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Doctor becomes eighth person sentenced in sprawling Orthofix fraud case


By Joe Carlson
Posted: April 23, 2014 - 4:30 pm ET
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A Virginia podiatrist who lied to a grand jury about altering patient records to increase Medicare bills has become the eighth person sentenced in the long-running healthcare fraud investigation of orthopedic devicemaker Orthofix International N.V.

Dr. Ilene Terrell of Fredericksburg, Va., was sentenced to five months in prison and another five months of house arrest last week for telling a Boston grand jury in 2012 that she didn't alter patient records to justify billing Medicare for numerous $4,000 Orthofix bone-repair devices.

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Terrell eventually admitted to altering the records. But before that, court records say that she warned an Orthofix salesperson to conceal the fraud: “If you guys take me out,” Terrell told the sales rep, “you are never going to live to hear the end of it. If I roll on this, I am serious, heads are going to roll. Heads are absolutely gonna roll.”

Terrell joins Orthofix's former vice president of sales and several high-ranking company officials who have been sentenced to prison time after admitting to using bribes and altered patient records to drive up Medicare prescriptions for devices that help patients build up bone following surgeries.

The Lewisville, Texas-based corporation itself pleaded guilty in 2012 to obstructing a federal investigation into the fraud, eventually paying $42 million in criminal fines and civil payments in a plea deal that included providing key information to prosecutors on company officials who were involved.

“We worked closely with Orthofix to see who did these things and bring individuals to justice,” said Assistant U.S. Attorney David Schumacher, one of the prosecutors on the case. “There was a lot of bad conduct at Orthofix, but they accepted responsibly early on and they cleaned house. They got rid of the bad actors.”

A civil whistle-blower lawsuit dating to 2006 alleged that the company paid kickbacks to doctors to increase sales of devices that are worn outside the body to stimulate bone growth following spinal surgery.

But the investigation eventually expanded to include other types of schemes and devices, including the case against Terrell, in which she admitted to altering patient records so that Medicare would cover a type of bone-growth stimulator that requires patients go 90 days without normal healing before the device will be covered. In reality, patients were getting the devices without the 90-day waiting period and then the dates in their records were changed so that Medicare would cover them.

“It takes a great deal of work to review records, e-mails and interview witnesses about these kinds of allegations,” said healthcare fraud attorney and former high-ranking fraud prosecutor Kirk Ogrosky, partner at Arnold & Porter, which is not representing anyone in the case. “While qui tam allegations can lead investigators to open a case like this, it takes corporate cooperation and diligent work to dig into relationships at this level. There are only a few U.S. attorneys offices in the country that handle these types of matters.”

Schumacher said the Orthofix investigation ought to get the word out that “you can't alter medical records. Patient records are sacrosanct.”

As a doctor, Terrell appears to be an outlier in the investigation. Six of the seven people who have been sentenced so far are Orthofix employees, not physicians, and a seventh company official has agreed to plead guilty. That case is still pending. The only other non-company employee convicted was Michael Cobb, a physician's assistant in Rhode Island who was taking kickbacks from Orthofix.

The highest-ranking company employee convicted was Thomas Guerrieri, former vice president of sales, who was sentenced to eight months in prison and $50,000 in fines in July 2013 for paying kickbacks to healthcare professionals. Four former territory managers and one former regional manager were sentenced. The pending case involves another former territory manager. The company also signed a corporate integrity agreement with HHS' Office of Inspector General to ensure future compliance.

Unrelated to the bone-stimulation fraud investigation, the company last month announced it was restating earnings for the years 2007-2012, based on the findings of an internal audit committee regarding the timing of how some revenue was recognized on company balance sheets. A statement to investors said the money was related to “distributor arrangements.”

On Monday, the company announced that it had appointed an interim chief financial officer, David E. Ziegler, after the former CFO “voluntarily resigned,” a company statement said. The search for a new permanent CFO is ongoing.

Follow Joe Carlson on Twitter: @MHJCarlson


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