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US: Medtronic Will Settle Accusations on Kickbacks

by Reed AbelsonThe New York Times
July 19th, 2006

Medtronic, one of the nation’s largest medical device manufacturers, said yesterday that it had agreed to pay the federal government $40 million to settle accusations that its spinal-implant division had paid kickbacks to doctors as a way of inducing them to use its products.

The Justice Department accused Medtronic of paying kickbacks through what officials described as “sham consulting agreements, sham royalty agreements and lavish trips to desirable locations” offered to doctors from 1998 to 2003.

Kickbacks to doctors “are incompatible with a properly functioning health care system,” Peter D. Keisler, assistant attorney general for the civil division, said in a statement. “They corrupt physicians’ medical judgment and they cause overutilization and misallocation of vital health care resources.”

Medtronic was the subject of two lawsuits filed in Federal District Court in Memphis by whistle-blowers on the actions of its spinal-implant division, Medtronic Sofamor Danek. The company and its division deny any wrongdoing.

Yesterday’s agreement covers the first lawsuit, which was filed in 2002; the whistle-blower who filed it has not been identified. Justice Department officials are seeking to have the second lawsuit dismissed. The lawsuits were the subject of a New York Times article in January.

Medtronic’s chief executive, Art Collins, in a statement, said that the company had “cooperated fully with the government during its investigation of the allegations, and we believe our companywide efforts regarding business conduct and ethical practices assisted us in achieving a practical resolution of these cases.”

As part of a five-year corporate integrity agreement, Medtronic said it would establish an electronic database to track transactions with its customers unrelated to device sales. The information will be reviewed by Medtronic senior management and an outside review group.

The parties reached the settlement to “avoid the delay, uncertainty, inconvenience and expense of protracted litigation of these claims,” according to the agreement. Medtronic did not admit liability, the settlement says.

Complex back surgery has become a lucrative business for companies making implants, and Medtronic was accused of spending tens of millions of dollars on consulting contracts and other types of payments to prominent spine surgeons.

The second whistle-blower lawsuit, filed by a former employee who managed Medtronic’s travel services, claimed the company gave some surgeons “excessive remuneration, unlawful perquisites and bribes in other forms for purchasing goods and medical devices.”

The employee, Jacqueline Kay Poteet, accused the company in a supplemental complaint of continuing the improper payments in 2004 and 2005.

David Kustoff, the United States attorney for the Western District of Tennessee, said Justice Department officials were seeking to have the lawsuit dismissed on the ground that Ms. Poteet was essentially making the same accusations as the first whistle-blower.

A department spokesman declined to comment further on the second lawsuit.

The dismissal of Ms. Poteet’s lawsuit is subject to approval by the court, and the settlement could be rescinded if the dismissal does not take place, according to the agreement. Medtronic said it would place the $40 million into escrow pending dismissal of the lawsuit, and it would take a one-time charge in the quarter ending July 28.

The lawyer for the second whistle-blower, Andrew R. Carr Jr. of Bateman Gibson in Memphis, said he intended to oppose the dismissal of his client’s lawsuit. Based on his understanding of the first case, there are material differences between the two, he said.

Disputes over whether a particular whistle-blower is first to file and entitled to a share of any settlement proceeds is not unusual, said Lesley Ann Skillen, a lawyer with the New York firm of Getnick & Getnick. “There’s been a lot of litigation on that.”

Even if the court grants the government’s move to dismiss the lawsuit, the whistle-blower has the right to appeal the decision, she said. “This money could be tied up for years,” she said.

Medtronic’s stock closed yesterday at $47.28, down 22 cents. 



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