On November 7, 2019, the Department of Justice (DOJ) announced it had settled a False Claims Act (FCA) lawsuit against Life Spine, a spinal device manufacturer, and two of Life Spine’s senior executives. The settlement totaled $5.99 million and included various admissions of responsibility to settle allegations of kickbacks paid by Life Spine that the DOJ claimed were designed to induce surgeons to utilize Life Spine devices and submit claims to federal health programs for these improperly-induced utilizations in violation of the federal anti-kickback statute (AKS) and FCA. The settlement includes $5.5 million to be paid by Life Spine and $490,000 to be paid by its CEO and VP of business development.

We previously discussed the DOJ’s decision to intervene in this qui tam action brought by a whistleblower against Life Spine here. In the intervening complaint, the DOJ alleged that Life Spine entered into agreements with surgeons that had the potential to be high-volume users of Life Spine products. The agreements included consulting agreements for training or educational services, product development agreements for the surgeons to provide input on Life Spine’s development of new products (for which surgeons were subsequently paid royalties upon market entry), and intellectual property (IP) rights transfer agreements under which the surgeons received significant up-front payments.

According to the DOJ, as part of the settlement Life Spine admitted, among other things that:

  • most of the surgeons who received payments from Life Spine under agreements for consulting fees, royalties and intellectual property acquisition payments substantially increased their use of Life Spine products after entering into the agreements;
  • many of the surgeons who received these payments from Life Spine were high-volume Life Spine product users;
  • Life Spine and its executives generated reports for management that reflected both the payments made to surgeons and their 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); and
  • when the surgeons’ use of Life Spine products decreased, Life Spine contacted the surgeons to pressure them to increase their use of Life Spine products.

The Life Spine executives admitted to similar conduct.  The settlement resolved DOJ claims that  Life Spine product use was induced by improper remuneration under the AKS, and the products were used in surgeries performed on Medicare and Medicaid patients, thereby allegedly rendering false under the FCA any claims associated with their reimbursement.

The DOJ’s intervention in this suit and resulting settlement is a reminder of the continued scrutiny of all types of compensation arrangements between device manufactures and providers. The focus on IP agreements and licensing as potential unlawful remuneration when tied to the use of a manufactures devices displays the Government’s commitment to pursuing evolving kickback arrangements. Device companies and providers may want to review their policies, procedures and compensation arrangements for AKS risk.

This post was co-authored by Michael Lisitano, legal intern at Robinson+Cole. Michael is not yet admitted to practice law.