[Post updted] Life Spine, a medical device and technology company, has been charged by the Department of Justice with violating the False Claims Act. Prosecutors say the Illinois company paid millions of dollars in kickbacks to doctors in the hopes of increasing sales of the company’s spinal implant technology. Kickbacks in the healthcare industry are illegal.
The case was originally filed by four present or former employees of Life Spine in July 2018. The federal False Claims Act is a Civil War era whistleblower law that allows private citizens to prosecute fraud claims on behalf of the United States government. If the claims are successful, the whistleblowers typically receive between 15% and 30% of whatever is recovered from the wrongdoers.
In July 2019, federal prosecutors intervened and took over the case.
According to the original complaint, the company was “[p]aying physicians tens of thousands of dollars or more per year ostensibly for consulting services, these payments were in reality a quid pro quo to increase purchases of Life Spine’s products. Said payments were based entirely on sales potential, and irrespective of fair market value of services provided. Defendants instituted this sham physician consultant program with the specific intent to induce sales of Life Spine’s products by key accounts.”
The company’s owner Michael Butler was also charged and a former VP of business development were also charged.
Life Spine was incorporated in 2002. The company’s website says it opened in 2004. In just a few years the company had annual revenue of $40 million.
How did the company grow so fast? The four sales reps turned whistleblowers and the feds say much of that growth was fueled by illegal kickbacks.
Life Spine and Kickbacks
Most medical device companies have a compliance department and require sales staff to have training about the Anti-Kickback Statute. Not Life Spine according to the whistleblowers. They say the company’s “entire business model revolved around kickbacks.” The more a doctor would use their products, the more he or she could make in kickbacks.
The company offered monetary incentives primarily through sham consulting agreements. If a physician used over $2 million on Life Spine products annually, he could also earn stock warrants.
To hide their illegal activities, the whistleblowers say that the company didn’t report the consulting payments as required by the Physicians Payment Sunshine Act.
When one of the whistleblowers told management that the kickbacks were illegal, he was fired for insubordination. Two others asked for copies of the consulting agreement and were also fired.
Implantable Devices and Medicare Fraud
Most implantable medical devices, including those made by Life Spine, are covered by Medicare. (Medicare spends $20 billion each year on implantable medical devices and that total doesn’t include Medicaid or military spending.) When government dollars are used for these devices, a violation of the federal Anti Kickback Statute also becomes a violation of the False Claims Act (and that means reward dollars for whistleblowers.)
The government intervened in the whistleblowers’ complaint on July 25th, 2019. Although private citizens (whistleblowers) can initiate a fraud complaint, the government has the right to intervene and takeover the case.
In announcing their intervention, Manhattan’s U.S. Attorney Geoffrey Berman said, “As alleged, Life Spine and its senior management flagrantly ignored the law by paying surgeons millions of dollars in fees and royalties to get them to use Life Spine products during spinal surgeries. Kickbacks to doctors can alter or compromise their judgment about the medical care and services to provide to patients and can increase healthcare costs.”
An FBI spokesperson said, “Cases like this are why patients sometimes distrust the care they receive because they don’t know if it’s what the doctor actually thinks, or if there is a company pushing a new drug or new device. People seeking medical treatment are dependent on the advice they get, they don’t have the expertise to question the doctors. The FBI does all it can to stop those companies who overlook the patient who is just hoping to get better, and only sees the dollar signs.”
The government’s complaint in intervention doesn’t mean the company is guilty. Unless the case settles, a jury will determine that. If there is a settlement or finding of liability, the four whistleblowers should receive between 15% and 25% of whatever is recovered. (Higher rewards of 25% to 30% are reserved for cases in which the Justice Department permits the whistleblowers’ own counsel to prosecute.”
Life Spine acknowledged the charges and says, “The parties are engaged in discussions and look forward to resolving the matter.”
Life Spine Throws in the Towel, Whistleblowers to Receive $1.2 Million
[October 2019 update] The Department of Justice announced that Life Spine and two of its senior executives were paying $5,990,000 to settle the Medicare fraud charges brought by the whistleblowers. Life Spine will pay $5.5 million of the settlement while CEO Michael Butler must pay $375,000 plus interest and Vice President Richard Greiber will pay $115,000.
One of the parties indicated that the settlement represented an “ability to pay” settlement meaning the total amount that the company and two officers could have been fines was much higher. Often the government will settle for a lesser amount if the wrongdoers can prove they have no ability to pay.
The government says the whistleblowers will receive 20% of the award which is just shy of $1.2 million. The whistleblowers still have individual retaliation claims pending against the company which were not part of the settlement.
After the settlement was reached, Life Spine’s attorney said, “Life Spine is pleased with the resolution and looks forward to making continuing improvements in its compliance program as well as to continue to improve the quality of life for spinal patients.” Life Spine’s attorney is a former fraud prosecutor for the same office that prosecuted the company.
Takeaways from the Life Spine Case
There are several important takeaways from this case, some not very obvious.
First, whistleblowers can join together and file as a group. Generally, only the first whistleblower to file gets a reward. Sometimes it makes sense for whistleblowers to combine their information and share in any reward. This is often the case where a billing person has knowledge of the false invoices submitted to Medicare or other government agency while someone else has knowledge of the underlying fraud.
In the Life Spine case, three former sales rep and one current employee joined forces.
A second lesson is that trying to do the right thing by reporting internally can get you fired. Three of the four whistleblowers in Life Spine were fired after they began asking questions. Companies should appreciate employees trying to follow the law but we often see the opposite.
The retaliation cases were not effected by the settlement and are continuing.
If you believe your company is defrauding the government, we suggest you consult with us before calling a company’s ethics line or HR. If we get involved early enough, we can often prevent you from getting fired or suffering other illegal retaliation.
Yet another lesson from this case is how healthcare companies hide kickbacks. If the allegations in this case are true, Life Spine used a number of techniques including consulting fees, stock options and even intellectual property agreements.
It is totally legitimate for a doctor to get paid for consulting services or for an invention. But simply using these devices to disguise a kickback is not. The Life Spine whistleblowers convinced the Justice Department that there was no legitimate basis for the payments.
When “consulting” physicians must agree to purchase a certain amount of their implantable devices from the company, that should always raise a giant red flag. In fact, about half of Life Spine’s product sales came from doctors they paid. Medical decisions should always be based on the best needs of the patient, not which device company pays the best kickbacks.
Earning Your Medicare Fraud Whistleblower Reward
Medicare fraud hurts everyone. Taxpayers lose billions of dollars each because of healthcare fraud, much of that involving kickbacks. Hospitals, medical labs and medical device companies are the biggest kickback culprits.
If you have inside information about healthcare fraud involving tax dollars, give us a call. In addition to the federal whistleblower rewards, 29 states also offer cash rewards. Rewards are generally only paid to the first to file. Wait to long and someone else will get the reward.