This week, the Department of Justice (DOJ) intervened in a False Claims Act (FCA) lawsuit against Life Spine and two of its executives, filed in the U.S. District Court for the Southern District of New York. The lawsuit alleges that Life Spine violated the Anti-Kickback Statute by paying more than $7 million in consulting fees, royalties, and intellectual property acquisition fees to surgeons to induce them to use Life Spine products in spinal surgeries. According to the complaint, the payment of these illegal kickbacks caused the submission of false claims to federal healthcare programs, including Medicare and Medicaid, under the theory that any claim for payment submitted in connection with an illegal kickback is “false” within the meaning of the FCA.

Key allegations from the DOJ’s complaint include:

  1. That Life Spine entered into agreements with surgeons based on their potential to use a high volume of Life Spine Products in their practice. The agreements included “medical education agreements, product development agreements, and intellectual property purchase or licensing agreements.” Some agreements covered more than one type of arrangement and individual surgeons “frequently entered into more than one type of agreement.”
  2. That Life Spine “closely tracked” each paid surgeon’s use of Life Spine products and generated reports that compared the amount each surgeon was paid versus the products the surgeon purchased and then used these numbers to calculate the “return on investment” (ROI) for each paid surgeon. According to the DOJ’s complaint, if a paid surgeon’s usage was too low, Life Spine pressured the surgeon to use more Life Spine products during his or her surgeries, “often reminding the surgeon that the company expected a certain level of usage in exchange for its payments.”
  3. That after Life Spine entered into agreements with surgeons, these surgeons starting using Life Spine products more frequently. For example, the complaint alleges that a Rhode Island-based surgeon who had never used Life Spine products in the past, generated more than $2.2 million in Life Spine sales revenues after Life Spine paid the surgeon $200,000 to acquire two patent applications.
  4. That Life Spine entered into a $2 million intellectual property agreement with an Indiana-based surgeon who was the highest purchaser of Life Spine products after the surgeon threatened to stop using the products over the company’s decision to select a rival surgeon to serve as the key note speaker at an event.
  5. That paid surgeons “accounted for approximately half of Life Spine’s total domestic sales of spinal products” from January 2012 to December 2018.
  6. That in addition to the agreement described above, Life Spine also offered gifts and perks to paid surgeons and rewarded surgeons for their business. For example, the complaint alleges that Life Spine transported on surgeon on a helicopter  “to show the guy some swag.”
  7. That Life Spine failed to report some of the $7 million it paid to surgeons from 2012 to 2018 in violation of the Physician Payment Sunshine Act, which imposes a legal obligation on medical device companies to report payments made to physicians to the Center for Medicare & Medicaid Services (CMS).

The government remains focused on investigating and prosecuting medical device companies that pay illegal kickbacks to physicians. The DOJ press release quotes Manhattan U.S. Attorney Geoffrey S. Berman: “Kickbacks to doctors can alter or compromise their judgment about the medical care and services to provide to patients, and can increase healthcare costs. This office will continue to hold companies and the people who run them accountable when they make improper payments to doctors.”

The lawsuit against Life Spine is an important reminder to medical device companies that the payment of consulting fees, royalties, and intellectual property acquisition fees to physicians can run afoul of the Anti-Kickback statute when these payments are tied to the physician’s ability to generate sales revenue, or even if there is an appearance of such a connection. It is common for medical device companies to pay physicians consulting fees, royalties, and intellectual property acquisition fees. These types of arrangements are permissible under the Anti-Kickback Statute if structured appropriately, and must be reported to CMS to comply with the Sunshine Act. However, structuring these arrangements so they are compliant with the law can be tricky.

The Life Spine allegations illustrate some of the common ways the government scrutinizes these arrangements, in particular, the appearance of a connection between a company’s selection of physician consultants and the prescribing patterns of those consultants.  Companies that wish to make these types of payments to physicians should carefully consider the purpose behind these payments and seek legal advice when structuring these agreements to stay compliant with the law.