Medtronic Reaches Settlement over Allegations of Illegal Physician Payments to Promote Spinal Products

July 18, 2006 Download PDF

On July 18, 2006, Medtronic, Inc. reached a settlement agreement with the U.S. Department of Justice pursuant to which Medtronic will pay $40 million to the United States and participating states to settle allegations stemming from two qui tam lawsuits, United States ex rel. [UNDER SEAL] v. Medtronic, Inc., et al., Civil Action No. 02-2709 (W.D. Tenn.), and United States ex rel. Poteet v. Medtronic, Inc., et al., Civil Action No. 03-2979 (W.D. Tenn.). These lawsuits, which were brought under the False Claims Act, allege that Medtronic made illegal payments to physicians in order to promote its spinal products in violation of the federal healthcare program antikickback statute. Additionally, Medtronic entered into a Corporate Integrity Agreement (CIA) with the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services.

The suits alleged that between 1998 and 2003, Medtronic Sofamor Danek, USA, Inc., the spinal products subdivision of Medtronic, paid for physicians to attend meetings and events at lavish resort locations, provided free or discounted services to physicians, and paid physicians under sham consulting and royalty agreements. A supplement to one of the relator’s complaints alleges that Medtronic paid more than half a million dollars to a single physician over a four-month period.

The CIA between Medtronic and the OIG contains similar provisions to those seen in previous CIAs arising from False Claims Act settlements. It requires the designation of a compliance officer, formation of a compliance committee, promulgation of a code of conduct, and implementation of policies designed to prevent illegal conduct in the future. These policies include a procedure to track payments made by the company to outside parties and to ensure that consultants actually performed the services for which they are being compensated. The CIA also mandates a training program for all Medtronic employees to educate them on the applicability of the Antikickback Statute to Medtronic activities and the legal sanctions for violating the statute. The CIA also requires Medtronic to train all independent distributors of Medtronic products with regard to the Antikickback Statute.

This settlement agreement, however, depends on both of the qui tam lawsuits being dismissed. The agreement was reached only with the parties to the first suit. The government has moved to dismiss the Poteet complaint, claiming that Poteet simply made the same accusations as the first whistleblower. If the Poteet complaint is not dismissed, the settlement could be rescinded.

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