Orthofix Pays $30 Million for Illegal Kickbacks to Doctors

A subsidiary of Orthofix International SV, Blackstone Medical Inc., has agreed to pay the federal government $30 million to resolve allegations that Blackstone remunerated doctors with illegal kickbacks in order to induce the use of its products. Orthofix is a manufacturer of spinal implants and other products used in spinal surgeries. The government’s complaint, filed under the federal False Claims Act, alleges that Blackstone offered kickbacks to spinal surgeons in order to incentivize orders of its products; the payments are alleged to have been made in numerous guises, including so-called “consulting agreements,” payment of royalties, research grants, travel, and even entertainment. These sorts of payments to doctors may constitute violations of the Anti-Kickback Statute, a federal law that makes it a criminal offense to offer or receive payments in order to induce the utilization of health care products and services. In addition to being prosecuted criminally, violators of the Anti-Kickback Statute often face civil liability under the False Claims Act, the vehicle through which such claims are frequently resolved by the federal government. As part of its settlement with the federal government, Blackstone has agreed to a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services, one of the regulatory agencies charged with enforcing anti-fraud laws in the health care sector. Corporate integrity agreements ensure that companies put into place more rigorous oversight and compliance procedures.

The government became apprised of the kickback allegations as a result of a complaint filed under the qui tam (whistleblower) provisions of the False Claims Act. The whistleblower, Susan Hutcheson, is expected to receive $8 million as an award for her participation in the litigation. When a whistleblower (known as a qui tam relator) files a complaint under the False Claims Act, the complaint is sealed and the government has 60 days to review the allegations. Although the government may choose to intervene in the relator’s qui tam complaint, it often does not do so, and relators may proceed with their claims even if there is no government intervention. As was the case in the Blackstone Medical case, the federal government often intervenes for settlement purposes.

Fraud and abuse in federal health insurance programs are pervasive, and the government has increasingly turned to the False Claims Act (particularly qui tam suits) to combat myriad types of fraud, including illegal promotion of drugs by pharmaceutical companies, overbilling of Medicare by providers, and violations of federal laws such as the Anti-Kickback Statute.  The government has recovered $9.5 billion since January 2009 in cases involving fraud against federal health care programs, and total recoveries in False Claims Act cases since January 2009 exceed $13.2 billion.

Originally enacted in 1863, the False Claims Act has led to over $12 billion in recoveries for the federal government since 2009 alone. Recent changes to the law have expanded the scope of liability covered under the statute to encompass a growing number of types of fraud, including, among others, fraudulent claims for payments pursuant to government contracts, off-label promotion of drugs by pharmaceutical companies, overbilling of federal health insurance programs by health care providers and pharmacies, and fraudulent bidding for government contracts. While other federal agencies, such as the SEC, the IRS, and OSHA, have their own whistleblower programs, the False Claims Act allows whistleblowers to obtain private counsel to participate directly in cases. Many relators have seen recoveries in cases where the government declined to intervene.