Sales and marketing tactics used by medical device companies, such as off-label marketing and consulting or speaking agreements with physicians, could violate the False Claims Act and leave providers liable for claims billed to Medicare and Medicaid. A 2014 HHS Office of the Inspector General (OIG) audit found hospitals routinely get Medicare to reimburse for pacemakers and defibrillators that they received for free.
Medical device fraud is prevalent
In January, the former owner and the former operator of a California durable medical equipment company were sentenced for paying physicians kickbacks for patient referrals and prescriptions for unnecessary equipment — primarily power wheelchairs — which were used to support fraudulent Medicare claims.
Then in March, Olympus Corp. of America agreed to pay the federal government $623 million to settle a whistleblower lawsuit accusing the devicemaker of systematically violating the U.S. Anti-Kickback Statute to gain market share dominance for its products. The settlement was the largest ever for a medical device company and for AKS violations.
A federal jury in Boston acquitted the former CEO and vice president of sales of Acclarent in July on 14 counts of felony fraud related to off-label but convicted them on 10 misdemeanor counts related to the same conduct. The two pitched the Relieva Stratus Microflow Spacer, meant to open a patient’s sinus, as a steroid delivery device in order to create a new revenue stream and boost the company’s prospects for an initial public offering or acquisition target, according to the U.S. Attorney’s Office for the District of Massachusetts.
The latest medical device fraud case involved a New Jersey cardiac monitoring company, which has agreed to pay $1.35 million to settle allegations that "it paid kickbacks to induce physicians to use the company’s cardiac monitoring services," according to U.S. Attorney Paul J. Fishman.
‘Susceptible to kickbacks’
“The medical device area is particularly susceptible to kickbacks for physicians … because there are so many different types of devices that there is more room for physicians’ discretionary decisions about whether or not to prescribe or recommend certain devices for their patients,” says Sara Lord, a partner at Arnall Golden Gregory and former Justice Department attorney.
She notes, for example, that incentives for doctors to use products, particularly new products, are rarely a direct payment for using a device. Instead, device companies or distributors may ask a prominent physician to try their product and then offer to pay them for spreading the word about it.
Providers also need to ensure that any discounts they receive from a manufacturer or distributor are reflected in Medicare billing. “Hospitals have to be scrupulous in their accounting and submission of claims,” says Lord, adding that can require a lot of diligence about what products actually cost at the time they are purchased or ordered for patients.
It’s not just kickbacks and fraud that take a toll on Medicare. Recalls and high failure rates associated with just seven devices cost Medicare $1.5 billion and beneficiaries $140 million in out-of-pocket costs, according to a preliminary report by OIG. The OIG urged CMS to incorporate device-specific information on claims forms to identify and track costs related to defective or recalled devices.
To help prevent fraud, the Centers for Medicare & Medicaid Services issued guidance this summer warning physicians about kickbacks, billing Medicare for free samples, and sham consulting arrangements that aim to buy product loyalty. The agency also released a toolkit for avoiding fraud, waste, and abuse.
The Physician Payments Sunshine Act, part of the Affordable Care Act, requires device, drug, and biologics companies to publicly report all gratuities to physicians and teaching hospitals totaling more than $10. “If you are uncertain whether a conflict exists, apply the ‘newspaper test’ and ask yourself whether you would want the arrangement to appear on the front page of your local newspaper,” the guidance says.
Establishing a strong compliance program is the best way to avoid fraud, CMS notes. Key ingredients of a successful program include:
- Internal monitoring and auditing
- Compliance and practice standards
- A designated compliance officer or contact
- An appropriate response to potential abuses and a corrective action plan
- Open lines of communication with staff
- Guidelines on disciplinary standards
- Appropriate training and education
Training is essential to a good compliance program, says Lord. “Most organizations have recognized the need to have strong training and effective policies and procedures,” she tells Healthcare Dive. “Once those mechanisms are in place, they need to be refreshed to reflect any changes or developments from the previous year.”
She notes a good compliance department will also regularly track development in healthcare fraud and fraud prosecutions to inform internal reviews of an organization’s practices.
Staying one step ahead
Overall, Lord believes hospitals and other providers are doing a good job of preventing medical device fraud. “I would say it’s prevalent, but … what tends to happen is that the government focuses on a certain practice and the industry gets the idea pretty quickly that this is an area that they need to be very careful about,” she says. “So they make sure that they’re being careful in their claims for those kinds of products or that type of conduct.”