Spinal Device Maker and Executives Settle False Claims Act Case for $12M

A healthcare fraud case that began with a whistleblower has ended in a $12 million settlement agreement by a spinal device manufacturer and two of its executives.

The Salt Lake City, Utah-based Innovasis Inc. and senior executives Dr. Brent Felix and Garth Felix agreed to resolve allegations that they violated the False Claims Act by paying kickbacks to spine surgeons to get them to use Innovasis’s spinal devices.

The Federal Anti-Kickback Statute prohibits offering or paying anything of value to induce referrals of items or services covered by Medicare and other federally funded programs. The statute is intended to ensure that improper financial incentives do not compromise medical providers’ judgments.

The Whistleblower Complaint

The initial case was brought under the qui tam or whistleblower provisions of the False Claims Act by Robert Richardson, a former regional business director for Innovasis. Under that provision, those who bring whistleblower cases to light are compensated. Richardson will receive $2.2 million as his share of the settlement recovery.

It was alleged that from Jan. 1, 2014, through Dec. 31, 2022, Innovasis paid seventeen orthopedic surgeons and neurosurgeons to get them to use Innovasis spinal implants, devices and other equipment in medical procedures the physicians performed on Medicare beneficiaries – a violation of the Anti-Kickback Statute.

Surgeons Under Pressure to Perform

According to the initial complaint filed by Richardson, in a clear violation of the false claims act, “Dr. Felix and Brent Felix directed members of the executive and sales teams at Innovasis to speak to and pressure surgeons subject to these contracts to increase the volume of Innovasis Products selected by the surgeons under the threat that their contracts with Innovasis would be cancelled.”

In this case, the improper payments were made in the form of consulting fees, licensing fees, shares in the company, travel, lavish dinners and parties for the surgeons, their families and office staff.

Illegal Consulting Fees Paid

Regarding the consulting fees, the government alleged the rates were more than fair market value and, in some cases, never performed. Regarding the licensing fees, Innovasis paid the surgeons over fair market value to acquire licenses or intellectual property for which Innovasis never obtained any valuation before purchase and it was never used for meaningful product development.

“Motivated by illegal financial incentives, the physicians selected Innovasis products, largely indistinguishable from other implantable devices on the market, for procedures performed on their government-insured patients, which resulted in the submission of kickback-tainted false claims to Medicare, Medicaid, and other federal health care programs in violation of the FCA,” the lawsuit alleged.

These illegal compensation arrangements between Innovasis and surgeons are believed to have generated over $60 million in revenue from the business relationships, according to the complaint.

Innovasis Responds to Settlement

In a news release, the company said it had been engaged in an internal audit when the lawsuit was filed and blamed the issues with compliance on a former employee who was “executing physician agreements using his own discretion and incentives,” behind closed doors.

The company was critical of the whistleblower action and signed the settlement agreement because “it is in the company’s best interest to resolve this matter. As per the company’s mission, it is time to put full focus on advancing spine care,” the release stated.

What is a Violation of Stark and AKS?

When a DME supplier enters an arrangement with a referring physician, the supplier needs to understand the restrictions and prohibitions of the federal anti-kickback statute (AKS), federal physician self-referral statute (Stark), and that state’s anti-kickback and physician self-referral statutes.

If a DME supplier compensates a physician or family member directly or indirectly or gives them anything of value, then the parties are considered to have a “financial” relationship under Stark.

While DME suppliers can pay a referring physician to speak at a conference they supplier sponsors as well as cover the physician’s out-of-pocket expenses, the arrangement must comply with both the Personal Services and Management Contracts (PSMC) safe harbor to the AKS and the Personal Services exception to Stark. The compensation and reimbursement must be reasonable.

DME suppliers get into trouble when they pay excessive fees to physicians for presenting education programs. Such fees are then viewed as kickbacks.

Case Has Similarities to Another

This false claims act case is similar to a lawsuit filed against Life Spine, which we wrote about in 2019. That case is even mentioned in the whistleblower lawsuit filed by Richardson.

“Relator was one of several Innovasis employees who were told by Dr. Felix and Garth Felix that they needed to and were planning to “clean up” the “house accounts” and “surgeon deals” after becoming aware of, and speaking nervously about, the FCA lawsuit styled United States ex ref. BNHT, LLC v. Life Spine, Inc., et al., pending in the United States District Court for the Southern District of New York,” the complaint states.

How We Can Help

The Health Law Offices of Anthony C. Vitale represents both whistleblowers as well as those who get caught up in healthcare law violations. We can assist you in making sure your arrangements with healthcare providers are legal and defend you should you become the target of an investigation. We can provide the support and guidance you need to protect your practice, your reputation, and maintain your professional integrity.

Contact us for additional information at 305-358-4500 or send us an email to info@vitalehealthlaw.com and let’s discuss how we might be able to assist you.