Skip to main content
Press Release

Tennessee and Virginia Orthopedic Clinics to Pay $1.85 Million to Settle
Allegations of Billing Medicare for Reimported Products

For Immediate Release
Office of Public Affairs

Two orthopedic clinics will pay a combined $1.85 million to resolve state and federal False Claims Act allegations that they knowingly billed state and federal health care programs for reimported osteoarthritis medications, known as viscosupplements, the Department of Justice announced today.  Tennessee Orthopaedic Clinics P.C., headquartered in Knoxville, Tenn., will pay $1.3 million, and Appalachian Orthopaedic Clinics P.C., headquartered in Kingsport, Tenn., will pay $550,000. 


“The Department of Justice will not tolerate the conduct of companies that impermissibly shift risks onto patients in order to increase their own profits,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “The department is committed to maintaining the integrity of the health care system, ensuring that patients receive drugs and devices that are safe and effective and taking action against companies that take chances with the health of consumers so as to improve their own bottom lines.” 


Viscosupplements, such as Synvisc and Orthovisc, are injections approved by the Food and Drug Administration for the treatment of osteoarthritis pain in the knee.  Viscosupplements are reimbursed by Medicare, Medicaid and other federal health care programs at a set rate based on the average sales price of the domestic product.  The government contended that the clinics knowingly purchased deeply discounted viscosupplements that were reimported from foreign countries and billed them to state and federal health care programs in order to profit from the reimbursement system, when such reimported viscosupplements were not reimbursable by those programs.  Allegedly, the reimported product included labeling in foreign languages and in English for additional uses not approved in the United States, which demonstrated that the product was reimported.  Moreover, because the product was reimported, the government alleged there was no manufacturer assurance that it had not been tampered with or that it was stored appropriately.    


“This scheme is yet another example of illegal actions by health care providers to profit from drugs imported into the United States,” said U.S. Attorney for the Eastern District of Tennessee William C. Killian.  “Medicare and FDA requirements are designed to prevent potential harm to patients.  Noncompliance with the law to increase profit at the risk of patients will be pursued by the Department of Justice.”


“Attempts to increase profits by circumventing the law will not be tolerated,” said Special Agent in Charge of the U.S. Department of Health and Human Services Office of Inspector General in Atlanta Derrick L. Jackson.  “Health care providers buying cut-rate, cheap drugs from foreign sources will end up paying a steep price.”


The allegations resolved by the settlement were first raised in a lawsuit filed against the clinics under the qui tam, or whistleblower, provisions of the False Claims Act by Douglas Estey, a physician’s assistant who was occasionally paid by Genzyme Corp. to speak to medical providers about the use of Synvisc.  The Act allows private citizens with knowledge of fraud to bring civil actions on behalf of the government and to share in any recovery.  Estey will receive $323,750. 


The government’s investigation was a coordinated effort by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Eastern District of Tennessee, the Department of Health and Human Services Office of Inspector General and Office of General Counsel, the Food and Drug Administration Office of Criminal Investigations and Office of Chief Counsel, the Federal Bureau of Investigation and the Tennessee Bureau of Investigation.


This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Secretary of Health and Human Services Kathleen Sebelius.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $17.1 billion through False Claims Act cases, with more than $12.2 billion of that amount recovered in cases involving fraud against federal health care programs.


The case is captioned United States ex rel. Estey v. Tennessee Orthopaedic Clinics P.C., Appalachian Orthopaedic Associates P.C. and Appalachian Orthopaedic Partners LLC, Docket No. 3:12-cv-85 Varlan/Guyton.  The claims settled by these agreements are allegations only; there have been no determinations of liability.   

Updated September 15, 2014

Press Release Number: 14-076