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Hot Fraud and Abuse Issues for Medical Device Companies


Federal enforcement authorities are focusing on key fraud and abuse issues in the medical device industry -- safety-related reporting and fraud risks, kickbacks, device alteration and off-label marketing. A May 24th presentation at a BNA audioconference by Virginia Gibson, chief of the Civil Division of the U.S. Attorney's Office for the Eastern District of Pennsylvania, outlined these risk areas.

Quality of Care/Reporting

The Safe Medical Device Act, 21 U.S.C. § 360i(b)(1)(a), requires device user facilities, such as hospitals, when they become aware that a device may have contributed to the death of a patient, to report that information to the government and to the manufacturer within ten working days. Adverse events are reported at Government attorneys are exploring whether a manufacturer that continues to market a product with notice that is having unusually high failure rates could be liable. Gibson noted In Re: Grand Jury Subpoena, WL 51651 (3/16/2004), where the Massachusetts federal district court suggested that if a manufacturer were knowingly shipping a product with a failure rate higher than the label specifications suggested, the continued marketing of the product could be vulnerable to fraud claims.

Gibson emphasized litigation that dogged Guidant following its acquisition of Endovascular Technologies in 1997, in connection with the reporting obligations for device manufacturers. Guidant allegedly failed to report adverse events and withheld documents during an FDA inspection in 2000. In December 2000, auditors found Endovascular “significantly out of compliance” with FDA reporting requirements. In March 2001, Endovascular notified the FDA of a preliminary audit indicating problems and subsequently pulled its Ancure Endograft device from the market. Further filings showed 2628 device malfunctions out of 7632 sold. A felony guilty plea in June 3003 followed along with a $92.4 million payment.

Kickbacks and False Claims Act

Government enforcers are also pursuing kickback allegations, under both the federal health program anti-kickback law, 42 U.S.C. § 1320a-7b(b) and the separate Public Contracts Anti-Kickback Act, 41 U.S.C. § 52, in conjunction with False Claims Act theories. Gibson noted USA ex rel. Schmidt v. Zimmer, 386 F.2d 253, where the qui tam plaintiff under the False Claims Act challenged undisclosed incentive payments to a group purchasing organization, where payments flowed through to physicians and hospital orthopedic departments from the GPO if they helped meet sales targets. Since the hospitals then made certifications to the government that were false, the device maker was accused of wrongfully causing the submissions of these false statements. The plaintiff claimed that “false certifications of compliance were necessary consequences of Zimmer’s marketing scheme.” Discovery is expected to last into 2008.

In the Poteetv. Medtronic qui tam case, Ms. Poteet, a senior manager of travel services at the company, alleged that Medtronic gave spinal surgeons “excessive remuneration, unlawful prerequisites, and bribes in other forms” for purchasing devices. For instance, the company allegedly paid $400,000 to a Wisconsin physician for eight days of work. Gibson cited media reports that internal company documents filed in the case indicate that in the last four years doctors have received over $50 million from the company.

Gibson stressed the applicability of the public contract anti-kickback law to medical device makers in reference to the Federal Employees Health Benefit Program and the Department of Defense, even though it is not evident how a medical device maker would be considered a contractor to the FEHBP. She also emphasized the importance that disclosure can take in mitigating risk under the anti-kickback laws.

The government has also focused on concerns that GPO arrangements with manufacturers may inflate costs to cover GPO administrative fees, create barriers to new vendors, improved products and small companies, involve misuse of the non-profit corporate form, and diminish the clinician role in buying decisions. And create kickback opportunities for executives. Gibson noted that arrangements that fall outside the existing anti-kickback law “safe harbor” for payments to GPOs can pose risk.

Off-label Marketing

Gibson tagged device alteration and off-label marketing as a particularly hot issue. She noted industry arguments that freedom of speech principles bar government efforts to suppress truthful marketing of off-label uses. In United States v. Caputo, 2004 WL 524684 (N.D. Ill.), the court held that “permitting defendants to engage in all forms of truthful, non-misleading promotion of off-label uses would severely frustrate the FDA’s ability to evaluate” off-label uses. Caputo was indicted for conspiracy to introduce a misbranded sterilizer device into commerce by using off-label information. An indictment for conspiracy to introduce “misbranded device into commerce through off label” information was allowed to stand. The court rejected a defense to the failure to file a pre-market notification based on a good faith belief that the modified device was as safe and as effective as the FDA cleared device. The two defendants, president and compliance officer of the device maker, have appealed their convictions for conspiracy to defraud the U.S. government. The case is now pending in the Court of Appeals for the Seventh Circuit.

Finally, Gibson referred favorably to the guidelines of the Accrediting Council for Continuing Medical Education (“ACCME”). These guidelines focus on distinguishing independent CME from sponsored product promotion, assuring presentations give a balanced view of therapeutic options, and assuring disclosure of funding sources for programs and presentations. The standards can be found at

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