Stryker Pays $80 Million to Resolve Allegations of Healthcare Fraud

A subsidiary of the Stryker Corporation has agreed to pay $80 million after pleading guilty to marketing and selling certain knee replacement products without government approval. The OtisMed group, which manufacturers “cutting guides” used to achieve a perfect incision and implantation during knee replacements, has refused to admit any sort of wrongdoing in the matter – but pled guilty nonetheless, agreeing to pay $80 million in restitution, fines, and penalties.

Details of Stryker’s false claims and the government’s criminal fraud allegations

Medicare and Medicaid may only cover procedures and medical products that are approved by the Food and Drug Administration. Moreover, these programs cannot cover the costs of medical products, procedures, or prescriptions offered to patients to treat conditions not approved by the FDA. In other words, “off-label marketing” is strictly prohibited and will trigger False Claims Act liability if targeted toward recipients of government healthcare benefits.

In the case against Stryker and OtisMed, the product in question is known as a “cutting guide,” and it is manufactured and sold to physicians in order to ensure bones are cut with exact specificity prior to the implantation of a prosthetic knee device. The only issue with Stryker’s cutting guides is that none were approved by the FDA prior to being shipped to physicians and hospitals across the United States. In fact, Stryker sold 18,000 devices from 2006 through 2009.

In October, 2008, the company applied for FDA approval – which was never cleared due to the FDA’s assertion that OtisMed failed to adequately demonstrate that the product was safe and effective. Thereafter, against the advisement of the board of directors, OtisMed shipped an addition 218 devices to surgeons – all of whom were unaware that the product had not been approved for use.

OtisMed’s CEO pleads guilty

The legal troubles against Stryker and OtisMed involve both civil and criminal allegations of fraud. Under the False Claims Act side of the case, whistleblower and former Stryker sales executive Richard Adrian will receive $7 million of the $40 million settlement of the allegations relating to Medicare and Medicaid fraud. In addition, OtisMed is prohibited from participating in government healthcare programs for a period of 20 years.

On the criminal side, OtisMed agreed to pay $34.4 million in penalties, as well as forfeit an additional $5.16 million. The CEO of OtisMed pled guilty to one felony count of distributing misbranded medical devices with the intent to defraud.

The former CEO of OtisMed maintains his benevolence, stating:

“At no time during that period did the FDA direct the company to stop selling the cutting guides.” The CEO further commented that he ordered the additional 218 devices because “he did not want to leave any of the patients who were scheduled for knee replacement surgery hanging without another medical option….He did not make a dime off of any of the sales.”

By contrast, the U.S. Attorney’s Office commented:

“The company did not tell the surgeons who received them, and then used them, about the FDA’s decision….That kind of flagrant disregard for the FDA, and for the safety of patients, cannot be ignored. That explains the magnitude of today’s settlement.”

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