays approximately $4,000 to purchase each device, which costs about $100 to manufacture. The falsification of certificates of medical necessity to Medicare has led to the arrest of five individual Orthofix employees who previously pleaded guilty to criminal charges in connection with this matter.

Orthofix is not alone. Similar allegations have been made of Biomet Inc., DJO Inc., Orthologic Corp. (a predecessor company of DJO), and Smith & Nephew plc. “The business models of the makers of bone growth stimulators are strikingly similar,” said Neil Getnick, managing partner of Getnick & Getnick LLP. “Not only has Medicare been grossly overcharged, but the industry is plagued by kickbacks, falsified medical records and other illegal conduct designed to get orders and get claims paid. Medicare has lost hundreds of millions of dollars to fraud, and we intend to recoup that as we move forward with the remaining defendants.”

Getnick & Getnick is the law firm that filed the lawsuit on Bierman’s behalf.

In May 2009, Attorney General Eric Holder and Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services, began the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative. This resolution is a result of HEAT’s continuing work towards combating health care fraud. The False Claims Act, one of HEAT’s tools, has been used to recover more than $7.5 billion in fraud cases since January 2009.

“We are glad to get this behind us,” Orthofix President and CEO Robert Vaters told Orthopedic Design and Technology.