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Medical device industry is on ‘radar screen’ of fraud agencies
Ophthalmologists may be at high risk should the government begin focusing its enforcement efforts on the industry.
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Recent statements from federal enforcement officials indicate that the spotlight on fraud and abuse in the pharmaceutical industry may be shifting to the medical device industry and to its physician customers and investors.
Whereas pharmaceutical manufacturers have had to change their marketing practices under heavy scrutiny from government fraud enforcement agencies, there has been comparatively little enforcement activity in the medical device industry. Vicki L. Robinson, chief of the industry guidance branch at the Office of Inspector General (OIG) for the Department of Health and Human Services, said this may soon change.
Richard S. Liner |
Speaking at the Advanced Medical Technology Association’s (AdvaMed) annual meeting, Ms. Robinson commented that the device industry is “clearly on the government’s radar screen” and that how the industry relates to physicians is a concern. AdvaMed is the largest trade association representing medical device manufacturers.
Associate U.S. Attorney James G. Sheehan, known as one of the most innovative federal prosecutors of health care fraud cases, indicated at the American Bar Association health law conference Feb. 23 that, unlike the multitude of physicians who write prescriptions for pharmaceuticals, there are comparatively few physicians who have influence over the purchasing decisions of hospitals and ASCs when it comes to medical devices. Mr. Sheehan said the level of competition in the industry is offering device companies little choice but to develop aggressive marketing and promotional practices, if they want to remain competitive.
As a result, device companies have been slow to embrace a culture of compliance in their marketing and promotional activities, which means that physicians must remain vigilant when courted by medical device manufacturers.
Ophthalmologists represent a significant customer base for many manufacturers of medical devices and may be at high risk should the government begin focusing its enforcement efforts on the medical device industry.
Recent enforcement activity indicates a shift
Within the past 2 years, enforcement activity appears to have increased with regard to medical device companies and their physician customers and investors.
In fall 2005, the U.S. Attorney for the District of Massachusetts issued subpoenas to Medtronic, Guidant Corp. and St. Jude Medical. Reports suggest that the subpoenas appear to represent the beginning of a fraud and kickback investigation, because the request for documents included the company’s training and compliance materials related to fraud and abuse and anti-kickback statutes.
 Alan E. Reider |  Allison Weber-Shuren |
In an unrelated settlement, Medtronic agreed in July to pay $40 million to resolve civil allegations that its Sofamor Danek division paid kickbacks to physicians in exchange for use of the company’s spinal products.
Historically, the common risk areas for prosecution of physicians for fraud and abuse violations, in connection with their dealings with the medical device and pharmaceutical industries, have related to the payment of kickbacks that are disguised as discounts, rebates and other price concessions, illegitimate grants to conduct studies or educational programs and “sham” consulting contracts.
In exchange for these payments, physicians have allegedly purchased or prescribed devices and other products that are not medically necessary. Moreover, any claim submitted to a federal health program that includes the cost of a product purchased or prescribed as a result of a kickback could be considered a false claim and prosecuted under the federal False Claims Act. Now, federal enforcement agencies are being more vocal regarding two other risk areas that previously had not received much attention in the medical device industry:
1. Physician investments in medical device companies. In September, AdvaMed requested guidance from the OIG on physician investments in medical device companies. On Oct. 6, the OIG published a response to this request in which it noted the recent proliferation of physician investment in medical device companies, and that these arrangements have a “strong potential for improper inducements” and “should be closely scrutinized under the fraud and abuse laws.”
Moreover, the OIG stressed that its 1989 Special Fraud Alert regarding joint ventures is still effective and would apply to physician investments in medical device companies. The OIG further stated that the amount of revenue generated for the venture by a physician investor, whether directly or indirectly, is a relevant factor in analyzing a joint venture under the federal Anti-Kickback Statute.
The OIG’s position on this issue is not surprising, and its response appears to coincide with the recent climate change in the enforcement environment for medical device companies.
Therefore, as with any joint venture between physicians and a company to which they refer business, physicians should consider carefully whether the venture would withstand scrutiny under federal and state anti-kickback statutes.
2. Off-label promotion. Recent statements by government attorneys indicate that off-label marketing of medical devices poses similar fraud and abuse concerns as off-label marketing of pharmaceuticals, and that enforcement agencies likely will be more aggressive in the future with regard to investigations of medical device companies. Physicians should be sensitive to receiving payments or other perquisites from device manufacturers’ sales representatives, particularly when related to discussing off-label uses for the manufacturers’ products.
Potential risk for physicians
Although manufacturers present more prominent targets for investigation and typically have “deeper pockets,” the government has demonstrated a desire to hold physicians accountable for their participation in kickback arrangements.
Over the past few years, there have been several examples of physician prosecutions for accepting kickbacks of various types from pharmaceutical manufacturers.
For instance, in the TAP Pharmaceutical Products case, the government prosecuted several physicians for allegedly accepting kickbacks to switch their patients to a drug manufactured by TAP. Furthermore, in September, a Florida physician was sentenced to 46 months in jail and ordered to pay more than $2.3 million in restitution for accepting cash payments from a medical equipment company in exchange for ordering equipment and medications that were not medically necessary.
These trends place physicians at increased risk, even when the investigation initially does not relate to the physician. Physicians should take note that once the government initiates an investigation of a device company, all of the manufacturer’s interactions with its customers and investors may be revealed, even if those relationships were not the initial targets.
Accordingly, whenever a medical device company markets or promotes a product to a physician, asks a physician to enter into a consulting arrangement, offers to fund a study or educational activity or asks a physician to invest in the company or a joint venture, the physician should fully vet the proposed arrangement with counsel to ensure that it does not violate any health care fraud and abuse laws.
For more information:
- Richard S. Liner, JD, MPH, a senior associate in the health care practice of the Washington D.C.-based law firm Arent Fox LLP, can be reached at 1050 Connecticut Ave. NW, Washington, DC 20036; 202-857-8972; e-mail: liner.richard@arentfox.com.
References:
- Device firms next target for prosecutors pursuing off-label promotions, ABA warned. BNA Health Care Fraud Report. Feb. 28, 2007.
- Federal officials urge industry to deter legal problems by policing sales, marketing. BNA Health Care Fraud Report. March 14, 2007.
- Prosecutors describe areas of concern in cases involving medical device firms. BNA Health Care Fraud Report. April 4, 2006.