Manhattan U.S. Attorney Announces Settlement Of Lawsuit Against Spinal Implant Company, Its CEO, And Another Executive For Paying Millions Of Dollars In Kickbacks To Surgeons
Defendants Make Admissions and Agree to Pay a Total of $5.99 Million
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Scott J. Lampert, Special Agent in Charge of the New York Regional Office of the U.S. Department of Health and Human Services, Office of the Inspector General (“HHS-OIG”), announced today that the United States has settled a civil healthcare fraud lawsuit against LIFE SPINE INC. (“LIFE SPINE”), MICHAEL BUTLER (“BUTLER”), the founder, president, and chief executive officer of LIFE SPINE, and RICHARD GREIBER (“GREIBER”), the vice president of business development of LIFE SPINE, alleging that LIFE SPINE paid kickbacks in the form of millions of dollars of consulting fees, royalties, and intellectual property acquisition fees to surgeons to induce them to use LIFE SPINE’s spinal implants, devices, and equipment. The surgeons who received these kickbacks accounted for approximately half of Life Spine’s domestic sales of spinal products from 2012 through 2018. In the settlement, LIFE SPINE agreed to pay $5.5 million, BUTLER agreed to pay $375,000, and GREIBER agreed to pay $115,000. Each defendant also made admissions and acknowledged and accepted responsibility for conduct alleged in the Government’s complaint as described further below. The amounts paid by LIFE SPINE and GREIBER under the settlement are based on the Office’s assessment of their ability to pay based on the financial information they provided.
The settlement was approved by U.S. District Judge Jed S. Rakoff.
Manhattan U.S. Attorney Geoffrey S. Berman said: “The settlement reflects this Office’s commitment to stopping companies like Life Spine, and the individuals who run them, from engaging in unlawful kickback schemes. Such conduct seriously undermines the public’s confidence in medical treatment decisions made by doctors whose judgment may be compromised by illegal kickbacks. This Office will continue vigorously to pursue companies and individuals who pay health care providers to induce them to use their products or services.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “Medical treatment should be based on the patient’s best interest and not on illegal kickbacks. We will continue working with our law enforcement partners to protect patients and taxpayers from individuals who place profits before the needs of patients.”
According to the Complaint filed in Manhattan federal court:
LIFE SPINE is a Delaware corporation with its principal place of business in Huntley, Illinois. LIFE SPINE designs, develops, manufactures, and markets medical devices and equipment primarily used in spinal surgeries performed by orthopedic surgeons and neurosurgeons, including implants and instruments (“Life Spine Products”).
LIFE SPINE paid surgeons to induce them to use Life Spine Products during their surgeries. LIFE SPINE aggressively recruited surgeons who had the potential to use a high volume of Life Spine Products to enter into agreements to serve as paid consultants and/or to transfer their patents and patent applications to LIFE SPINE in exchange for payments and promised support from LIFE SPINE to bring the surgeons’ new products to market. These agreements took different forms, including agreements under which the surgeons were purportedly paid to provide training and/or educational services; agreements under which the surgeons were purportedly paid to provide input on new products and then would receive royalties on future sales of the product; and agreements under which the surgeons were paid large up-front acquisition fees for their patents/patent applications and then would receive royalties on the sales of any products developed based on the patents. LIFE SPINE tied these agreements and the associated payments – as well as the company’s continued commitment to devote resources to the surgeons’ product development projects – to the surgeons’ usage of Life Spine Products.
The kickback scheme was successful and these surgeons used Life Spine Products during procedures performed on Medicare and Medicaid patients, which resulted in the submission of kickback-tainted false claims to Medicare and Medicaid.
As part of the settlement, LIFE SPINE admits, acknowledges, and accepts responsibility for the following conduct:
- Between 2012 and 2018 (the “relevant period”), LIFE SPINE entered into agreements with dozens of surgeons and paid these surgeons, and entities owned in whole or in part by the surgeons, millions in consulting fees, royalties, and intellectual property (“IP”) acquisition payments. Most of the surgeons who received these payments substantially increased their usage of Life Spine Products after entering into agreements with LIFE SPINE.
- Many of the surgeons who received consulting fees, royalties, and IP acquisition payments were high-volume users of Life Spine Products. Approximately 21 of the top 30 users of Life Spine Products during the relevant period received consulting fees, royalties, and/or IP acquisition payments. In addition, approximately half of LIFE SPINE’s domestic sales of spinal products during the relevant period were attributable to surgeries performed by surgeons who received consulting fees, royalties, and IP acquisition payments from LIFE SPINE.
- During the relevant period, LIFE SPINE generated reports for management that reflected both the payments made to surgeons and the surgeons’ usage of Life Spine Products during a given time period. On one occasion a report included an “ROI” column that calculated LIFE SPINE’s return on investment by dividing the sales revenue associated with each surgeon’s usage of Life Spine Products by the total amount paid to that surgeon in consulting fees and royalties during the same period. When surgeons’ usage decreased, senior sales managers would contact the surgeons, or their distributors, to urge the surgeons to use Life Spine Products more frequently.
BUTLER admits, acknowledges, and accepts responsibility for the following conduct:
- BUTLER was involved in identifying and retaining some of the surgeons who served as paid consultants for LIFE SPINE. He reviewed many of the patents that LIFE SPINE considered purchasing from surgeons and was involved in some of the negotiation of the terms of the IP purchase agreements, in some instances including the initial acquisition fee and royalty rates.
- On multiple occasions, BUTLER received reports that reflected both the payments made to surgeons and the surgeons’ usage of Life Spine Products during a given time period. When surgeons’ usage of Life Spine Products decreased, on occasion, BUTLER would contact the surgeons, or their distributors, to encourage them to increase their usage of Life Spine Products.
GREIBER admits, acknowledges, and accepts responsibility for the following conduct:
- GREIBER was one of the LIFE SPINE managers responsible for reviewing the qualifications of, selecting, and approving surgeons who served as paid consultants for LIFE SPINE.
- LIFE SPINE entered into an IP purchase agreement under which LIFE SPINE licensed a patent for a static compression plate owned by a company associated with a surgeon who wanted to develop the product and bring it to market. GREIBER was one of the two LIFE SPINE managers who signed the agreement on behalf of LIFE SPINE. LIFE SPINE spent hundreds of thousands of dollars to attempt to develop and bring the compression plate to market but encountered a number of setbacks. The surgeon accounted for over $3.7 million in Life Spine Product sales from 2012 through 2016.
- In 2016, GREIBER participated in two discussions with the surgeon during which LIFE SPINE’s continued funding of the project and the surgeon’s recent decreased usage of Life Spine Products were discussed. During the calls, while discussing the funding of the compression plate, GREIBER suggested that the surgeon should increase his usage of Life Spine Products. On one call, GREIBER asked the surgeon to consider using Life Spine “more vigorously” than he recently had been. Later in the discussion, the surgeon suggested that the company and he “renew our vows to each other.”
In connection with the filing of the lawsuit and settlement, the Government intervened in a private whistleblower lawsuit that had been filed under seal pursuant to the False Claims Act.
Mr. Berman thanked the FBI and HHS-OIG for their assistance with the case.
The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Jennifer Jude, Jeffrey K. Powell, Lara K. Eshkenazi, and Rachael Doud are in charge of the case.