United States: Medical Devices Play A Large Role In Massachusetts Health Care Fraud Unit Cases: September 2008 - September 2009

Last Updated: September 1 2009
Article by Michele L. Adelman

A retrospective review of the cases brought by the Massachusetts U.S. Attorney's Office Health Care Fraud Unit between September 2008 and September 2009 reveals a high number of cases involving medical devices as compared to drugs or other medical products. Medical devices include a wide range of products, such as implants, stents, heart pacemakers, fetal monitors, x-ray equipment, and thermometers. They are used in patients for the purposes of diagnosis, therapy or surgery. By definition, medical devices do not achieve their primary intended purposes through "chemical action" and are not "dependent upon being mobilized" to achieve their primary intended purposes. Medical devices often require approval by the Food & Drug Administration ("FDA") before they may be legally distributed and marketed.

The gamut of products that may be considered medical devices are reflected in the cases brought by the Health Care Fraud Unit over this past year.

Bioelectrical Impedance Analysis ("BIA") Software Cases

With the announcement of the sentencing of RJL Sciences, Inc. and its President, Rudolph J. Liedtke, on September 24, 2008, and the guilty plea and sentencing of Norma Muurahainen on October 30, 2008, the Health Care Fraud Unit in the District of Massachusetts appears to have concluded its prosecutions relating to the distribution of software used with Bioelectrical Impedance Analysis ("BIA") devices for the calculation of body cell mass and diagnosis of AIDS wasting. These cases stemmed from three types of computer software designed by RJL and Liedtke to convert the resistance and reactance measurements generated by a BIA device into estimates of body composition — specifically body cell mass — that could be used to verify whether an AIDS patient was "wasting" — a condition involving profound involuntary weight loss in AIDS patients. According to the government's charges, the three types of BIA software were "medical devices" covered by the Food, Drug & Cosmetic Act ("FDCA") and RJL and Liedtke failed to obtain the necessary FDA approvals before distributing the software. Furthermore, the government charged that the distribution of the devices increased the market for the drug Serostim, manufactured by the Serono Labs, Inc. and approved by the FDA to treat AIDS wasting.

In April 2005, RJL and Liedtke pled guilty to involvement in a federal conspiracy to introduce and deliver into commerce "adulterated medical devices," consisting of the three types of BIA computer software. Soon thereafter, in December 2005, Serono Labs pled guilty to involvement in the conspiracy and paid a total of $704 million to resolve criminal and civil charges against it.

Muurahainen was the medical director at Serono Labs from December 1997 to 2002. According to the government's charges, Muurahainen promoted the use of RJL's BIA devices and computer software to measure body cell mass for the purpose of diagnosing AIDS wasting and thereby encouraged physicians to write prescriptions for Serostim. On October 30, 2008, Muurahainen pled guilty to three misdemeanor counts of causing the introduction into interstate commerce of the "adulterated" RJL BIA computer software. She was sentenced to one year of probation and fined $150,000.

On September 24, 2008, RJL and Liedtke were sentenced. RJL was fined $5,000; Liedtke was sentenced to three years' probation and fined $10,000.

Cases Related to Stryker's Medical Devices Used in Healing Fractured or Broken Bones

Beginning in November 2008, the Health Care Fraud Unit initiated a series of cases related to three medical devices used in healing fractured or broken bones, all of which were manufactured and sold by Stryker, a Hopkinton corporation referred to as "XYZ Corp." in the government pleadings. The first device — an implant to promote growth in certain long bone non-unions — was approved by the FDA pursuant to a Humanitarian Device Exemption ("HDE") for "use as an alternative to autograft in recalcitrant long bone nonunions where use of autograft is unfeasible and alternative treatments have failed." The second device — a putty to promote bone growth in certain spinal fusions — received a similar HDE approval by the FDA, for "use as an alternative to autograft in compromised patients requiring revision posterolateral (intertransverse) lumbar spinal fusion, for whom autologous bone and bone marrow harvest are not feasible or are not expected to promote fusion." The third device — "a bone void filler for surgically created osseous defects or osseous defects resulting from traumatic injury" — was approved for marketing by the FDA.

