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The CEO and CFO of SpineFrontier, a Malden, MA-based spinal device manufacturer, were recently indicted in connection with a kickback scheme to bribe surgeons to use their products in exchange for “consulting fees,” according to a statement released by US Attorney for the District of Massachusetts Nathaniel Mendell.

According to the indictment, CEO Dr. Kingsley R. Chin and CFO Aditya Humad paid, and conspired to pay, millions of dollars in bribes to surgeons in the form of sham consulting fees for work they did not perform. The defendants allegedly bribed surgeons to use SpineFrontier’s products, and in turn, SpineFrontier received millions of dollars in revenue from surgeries the surgeons performed.

Most medical device companies are familiar with governmental enforcement actions through FDA’s Office of General Counsel and its Office of Criminal Investigations, which enforce the provisions of the Federal Food, Drug, and Cosmetic Act. Fewer companies, though, have experience with the HHS Office of the Inspector General (OIG), In conjunction with the Department of Justice, OIG enforces the Medicare and Medicaid fraud and abuse laws, including the Anti-Kickback Statute, 42 USC 1320-7b, which criminalizes any payment by a supplier to a customer made—in whole or in part—to induce sales.

Medical device companies often enter into consulting agreements with physicians who use their products. These agreements often provide substantial payments to physicians for vaguely defined duties for which there may be little follow-up or tangible result. Such arrangements are vulnerable under the Anti-Kickback Statute, which punishes anyone who “knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person . . . to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program.”

SpineFrontier and its chief officers’ woes should serve as a cautionary tale for any medical device manufacturer considering some kind of third party fees-for-service compensation arrangement. The details of any agreement need to be carefully considered and clearly defined to avoid any hint of impropriety because the consequences can be devastating. The charges of conspiring to violate the Anti-Kickback Statute carries a sentence of up to five years in prison, three years of supervised release, a fine of $250,000—or twice the gross gain or gross loss resulting from the offense, whichever is greater—forfeiture and restitution. The charges of violating the Anti-Kickback Statute carries a sentence of up to 10 years in prison, three years of supervised release, a fine of up to $100,000, forfeiture and restitution. The charges of conspiracy to commit money laundering carries a sentence of up to 20 years in prison, three years of supervised release, a fine of $500,000—or twice the value of the property involved in the transaction, whichever is greater—forfeiture and restitution.

If a compliance issue arises and an inquiry begins, proper documentation becomes critical. In order to successfully defend an agreement, the company must be able to assemble documents proving that the consultant lived up to his or her end of the bargain by providing legitimate and valuable services, which were monitored and evaluated by the company. For this reason and many others, it’s vital that you work with federal regulatory compliance experts, such as the team here at MEDIcept.

To learn more about consulting compensation agreements and Anti-Kickback Statute compliance,

 

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For additional information, please contact Susan Reilly at SReilly@MEDIcept.com.

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