Medtronic's recently acquired Kyphon spinal business must follow training requirements to ensure that customers receive appropriate reimbursement advice, and must submit annual compliance reports as part of a settlement agreement with the U.S. Department of Justice.

The corporate integrity agreement, announced May 22, accompanies a previously anticipated $75 million fine to resolve civil allegations that Kyphon caused the submission of false claims to Medicare relating to kyphoplasty procedures to treat spinal compression fractures.

Medtronic emphasizes that it was aware of the settlement amount prior to its November 2007 acquisition of Kyphon and that the funds previously had been reserved on Kyphon's books. Medtronic will not incur further charges related to the settlement, according to the company.

The corporate integrity agreement is Medtronic's second in the last two years relating to its spine businesses.

The previous agreement, reached in July 2006, accompanied a $40 million fine to resolve allegations that the firm's Sofamor Danek business paid kickbacks to physicians as incentives to purchase Medtronic spinal implant products (¹ Also see "Medtronic To Track Sales Contacts, Pay $40 Mil. To Settle Kickback Probe" - Medtech Insight, 24 July, 2006., p. 3).

As in the Sofamor Danek case, the Justice Department's Kyphon investigation was triggered by the filing of a qui tam, or whistleblower, lawsuit. Medtronic denied any wrongdoing or illegal activity as part of both settlements.

In the case of Kyphon, a 2005 lawsuit filed in Buffalo, N.Y., federal court alleged that dating back to 1999, the firm engaged in a marketing scheme to market kyphoplasty as an inpatient procedure requiring an overnight stay, despite the fact that an overnight stay is typically unnecessary for "the vast majority of patients."

As a result, the government charged, hospitals received higher reimbursement amounts than necessary as an incentive for buying the firm's kyphoplasty products. The minimally invasive procedure involves expanding the compressed vertebral bodies with an inflatable balloon before injecting bone cement to provide mechanical stabilization.

"A big inpatient price tag allowed Kyphon to make thousands of dollars each time it sold a kyphoplasty kit," said attorney Mary Louise Cohen, of Washington, D.C.-based Phillips & Cohen, which represented the whistleblowers in the case.

The qui tam suit also alleged that Kyphon encouraged physicians to submit Medicare claims using inappropriate procedure codes to compensate for divergent kyphoplasty coverage policies that existed among Medicare carriers from 1999 to 2005.

Other charges of "kickbacks and inducements" for purchasing kyphoplasty products included the provision of certain free equipment as well as "tangible and in-kind services." For example, Kyphon would provide marketing support for certain "high-performing" physicians, the suit says.

Terms of Kyphon's five-year corporate integrity agreement with HHS' Office of Inspector General include a requirement for employee training on "appropriate methods of promoting, marketing and selling reimbursable items" in accordance with federal requirements, as well as "anti-kickback" training.

Kyphon also must create a database to track all new and existing business arrangements to help ensure that they do not violate the anti-kickback statute. Furthermore, the firm must hire an independent review organization, such as an auditing firm, to perform annual reviews of its sales and marketing practices and business arrangements, and provide OIG with annual reports on compliance activities.

The qui tam suit was filed by Craig Patrick, a former Kyphon reimbursement manager, and Chuck Bates, a former regional sales manager at the company; the suit was joined by the government after its investigation. The whistleblowers will receive $14.9 million as their statutory share of the settlement proceeds, according to DoJ.

- Jon Dobson (j.dobson@elsevier.com)

Medtronic Spine Settles Medicare Fraud Claim, Accepts $75 Million Fine

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