Pursuant to the HDE Exemption, Stryker could only ship the first two devices to a medical facility if the facility established a local institutional review board ("IRB") and the IRB approved the use of the device. According to the government's charges, Stryker gave its sales force the responsibility of obtaining IRB approvals and rewarded sales force employees with bonuses for obtaining a certain number of IRB approvals over a particular period of time.

On November 18, 2008, Darnell Martin, a former territory manager and regional manager of Stryker, pled guilty to one count of making a false statement and one count of misbranding a medical device as a result of sales practices relating to the three devices. The former count stemmed from Martin's alleged falsification of an IRB approval in order to falsely support the shipment of Stryker's first HDE device. The latter count stemmed from a scheme whereby Martin and others purportedly promoted the sales and use of the second and third devices together despite that this combined use was not approved by the FDA. According to the charges, Martin and others prepared "mixing instructions" setting forth how the two products should be combined. The government alleged that these documents constituted "labeling" of the two devices and that neither device was approved for combined use.

Thereafter, two other former territory managers, Justin Demming and Shane Doyle, pled guilty to misbranding a medical device as a result of the managers' involvement in the scheme to promote the sales and use of the latter two devices combined together. As with Martin, Demming and Doyle were purported to have prepared "mixing instructions" setting forth how the two products should be combined. Demming's guilty plea was on February 10, 2009 and Doyle's guilty plea was on April 14, 2009.

Each of the plea agreements provide for potential cooperation by Martin, Demming and Doyle. Accordingly, other cases may likely come relating to the three devices distributed by Stryker.

NeuroMetrix NC-stat System Case

On February 9, 2009, NeuroMetrix, Inc. announced that it had reached a resolution with the Health Care Fraud Unit and the Office of the Inspector General of the U.S. Department of Health and Human Services ("OIG") resulting from ongoing criminal and civil investigations into NeuroMetrix's sales and marketing practices with respect to a medical device known as the NC-stat System. The NC-stat System is a device that assists doctors in the diagnosis of neuropathies in peripheral nerves and the spine that may be associated with ailments such as carpal tunnel syndrome, leg pain and diabetes.

The criminal investigation stemmed from allegations that NeuroMetrix engaged in unlawful kickbacks through two referral programs. Under these programs, NeuroMetrix paid doctors in the form of free boxes of disposable biosensors to induce the doctors to recommend the NC-stat System to their colleagues for procedures that were reimbursed by Medicare. The government alleged that as a result of these payments, NeuroMetrix caused the submission of false and fraudulent claims to Medicare. NeuroMetrix resolved these allegations through a three-year Deferred Prosecution Agreement under which NeuroMetrix agreed to pay a criminal penalty of $1.2 million and abide by the terms of the agreement requiring, among other things, remedial measures and full cooperation for the term of the agreement.

The civil investigation stemmed from the kickback allegations, along with allegations that NeuroMetrix caused doctors to improperly bill studies conducted through the NC-stat System under a higher billing code than the billing code that actually reflected work performed by doctors using the System. Specifically, the government claimed that NeuroMetrix caused doctors to bill for nerve conduction studies as if an "F-wave" had been measured when no such measurement was actually obtained, causing the submission of inflated Medicare claims. NeuroMetrix resolved these allegations through a Settlement Agreement under which NeuroMetrix agreed to pay $2,498,337.

Finally, NeuroMetrix entered into a five year Corporate Integrity Agreement ("CIA") with the OIG under which it agreed to engage in specific training, increased compliance procedures and OIG monitoring of compliance with the CIA and enforcement of breaches with enumerated penalties.

We anticipate that the Health Care Fraud Unit will continue to bring increasing numbers of cases involving medical devices. This trend is reflective of the wide variety of medical devices in development that require FDA approval.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions