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Orthofix, Inc. Sentenced for Illegal Promotion of Bone Growth Stimulators
Company to pay almost $8 million in criminal penalties;
$42 million recovered in joint criminal/civil resolution
DECECMBER 14, 2012

BOSTON - American medical device manufacturer Orthofix, Inc. was formally convicted and sentenced today before Judge William G. Young for criminal violations related to its obstruction of a federal audit of the company’s bone growth stimulator medical devices. Judge Young sentenced Orthofix to pay a criminal fine of almost $8 million and submit to the supervision of the U.S. Probation Office for one year. Orthofix will pay more than $42 million to resolve criminal and civil liability arising from the illegal promotion of its bone growth stimulators, namely the Orthofix Spinal-Stim, the Orthofix Cervical-Stim and the Orthofix Physio-Stim.

“Orthofix manipulated patients’ medical records and tried to hide its misconduct from federal investigators, in order to defraud the Medicare program,” said United States Attorney Carmen M. Ortiz, “The Orthofix investigation, which has resulted in the conviction of six individuals so far, including a high-ranking executive, reinforces this office’s historic commitment to protecting taxpayers from health care fraud.”

“Criminals intent on placing profits from federal health programs over and above
compliance should expect to tangle with authorities,” said Susan J. Waddell, Special Agent in
Charge of the Office of Inspector General of the U.S. Department of Health and Human Services
New England region. “Orthofix blatantly ordered sales staff to disregard Medicare rules, and
conveniently looked away when medical records were altered and even forged.”

Orthofix previously pleaded guilty to an Information charging it with a felony, namely obstruction of a federal audit. As set forth in the Information, for years Orthofix manipulated Certificates of Medical Necessity, an important form required by Medicare to be signed by a physician attesting that the bone growth stimulator was medically necessary. Medicare accounted for approximately 25% of Orthofix’s bone growth stimulator business. Orthofix manipulated these Certificates of Medical Necessity in a number of different ways, including: (a) having Orthofix sales representatives fill out the entire form, including the medical necessity section; (b) forging physicians’ signatures in the section of the form certifying the physician’s belief that the device was medically necessary; (c) filling out or improperly coaching the physicians’ staff to fill out the estimated length of need field as “9 months” for every patient without regard to the physician’s medical judgment about an individual patient’s estimated length of treatment.

In June 2008, a Medicare contractor audited Orthofix at its headquarters in McKinney, Texas. The purpose of the audit was to ensure compliance with Medicare’s supplier standards. During this audit, Orthofix failed to disclose that: (a) -s many of its territory managers filled out the entire Certificate of Medical Necessity with no input from the physician; (b) a number of its territory managers coached physicians or their staff to fill out the length of need section on the Certificate of Medical Necessity to be “9 months” for all Medicare patients; and (c) some territory managers even forged physicans’ signatures in Certificates of Medical Necessity.

Under the terms of the plea agreement, Orthofix agreed to pay a $7.65 million criminal fine and $34.23 million plus interest to resolve civil allegations under the False Claims Act. The civil settlement resolves claims brought against Orthofix in a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act that is pending in the District of Massachusetts: United States ex rel. Bierman, v. Orthofix International, N.V., et al., Civil Action No. 05-10557-EFH (D. Mass.).

The civil settlement addresses four issues alleged by Relator on behalf of the Government relating to Orthofix’s promotion of its bone growth stimulator products. Those issues are: (1) the improper waiver of patient co-payments by Orthofix, thus misstating their true cost and resulting in overpayments by federal programs; (2) submission of falsified certificates of medical necessity to support federal payments for Orthofix products; (3) failure to advise patients of their right to rent rather than purchase Orthofix products; and (4) offering or paying kickbacks, characterized as fitter, referral, and other comparable fees, to induce the use of Orthofix’s products.

As part of the settlement, Orthofix also agreed to enter into an expansive corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. That agreement provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to this matter.

In addition to these charges and the resolution against Orthofix, the Orthofix investigation has to date resulted in a number of felony charges against executives, employees and contractors of Orthofix, including the following:

  • A former Orothofix Territory Manager, Brian Racey, pleaded guilty on Sept. 28, 2012, to health care fraud violations;
  • A former Orthofix Vice-President of Sales, Thomas Guerrieri, pleaded guilty on April 9, 2012, to paying kickbacks to induce a doctor and a physician’s assistant to prescribe Orthofix products;
  • A former Orthofix Regional Sales Director, Mitchell Salzman, pleaded guilty on Dec. 14, 2011, to making a false declaration to a federal grand jury about Orthofix conduct;
  • A former Orthofix Territory Manager, Derrick Field, pleaded guilty on March 22, 2012, to falsifying patients’ medical records to fraudulently induce Medicare to pay for Orthofix bone growth stimulators;
  • A former Orthofix Territory Manager, Michael McKay, pleaded guilty on May 11, 2012, to falsifying patients’ medical records to fraudulently induce Medicare to pay for Orthofix bone growth stimulators; and
  • A physician’s assistant, Michael Cobb, pleaded guilty on April 19, 2012, to accepting kickbacks from Orthofix in return for ordering Orthofix bone growth stimulators.

The investigation is ongoing.

The criminal case was investigated and prosecuted by Assistant U.S. Attorneys David Schumacher and Jeremy Sternberg of the U.S. Attorney’s Office for the District of Massachusetts. The civil investigation and settlement was handled by Assistant U.S. Attorneys Zachary A. Cunha and Shannon T. Kelley of the U.S. Attorney’s Office and Senior Trial Counsel David T. Cohen of the Commercial Litigation Branch of the Justice Department’s Civil Division. The Corporate Integrity Agreement was negotiated by the Office of Inspector General of the Department of Health and Human Services.

 

 

 

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