On November 8, 2021, the United States Attorney’s Office in Boston announced that Arthrex Inc., a large, privately-held medical device company, agreed to pay $16 million to resolve a False Claims Act qui tam case alleging that Arthrex used the guise of royalties to pay millions of dollars in kickbacks to a prominent Colorado orthopedic surgeon, Peter Millett.
CMS Open Payments data shows that some device companies, including Arthrex, pay a number of surgeons millions of dollars per year, presumably for supposed royalties on sales of devices that the surgeons ostensibly helped to design or invent. Notwithstanding the magnitude of these payments, DOJ historically has brought few kickback cases involving bogus royalties because the companies often are able to show that the recipient physicians made at least some contribution to the design of the devices at issue. Under the so-called “one purpose” test, however, a kickback case may be viable if there is evidence that the device company intended the purported royalty payments also to reward physicians for using or promoting the company’s products.
The government’s settlement agreement with Arthrex indicates that this was a case where the government had evidence that at least one of Arthrex’s purposes in paying Dr. Millett was to generate referrals that were ultimately reimbursed by Medicare. According to the allegations in the settlement, Arthrex first denied Dr. Millett’s request for royalties in 2006. Then, in 2010, after Dr. Millett allegedly “threatened to realign his loyalty to an Arthrex competitor,” Arthrex changed its mind and started paying him royalties “at a higher percentage rate than was the company’s ordinary royalty practice,” including on past sales. According to the settlement agreement, the “United States contends that one purpose of Arthrex’s payments was to induce Millett to purchase, order, or recommend the purchasing or ordering of Arthrex medical devices.”
The case thus stands as a warning to medical device companies that attempt to use royalties to provide a veil of legitimacy over kickback payments intended to induce use of the companies’ products. Employees and others with inside knowledge of the device companies’ true intentions are particularly well-suited to bring False Claims Act cases alleging such misconduct. In the Arthrex case, the whistleblower received a qui tam award of over $2.5 million.
Gregg Shapiro represents whistleblowers in health care fraud and other False Claims Act qui tam cases. He can be reached at gshapiro@newmanshapiro.com or 617-582-3875.
