Baxano Settles False Claims Act Suit for $6 Million

In May, TranS1 announced it had purchased Baxano Inc., a privately-held medical device company. Combining both companies gave TranS1 the ability to manufacture and market its spinal devices on a massive scale. Once the acquisition was complete, TranS1 changed its name to Baxano Surgical. The new entity focuses on minimally invasive spinal procedures, which is considered to be the fastest growing and most lucrative area of the spinal market. Today, Baxano Surgical designs, develops and markets products that are meant to treat degenerative spine conditions of the lumbar region.

Allegations of False Claims Act Violations

According to the official complaint, from January 1, 2008 through October 6, 2011, TranS1 knowingly and willfully caused a number of physicians to submit false claims by providing incorrect diagnosis and procedure codes. Each of the code errors were related to minimally-invasive spine fusion surgeries that used Trans1’s AxiaLIF System, which was designed to give patients an alternative to invasive spinal fusion surgeries.

The government alleged that TranS1 gave fraudulent billing information to both doctors and hospitals for the AxiaLIF System. Instead of providing them with the correct billing codes TranS1 allegedly gave medical professionals false and inaccurate codes that actually represented invasive spinal fusion surgeries. Unaware they were using the improper billing codes, hospitals and physicians submitted hundreds of inflated claims to Medicare and other insurance providers. Due to those false claims, healthcare providers were paid a higher reimbursement than they were entitled to, as the minimally-invasive AxiaLIF procedure costs much less than invasive spinal fusion surgery.

“A medical device manufacturer violates the law when it advises physicians and hospitals to report the wrong codes to federal health insurance programs in order to increase reimbursement rates,” said Rod J. Rosenstein, U.S. Attorney for the District of Maryland. “Health care providers are required to bill federal health care programs truthfully for the work they perform.”

Illegal Kickback Payments

In addition to providing healthcare providers with the incorrect billing codes, the government also alleged that TranS1 paid out illegal kickbacks to certain physicians. These kickbacks came in the form of cash and were paid to a select number of physicians who agreed to speaking engagements and consultant meetings on behalf of TranS1. The illegal kickbacks were essentially used to entice physicians to use TranS1 spinal products.

By bribing doctors with cash payments, TranS1 caused false and fraudulent claims to be submitted to federal healthcare programs, which violates the federal Anti-Kickback Statute. It is illegal for entities to pay, or offer to pay, illegal kickbacks in exchange for referrals or services, as this can compromise the integrity of the healthcare provider.

The Qui Tam Whistleblower

The False Claims Act violations in this case were originally brought to light in a qui tam lawsuit filed by Kevin Ryan, a former employee of TranS1. After learning of the fraudulent activity, Ryan approached his supervisors and voiced his concerns. When no resolution was provided, Ryan consulted with an experienced False Claims Act attorney and decided to file his own qui tam action. On April 21, 2011, Ryan filed suit against TranS1 on behalf of the United States government under the whistleblower provisions of the False Claims Act.

When False Claims Act whistleblowers come forward with first-hand information of fraudulent activity, if the qui tam action is successful, they are entitled to share a portion of the government’s total recovery. In this case, Ryan will receive a relator’s share of $1,020,000.