Medical Device & Equipment Fraud

Overview

Medical devices and durable medical equipment cover a wide range of products, from heart valves and artificial joints to blood glucose test strips and wheelchairs. The federal Food and Drug Administration (FDA) requires all medical product manufacturers to register their facilities and list their devices with the agency, to follow general control requirements, and to report to the FDA any incident suggesting that their device may have caused or contributed to death or serious injury.

In addition, some products must be approved by the FDA before they can be marketed legally to consumers. Whether pre-market approval is required depends on the level of risk the product poses to consumers. Devices and equipment are subject to both FDA regulatory requirements and government health care program laws. Failure to comply with either may give rise to liability under the False Claims Act (FCA).

Common Medical Device and Equipment Fraud Schemes

Manufacturers, distributors, and suppliers of medical devices and equipment engage in various schemes that defraud government health care programs. These schemes not only cost the government money, but some of them threaten or cause patient harm. Common schemes prosecuted under the False Claims Act in recent years include:

• selling or distributing an unapproved (“misbranded” or “off label”) or defective (“adulterated”) product.
• paying kickbacks to suppliers, distributors, health care providers and/or patients to induce them to prescribe or use the product.
• making misleading statements about the product’s safety or effectiveness.
• prescribing the device or equipment when it is not reasonable and necessary to the diagnosis or treatment of the patient.
• falsifying patient information and diagnoses.
• billing the government for equipment that was not actually provided.
• upcoding (misrepresenting the device actually provided or needed).
• double billing.
• using unlicensed personnel to administer or operate equipment.

Successful Medical Device and Equipment Cases and Awards

Government prosecutors have used the FCA to target a broad range of marketing, distribution, manufacturing, and billing practices by manufacturers, distributors, and suppliers in the medical device and equipment industry. Their illegal behavior can result in the submission of false or fraudulent claims to government health care programs for devices or equipment — and in some instances, for related medical procedures. Examples of successful FCA cases include:

