Medical Equipment Fraud

Medical equipment fraud typically starts with the manufacturer, from failure to report adverse events, to off-label marketing, to offering financial inducements/kickbacks, to charging higher prices than are legally permitted. Usually, pressure is brought to bear on company employees, particularly sales representatives, to produce results and cultivate business for the manufacturing/distributing company.  These products can include cardiac and orthopedic devices as well as neuroprosthetics (neural prosthetics), medical robots, and microchip implants.

One-third of the market share for medical devices is owned by Medtronic Inc., General Electric Company (GE), and St. Jude Medical Inc. Cardiac rhythm management devices (defibrillators, pacemakers, etc.) are the largest source of revenue for both Medtronic and St. Jude whereas GE focuses on the manufacturing of diagnostic imaging technologies like CT and MRI machines. When measured in terms of therapeutic area, spending is highest in the following three markets: spinal, cardiovascular, and neuromodulation. The failure to report adverse events to the FDA as required by law, may be a violation of the False Claims Act.

Medical equipment fraud can include manufacturing equipment and devices that deviates from the product’s PMA, or 510-K, or that are made in violation of Good Manufacturing Practices. A number of equipment companies have manufacturing plants overseas.  They may then establish an import and/or sales office in the form of a wholly owned subsidiary to distribute the medical equipment to customers in the United States.

Medical equipment fraud also occurs when companies align themselves with physicians in a variety of kickback schemes. Arrangements can include royalties or a percentage based structure on new devices.  These relationships could include hiring physicians as “consultants” to help in the designing, testing, or developing of new products.  If not set in advance, these arrangements can violate the anti-kickback statute, particularly if it takes into account the volume or value of referrals or business. These schemes can include not only physicians, but hospitals and hospital systems.

It can also be a violation of the False Claims Act if a device company is using a consulting agreement in violation of the anti-kickback statute to get physicians to use more of and/or exclusively use their products. In a Nolan Auerbach case, St. Jude Medical, Inc. settled and paid $16 million as the result of allegations it violated the anti-kickback statute when it used post market studies as vehicles to pay participating physicians kickbacks to implant St. Jude pacemakers and ICDs  (A separate confidential agreement resolved employment claims, fees, and costs).