Innovasis Inc., a spinal device manufacturer, and two executives have agreed to pay $12 million to settle false claims allegations that they paid kickbacks to certain spine surgeons to get them to use Innovasis spinal devices, the U.S. Department of Justice (DOJ) said May 29.[1] According to the settlement, Innovasis allegedly funneled money to the physicians with “lavish dinners” and travel, excessive consulting fees and intellectual property acquisitions that didn’t go anywhere in some cases.[2]
The False Claims Act (FCA) lawsuit was set in motion by a whistleblower, former Innovasis regional sales director Robert Richardson. In his complaint, Richardson alleged Innovasis and the executives—founder and president Brent Felix, an orthopedic surgeon, and his brother, CFO Garth Felix—tried to memorialize the physician arrangements in a way that would comply with the law, but the implementation “actually violated the Anti-Kickback Statute because the arrangements and associated payments were tied to and intended to cause the surgeons’ choice of Innovasis products over competing devices.”[3] The Felix brothers allegedly had “house accounts” they used for payments to referring physicians that were kept secret from most employees.
Before the whistleblower filed his FCA lawsuit, Innovasis and the Felix brothers had applied to the HHS Office of Inspector General’s (OIG) Health Care Fraud Self-Disclosure Protocol (SDP), said their attorney, Patric Hooper. “We had reported this to the OIG well in advance of the relator’s lawsuit being filed and we believe that the relator’s lawsuit should have been dismissed because the government was already investigating this pursuant to our self-disclosure,” said Hooper, with Hooper, Lundy & Bookman. “But we got into negotiating this and they wouldn’t go away unless we gave them $6 million in single damages, and they doubled that. I’m not a big fan of the self-disclosure protocol because of things like this. We should have gotten credit.”
The defendants disagreed with the allegations “but were squeezed in this case,” Hooper said.
OIG explains in the SDP that it will coordinate with DOJ when resolving SDP matters.[4] “If DOJ participates in the settlement, the matter will be resolved as DOJ determines is appropriate consistent with its resolution of FCA cases, which could include a calculation of damages resulting from violations of the AKS based on paid claims,” the SDP states.
These interactions are fluid, said Melissa Jampol, a former assistant U.S. attorney. “It’s not like you’re in the SDP and everything is wrapped up in a bow,” she explained. “There’s a lot of ways things can mutate, which is part of the calculated risk you take when you go into the self-disclosure protocol.”
It’s not always clear now where organizations should disclose in any given situation, said Jampol, with Epstein Becker & Green. They won’t get an FCA release without a DOJ settlement, she noted. An OIG settlement after a self-disclosure releases organizations from civil monetary penalty liability and usually nets 1.5 to 2 times the damages without a corporate integrity agreement. But now there’s the X factor of the 2023 United States Attorneys’ Offices Voluntary Self-Disclosure Policy, Jampol said.[5] Under the policy, the nation’s U.S. attorneys will slash fines and forgo criminal charges when organizations come forward with misconduct, although they may have to swallow criminal charges if the C-suite was involved. “It still remains to be seen how the self-disclosure protocol and the U.S. attorneys’ voluntary self-disclosure policy will impact each other,” she said. A lot of the same factors are considered by OIG and the U.S. attorneys’ self-disclosure policy, such as reporting the conduct before it becomes publicly known and including all relevant details.
“In choosing where to self-report, it’s a risk you take to not have a FCA release,” Jampol said. “It’s a judgment call. It’s one of those things you can ask four lawyers about and get seven different answers.”
Innovasis Paid for Trip to Luxury Resort
According to the settlement, DOJ alleged that between Jan. 1, 2014, and Dec. 31, 2022, Innovasis and the Felix brothers gave “improper remuneration” to 17 orthopedic surgeons and neurosurgeons to induce them to use Innovasis spinal implants, devices and other equipment in medical procedures performed by the surgeons.
The remuneration took different forms. Every year, the defendants paid the physicians to attend an Innovasis conference at a luxury resort in Deer Valley, Utah, picking up the tab for travel, lodging and pricey meals, according to the settlement.
The defendants also paid the physicians for consulting services at rates way above fair market value or, in some cases, paid for work that wasn’t performed at all, the government alleged. And the defendants paid the physicians in excess of fair market value “to acquire or license purported intellectual property that, in some cases, lacked supporting detail, such as property drawings or patent applications, for which Innovasis never obtained any valuation prior to purchase and thereafter never used for meaningful product development.”
Physicians also were paid to participate in a device registry program with payment rates linked to their use of Innovasis products in their surgeries.
Alleged Voice Mail From ‘Angry Surgeon’
In the complaint, Richardson, the whistleblower, alleged he discovered a “questionable intellectual property agreement” after getting a voice mail message from “an angry surgeon” who said he hadn’t gotten his check from Innovasis for a product that wasn’t developed or marketed. “The contract was for $250,000 over a two-year period on purported intellectual property that did not lead to anything of substance,” the complaint alleged. “No meaningful Innovasis resources were directed to developing the product and the surgeon made no inquiry about the lack of progress to develop his alleged concept.”
After becoming aware of false claims allegations against another spine implant company, Life Spine, the Felix brothers allegedly told the whistleblower they were planning to “clean up” the “house accounts,” according to the complaint. Life Spine and two executives paid $5.99 million in 2019 to settle kickback-related false claims allegations.[6]
In light of the allegations that Innovasis treated physicians to fancy dinners and trips, Jampol reminds the industry of OIG’s November 2020 Special Fraud Alert on speaker programs.[7] “Drug and device companies that host or pay for such speaker programs and HCPs [health care practitioners] who speak at or attend such programs could be liable under the anti-kickback statute for any prohibited remuneration,” according to the alert. Speaker programs are company-sponsored events where physicians and other HCPs make a speech about a drug, device or disease state on behalf of the company.
OIG “chose to issue that in the middle of the pandemic when almost everyone was doing speaker programs virtually,” she said. “They felt it was so important to issue a Special Fraud Alert.”
Contact Jampol at mjampol@ebglaw.com and Hooper at phooper@hooperlundy.com.