Multi-Million Dollar Fraud Settlement Signals Heightened Enforcement

Mark Langdon
Sidley Austin LLP

Recent columns have discussed the increased scrutiny being placed on medical device companies by the federal government and noted the risk reduction measures such entities can take to reduce the likelihood of being investigated. These include, for example, developing and implementing corporate compliance programs as well as training relevant personnel on the various healthcare fraud and abuse laws.   

A significant medical device company settlement just announced by the Office of Inspector General (OIG) of the US Department of Health and Human Services underscores just how real these risks are today. Although the settlement did not involve an orthopedic device company, the underlying conduct and allegations that gave rise to the settlement, and the government’s view of that conduct, are equally applicable and relevant to the orthopedic device industry. Therefore, orthopedic companies would be well-advised to review the “corporate integrity agreement” (CIA) that was entered into between this company and the federal government, and consider applying those principles to their operations.  

This article briefly outlines the allegations and conduct that were at issue in the recent settlement and notes several “lessons” that orthopedic device companies can learn from this case.

The Settlement

The settlement agreement, which was announced by the OIG on July 2, involved Advanced Neuromodulation Systems, Inc. (ANS), a medical device manufacturer specializing in spinal cord stimulation used for pain management. ANS was acquired in 2005 by St. Jude Medical.

The agreement stemmed from a subpoena that previously had been issued to ANS by the OIG requesting documents related to some of ANS’s sales and marketing, reimbursement, Medicare and Medicaid billing as well as other business practices. Under the terms of the settlement, ANS paid the OIG $2.95 million and entered into a three-year CIA that includes a number of reviews of the company’s arrangements with physicians.

According to the OIG’s press release announcing the settlement, the allegations against ANS centered around the fact that it had engaged in a marketing program in which a number of physicians were paid $5,000 for every five new patients tested with an ANS product. The OIG contended that the program did not have any significant clinical value but, instead, served primarily as a marketing tool to increase ANS sales. The government also asserted that ANS sales and marketing personnel provided physicians with sports tickets, free trips, free dinners, grants and other gifts.  

In the press release, Inspector General Daniel R. Levinson said, “This significant settlement is an important example of OIG’s continuing effort to eliminate illegal kickback practices and demonstrates our commitment to use our administrative enforcement tools to penalize medical device manufacturers that pay kickbacks to physicians. In addition, the Corporate Integrity Agreement ensures OIG’s oversight on future practices that affect the Federal health care programs and their beneficiaries.”  

Notably, the OIG has the authority to impose civil money penalties and exclusion on individuals and entities for a wide variety of conduct, including violations of the federal anti-kickback statute. In short, the anti-kickback statute is a criminal law that prohibits the knowing or willful offer or receipt of any remuneration that is intended to induce the referral of patients, or the rental or purchase of items or services, that are reimbursable by federal healthcare programs, including Medicare and Medicaid. The purpose behind this law is to prevent the overutilization of healthcare items or services furnished to program beneficiaries and to prevent steering of patients as well as unfair competition.

In the instant case, the government took the position that the $5,000 payments, and the other gifts and things of value offered by ANS sales representatives, essentially amounted to kickbacks by ANS that were intended to induce physicians to utilize ANS products, as opposed to a competitor’s products.  

Terms of the CIA

The CIA that was executed by ANS is notable in several respects. First, it is for a period of three years, which means that the company is responsible for making certain reports and fulfilling the compliance requirements and obligations outlined in the document for that period. Second, the agreement provides that, within 120 days of its effective date, ANS “shall create and maintain procedures, processes and/or systems” to track virtually all arrangements with referral sources (ie, physicians) to ensure that each such arrangement does not violate the anti-kickback statute. These procedures include tracking remuneration (ie, compensation) to and from ANS to all other parties to an arrangement; tracking time records or service invoices to ensure that parties to arrangements are performing the services required under the applicable contractual arrangement; establishing and implementing a written review and approval process for all arrangements; establishing written policies and procedures for arrangements with referral sources to ensure that such arrangements do not violate the anti-kickback statute; requiring the ANS compliance officer to review the internal review and approval processes and other procedures periodically and provide a report of those findings to the compliance committee; and implementing effective responses when suspected violations of the anti-kickback statute are discovered. Third, the CIA provides that ANS must engage an “independent review organization” to perform an annual “verification” review of the company’s arrangements with referral sources and its compliance with certain provisions of the CIA.      


As noted previously, although ANS is not an orthopedic device company, this settlement remains significant because it illustrates the increasing scrutiny being placed by the government on financial relationships involving medical device companies and physicians. Clearly, the orthopedic device industry necessarily involves close collaboration between manufacturers and physicians, so this recent enforcement action as well as the pending healthcare fraud and abuse investigations involving some of the nation’s largest orthopedic companies and their relationships with physician consultants make it more important than ever for manufacturers to continue to be vigilant with respect to their compliance review of arrangements with physicians and their training of sales representatives.

In particular, in light of the specific conduct that was the subject of the ANS case, orthopedic device companies should make certain that any compensation they pay to physician consultants be reflected in a written agreement, be commensurate with fair market value, not be provided in exchange for referrals and be in return for bona fide work or services that the manufacturer needs.

Finally, this case is significant in that it serves as a reminder of the OIG’s sweeping civil money penalty authority to bring an action in its own right against a healthcare entity based upon an alleged violation of the anti-kickback statute.

Mark Langdon is an attorney with the Washington, DC office of the law firm Sidley Austin LLP. He is a nationally recognized expert on healthcare compliance issues, with a particular focus on fraud and abuse and reimbursement matters. Mark primarily represents device and pharmaceutical companies, hospitals and physicians. He can be reached at (202) 736-8162 or [email protected].