• Provider kickbacks, off-label promotion, and upcoding: Shire Pharmaceuticals LLC and other subsidiaries of Shire plc paid $350 million to the federal and state governments. Shire and Advanced BioHealing (ABH) — a company Shire acquired — were accused of using kickbacks and other unlawful methods to induce health care providers to use or overuse its product Dermagraft, a bioengineered human skin substitute approved by the FDA for the treatment of diabetic foot ulcers. The alleged kickbacks included Dermagraft’s sales force treating clinics and physicians to lavish dinners, drinks, entertainment, and travel; providing them with medical equipment and supplies; paying for purported speaking engagements and bogus case studies; and providing cash, credits and rebates. In addition to these illegal kickbacks, prosecutors alleged that Shire and its predecessor ABH unlawfully marketed Dermagraft for purposes not approved by the FDA, made false statements to inflate the price of Dermagraft, and caused improper coding, verification, or certification of Dermagraft claims and related services.
• Supplier kickbacks: Bayer Healthcare, a manufacturer of diabetic self-testing supplies including glucose monitors and testing strips, paid $97.5 million to settle claims that it engaged in a cash-for-patient scheme with 11 direct-to-patient diabetic suppliers. Under the scheme, Bayer paid kickbacks to the suppliers in return for the suppliers switching patients to Bayer’s products from supplies manufactured by Bayer’s competitors. For example, Bayer paid Liberty Medical, one of the largest suppliers, $2.5 million based on the number of patients converted.
• Violations of FDA reporting requirements: Alere paid $33.2 million to resolve allegations that it manufactured and sold a materially unreliable point-of-care diagnostic testing device to health care providers and failed to report the defects to the FDA. The device was intended to aid health care providers in the diagnosis of drug overdoses, acute coronary syndrome, heart failure, and other serious conditions and was frequently used in emergency departments. The government accused Alere of receiving but ignoring customer complaints placing it on notice that some devices produced erroneous results that could create false positives and false negatives. These unreliable results could adversely affect clinical decision-making, particularly in emergency situations where timely, accurate decisions are critical. Nevertheless, Alere failed to alert the FDA and failed to take appropriate corrective actions until FDA inspections prompted a nationwide product recall.
• Provider kickbacks: St. Jude Medical, a manufacturer of pacemakers and defibrillators, was accused of using post-market studies and a device registry database as a way to funnel kickbacks to physicians to induce them to implant St. Jude’s devices. The fees paid to physicians ranged up to $2,000 per patient, and the company allegedly sought to retain physicians’ business and/or to convert their business from a competitor device to a St. Jude device. The company paid $16 million to settle the case.
• Provider kickbacks: Orthofix, a subsidiary of Blackstone Medical, paid $30 million to settle allegations that it paid kickbacks to physicians/surgeons to induce them to use spinal implant and other spinal surgery products manufactured by Orthofix instead of a competitor’s product. Among the kickbacks were sham consulting agreements, sham royalty arrangements, sham research grants, and travel and entertainment expenses.
• Provider kickbacks: Covidien LP paid $20 million to settle the government’s claims that Covidien paid kickbacks to health care providers. Covidien marketed radiofrequency ablation catheters to health care providers, including vein surgery practices, which used them in procedures for the treatment of varicose veins and underlying conditions. The government alleged that in order to increase demand for such services and therefore induce purchases of Covidien’s vein ablation products, Covidien gave these health care providers practice and market development support, including (i) providing customized marketing plans, (ii) scheduling and conducting “lunch and learn” meetings and dinners with other health care providers to drive referrals to specific vein practices, and (iii) providing substantial assistance to specific vein practices in connection with planning, promoting, and conducting vein screening events to attract new patients for these practices.
• Misbranding and off-label promotion: BTG plc and its subsidiary Biocompatibles Inc. manufactured, sold, and marketed a device that was approved for use only for embolization of hypervascular tumors for an unapproved use — as a drug delivery system for chemotherapy drugs. Despite the fact this was a use the FDA had rejected, the company “misbranded” the device by causing physicians to use the device “off label” for treatment of patients with various forms of cancer. In addition, because this was an unapproved use, the company instructed health care providers to bill for the device and procedure as if it were for the approved use. The company paid $36 million in civil and criminal remedies.
• Marketing and sale of an unapproved device: AngioDynamics Inc., a U.S. distributor of the drug delivery device manufactured by Biocompatibles, supra, paid a total of $13.5 million to settle allegations that that device (and another one it marketed) were not approved by the FDA and that the company made false and misleading claims to health care providers regarding the safety and effectiveness of the drug-delivery device. In addition, the government alleged that AngioDynamics instructed health care providers to use inaccurate billing codes when submitting claims for the drug-delivery device and procedure to government health care programs.
• Off-label promotion and failure of FDA reporting requirements: C.R. Bard Inc., a medical device manufacturer, paid a combined $61 million in criminal and civil remedies to settle charges that it promoted and caused the unlawful use of heart catheters in patients with heart problems when the catheters had not been approved by the FDA for human use. Among the charges were that the company changed the designs of previously-approved catheters without seeking approval from the FDA for the changes, concealed from the FDA malfunctions of the catheters in patients, and illegally tested catheters on patients to see if they were safe and effective. They caused the submission of false or fraudulent claims to government health care programs and also fraudulently sold the defective catheters to federal medical facilities such as Veterans’ Affairs Hospitals.
• Causing billing for medically unnecessary devices: DJO Global Inc., a medical device company, paid $7.62 million to settle claims that one of its subsidiaries submitted false claims to TRICARE (which provides insurance for military retirees and their dependents) for excessive, unnecessary transcutaneous electrical nerve stimulation (TENS) electrodes. TENS is a therapy that uses low-voltage electrical current for pain relief. The government alleged that the TRICARE beneficiaries did not want or need the electrodes but that company sales representatives contacted them directly and acted as though the beneficiaries had indicated a need for the TENS electrodes in order to induce them to order the devices.
• Supplier kickbacks: Coloplast Corp., a manufacturer of ostomy and continence care products, and Liberator Medical Supply Inc., a supplier of medical products, collectively paid over $3.6 million to settle government allegations that Coloplast paid and Liberator accepted kickbacks for Liberator to refer patients to Coloplast’s products. The kickbacks included marketing promotions and conversion campaigns through which Liberator’s sales staff were given cash incentives to refer patients as well as rebates and price concessions paid by Coloplast to Liberator.
• Causing billing for medically unnecessary services: Three Independent Diagnostic Testing Facilities (IDTFs) that provide remote cardiac monitoring services and one of their owners designed and used an online enrollment portal to steer physician customers who used the companies’ PocketECG device to select the most expensive cardiac monitoring service, telemetry, for their Medicare patients even though the physicians intended to select less expensive monitoring services, such as Holter or event monitoring. Medi-Lynx, AMI, Spectocor, and Bogdan agreed to pay more than $13.4 million to the United States to resolve the allegations that they submitted, and caused the submission of, false claims to Medicare for medically unnecessary and unreasonable telemetry services.
• Violations of licensing requirements: A medical device company that provides durable medical equipment and services for the treatment of respiratory ailments, such as oxygen deficiency and sleep apnea, paid over $850,000 to settle allegations that it used unlicensed employees to set up sleep apnea masks and oxygen therapy equipment in patients’ homes. Government health care programs require suppliers of respiratory therapy equipment and services to comply with state licensing requirements, but the company, North Atlantic Medical Services d/b/a Regional Home Care, Inc., failed to follow Massachusetts licensing requirements.
• Billing for nonexistent and medically unnecessary devices: Durable medical equipment supplier Med Tech, and its owner, paid more than $467,000 to resolve allegations of billing Medicaid for unprovided and medically unnecessary back braces and electrical stimulation units.

How to Report Medical Device and Equipment Fraud

The above are just some examples of the many different types of fraud that can be prosecuted under the False Claims Act. Unfortunately, fraud continues to plague Medicare, Medicaid, and other government health care programs and is not limited to the acts or settings described above. If you think that you have information related to health care fraud, please contact us for a free, confidential consultation.