Medtronics spine subsidiary, formerly known as Kyphon, has agreed to pay $75 million to settle False Claims Act allegations that the companys marketing efforts caused hospitals to overbill Medicare for procedures involving its products, the Justice Department announced.
The settlement agreement reflects the companys assertion that Kyphon and its employees had not engaged in any wrongdoing or illegal activity, Medtronic said in a news release. The government alleged that Kyphon offered remuneration to physicians and hospitals to get them to unnecessarily admit Medicare patients overnight for kyphoplasties, in which a balloon is inflated between compressed vertebrae to create space that's filled with cement, according to the settlement.
The Justice Departments investigation was triggered by a 2005 whistle-blower lawsuit filed under seal in U.S. District Court in Buffalo, N.Y., by two former Kyphon employees, Charles Bates and Craig Patrick, who will share a $14.9 million slice of the settlement. Because Kyphon was able to convince healthcare providers to perform kyphoplasty as an inpatient procedure, the company was able to price its products so that its profit margin exceeded 80%, said Phillips & Cohen, the law firm representing Bates and Patrick, in a news release.
Medtronic completed its acquisition of Kyphon in November 2007. The case was disclosed in Kyphons pre-acquisition SEC filings, and the settlement amount was reserved on Kyphons books before the transaction closed, according to Medtronics release. The settlement also calls for the company to comply with a corporate integrity agreement with HHS inspector generals office. -- by Gregg Blesch