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Arthrex – $16 Million

The United States has settled a federal False Claims Act qui tam case brought by a client of the Whistleblower Law Collaborative LLC against Arthrex, Inc., a Florida-based medical device maker primarily to the orthopedic surgery industry.  The settlement announced today by the Department of Justice and the United States Attorney for the District of Massachusetts involves allegations that Arthrex paid kickbacks to market two of its surgical products.

In announcing the settlement, Acting United States Attorney Nathaniel R. Mendell said:

Paying bribes to physicians to distort their medical decision-making corrupts the health care system, This settlement demonstrates our dedication to ensuring that taxpayers and patients get a health care system that is on the level. Kickbacks have no place anywhere in our health care system, and we will continue to identify and punish this illegal conduct.

Arthrex Paid Kickbacks in the Form of Improper Royalties to Market Its Surgical Products

Under the terms of the settlement, Arthrex has agreed to pay the United States $16 million plus interest to resolve allegations that it defrauded Medicare by paying illegal remuneration to Dr. Peter Millett, a Colorado based orthopedic surgeon, to induce him to purchase, order, or recommend the purchasing or ordering of Arthrex medical devices. Arthrex has also entered into a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG).

According to the settlement agreement with DOJ, the United States contends that in 2006, Arthrex had denied Dr. Millett’s request for royalties for his claimed contributions to the development of the SutureBridge and SpeedBridge kits—two Arthrex product lines that surgeons use in joint repair surgery.  However, when Dr. Millett threatened to realign his loyalty to an Arthrex competitor in 2010, Arthrex not only acquiesced to Dr. Millett’s royalty request but also agreed to pay him royalties for past and future sales of SutureBridge and SpeedBridge kits at a higher percentage rate than was the company’s ordinary royalty practice. Pursuant to this agreement, Arthrex paid Dr. Millett millions of dollars.

The United States further contends that one purpose of Arthrex’s payments was to induce Dr. Millett to purchase, order, or recommend the purchasing or ordering of Arthrex medical devices, in violation of the federal Anti-Kickback Statute. Consequently, associated claims submitted to the Medicare program were false or fraudulent in violation of the False Claims Act.

DOJ, FBI, and HHS OIG Praise the Arthrex Settlement

Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division explained that

Arthrex may have believed it could increase profits by paying millions of dollars in kickbacks to a physician, under the guise of royalty payments, to increase the use of its products. But today’s $16 million settlement makes it clear that its unscrupulous scheme backfired. Anyone involved in, or entertaining, similar activity should know that health care fraud is a priority for the FBI, and we will pursue anyone trying to misuse this country’s vital health care system.

Acting Assistant Attorney General Brian M. Boynton for the Justice Department’s Civil Division emphasized:

The Department of Justice will continue to pursue medical device manufacturers that pay kickbacks to boost their profits. Such arrangements can improperly influence physicians’ decision-making and result in the misuse of critical federal health care program funds.

Arthrex also entered into a five-year Corporate Integrity Agreement (CIA) with HHS-OIG setting forth requirements for future compliance.  HHS-OIG Special Agent Philip M. Coyne stressed that “Medical device manufacturers who engage in such kickback schemes undermine the integrity of federal health care programs.” He further noted that HHS-OIG will continue to work closely with its law enforcement partners “to protect patients and taxpayers by holding accountable companies that engage in unlawful activities.”

Our Client Will Receive An Award Under the False Claims Act

Our client brought Arthrex’s fraud to the attention of the government by filing a qui tam complaint under the False Claims Act. Under the False Claims Act, a private citizen (known as a “relator”) who suspects or knows of fraud against the government can act as a whistleblower and file a sealed complaint on behalf of the government. If the case is successful, the relator is entitled to a share – between 15% and 30% – of the government’s recovery.

I’m happy to have contributed to the Government’s awareness and investigation of this issue. Everyone involved in it did a great job, including the government attorneys and agents and my own attorneys.  I’m glad that this came to a successful conclusion.

Whistleblower Law Collaborative LLC attorneys Bob Thomas, Suzanne Durrell, and David W.S. Lieberman commended the outstanding efforts of the government  and applauded their client’s willingness to risk coming forward. Mr. Lieberman stressed the skillful work done by Assistant U.S. Attorneys David Derusha and Charlie Weinograd of the District of Massachusetts, and Department of Justice Trial Attorney Andrew J. Jaco. “The United States moved quickly and worked collaboratively with us to obtain this settlement.”

The Whistleblower Law Collaborative is also grateful for the assistance provided by their co-counsel, David Suny of McCormack Suny LLC in Boston, Massachusetts.

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