Medical Device Companies Next Target for Major Federal Fraud Enforcement
March 31, 2003
Michael R. Manthei- Boston
Christopher Myers- Northern Virginia
Medical device company executives and boards of directors
should take immediate steps to examine their company’s current marketing,
continuing medical education, discount pricing and consultant arrangements with
physicians, hospitals and others in a position to refer business.
Federal prosecutors in Illinois recently unsealed the first
of what they promise will be many indictments alleging hundreds of millions of
dollars in Medicare, mail and wire fraud by medical device companies. The
indictments arise out of what prosecutors described as the largest health care
sting operation in U.S. history. The indictments allege that device company
executives and sales staff encouraged and instructed customers on how to submit
allegedly fraudulent Medicare claims.
In recent years, government enforcement actions, bolstered
by “whistleblower” lawsuits under the qui tam provisions of the Federal False
Claims Act have focused on the pharmaceutical industry. With the unsealing of
this indictment, federal prosecutors have signaled an apparent expansion of
those efforts to include medical device companies. To make this point absolutely
clear, Associate U.S. Attorney for the Eastern District of Pennsylvania, James
Sheehan, recently told attendees at a health care conference that device
companies were “worse than” pharmaceutical companies. Sheehan specifically put
device companies on notice that they had become targets of the government’s
enforcement machine.
Enforcement Likely to Reflect Concerns/Strategies Developed
in Pharmaceutical Industry Investigations
In October 2001, a settlement was announced between the
federal government and TAP Pharmaceutical Products, Inc. TAP agreed to pay $875
million, the largest such settlement in history, to resolve criminal and civil
charges based on allegedly fraudulent drug pricing and marketing conduct. The
settlement followed a four-year investigation by the government into TAP’s
marketing practices.
The TAP investigation and recent guidance from the Office
of the Inspector General of the Department of Health and Human Services (OIG)
(see Draft OIG Compliance Program Guidance for Pharmaceutical Manufacturers, 67
Fed. Reg. 62057 (Oct. 3, 2002)), identify four “major risk areas” for device
companies: (1) integrity of data used to establish government reimbursement; (2)
relationships with purchasers – discounts and other terms of sale; (3)
relationships with physicians and other health care professionals; and (4) other
remuneration, including any “arrangements that offer benefits, directly or
indirectly, to physicians or others in a position to generate or influence
referrals.” These would include consulting arrangements and continuing medical
education programs.
Like the pharmaceutical companies before them, device
companies can no longer rely on the fact that they do not directly bill the
Medicare or Medicaid programs. We expect more investigations and possible
indictments in the months to follow. Rigorous and effective compliance programs
are the best method for avoiding investigations and prosecution, and for
detecting and correcting potential problems. Waiting for the government to come
calling is a very risky option.
For further information on these issues, call Christopher
A. Myers or Michael Manthei, toll free, at 1-888-688-8500.