November 13, 2012

Blackstone Medical Caught “Entertaining” Physicians in Exchange for Business

By Marlene Koury

Orthofix International NV has agreed to pay $30 million to settle allegations that its subsidiary, Blackstone Medical Inc., ran a seven year long kickback scheme ranging from sham consulting agreements to providing physicians with adult “entertainment” to induce them into ordering their products.  Click here to see Department of Justice press release and here for the complaint.

Blackstone is a maker of spinal implant and other spinal surgery products.  The complaint alleged that Blackstone’s elaborate kickback scheme targeted spinal surgeons and medical firms by offering them sham consulting agreements and royalty arrangements worth up to $8,000 and fake research grants worth up to $50,000.  The complaint identified more than sixty spinal surgeons and medical firms that participated in the kickback scheme. 

Blackstone also allegedly provided physicians with luxury travel, fancy dinners, escorted them to strip clubs and even supplied them with prostitutes in hopes of enticing them into ordering their products.   In one instance, and perhaps an all-time low for a company engaging in a kickback scheme, a female sales manager who escorted a group of physicians to a strip club allegedly disrobed, joined dancers on stage and engaged in sexual acts at the request of the physicians. 

According to the complaint, Blackstone’s elaborate scheme was difficult for its sales reps to maintain.  While it is easy enough to schedule a fancy dinner or a trip to a strip club, the sales reps also had to create fake paper trails of “engagements” to justify the payments made under the sham consulting agreements or fake research grants.  Many sales reps did not want to be bothered by this “extra-curricular” work requirement and failed to match the sham payments with supporting documentation.  In response, Blackstone’s management allegedly held meetings where the importance of the documentation was explained to avoid “exposure” from the Justice Department. 

The government charged that Blackstone’s kickback scheme violated the False Claims Act because Blackstone’s actions caused the submission of false claims for payment to Medicaid, Medicare, TRICARE and other federally-funded healthcare programs.  According to Carmen Ortiz, U.S. Attorney for the District of Massachusetts, where the case was filed, “[t]his settlement demonstrates the government’s continued resolve to ensure that patients receive, and the government pays for, healthcare that is based solely on sound medical judgment, not compromised by kickbacks.”  Stuart Delery, the Acting Assistant Attorney General for the DOJ’s Civil Division, echoed this sentiment, noting that “[k]ickbacks to physicians are incompatible with a properly functioning healthcare system.”  He added, “[t]hey can corrupt physician’s medical judgment and cause misallocation of vital healthcare resources.”

This case represents the latest example of its renewed efforts to combat healthcare fraud through the government’s Healthcare Fraud Prevention and Enforcement Team.  This program was launched in May 2009 as a partnership between the DOJ and the Department of Health and Human Services to reduce and prevent Medicare and Medicaid financial fraud.

As part of the settlement, Orthofix has agreed to enter into a corporate integrity agreement that will implement internal procedures to ensure that the company does not provide kickbacks in the future and establish a review process to detect any attempts to do so.  This case was initiated by whistleblower Susan Hutchinson, an ex-sales manager for Blackstone.  She will receive $8 million for her efforts at exposing the scheme.

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