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Orthofix to Pay $42 Million to End Federal Kickback Probe

Orthofix International NV (OFIX), a maker of bone-repair and sports medicine products, agreed to pay $42 million to resolve a lawsuit and a six-year criminal probe of allegations it paid kickbacks to doctors who used its bone- growth stimulators.

The company’s Orthofix Inc. unit will plead guilty in federal court in Massachusetts to a single felony count of obstructing a U.S. government audit and pay a $7.8 million fine, according to a regulatory filing today. Orthofix also will pay $34.2 million to resolve civil claims, first raised in a whistle-blower’s lawsuit, that the company defrauded the federal Medicare program.

Orthofix officials filed “false and fraudulent claims for payment” for the bone-growth stimulators, which medical patients wear after surgery to help speed healing, lawyers for Jeffrey Bierman said in an amended lawsuit filed over the practice in 2010.

Mark Quick, a U.S.-based spokesman for Orthofix, didn’t immediately return a call for comment about the false-claims settlement. The accord requires a judge’s final approval.

Five Orthofix employees have pleaded guilty in connection with the probe, according to the Justice Department. Thomas Guerrieri, an Orthofix vice president, pleaded guilty almost two months ago to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products. Guerrieri, 51, is scheduled to be sentenced on July 11 by a federal judge in Boston.

Referral Fees

Orthofix, based in Curacao, in the Netherlands Antilles, said in February that it had reserved $43 million to settle the false-claims allegations.

The government joined Bierman’s suit after the whistle- blower alleged Orthofix officials improperly waived patient co- payments, which wound up misstating the bone-stimulator’s true cost and generating Medicare overpayments, Stuart Delery, a Justice Department official, said today in an e-mailed release. The company also paid kickbacks to doctors and their staffs in the form of “fitter fees” and referral fees, he said.

“The Justice Department has longstanding concerns about kickbacks and the routine waiver of co-payments, because they can impose significant costs on federal health programs that are not medically justified,” Delery said.

Bierman, who owns a Missouri company that provides billing services to doctors and hospitals, sued under the U.S. False Claims Act, which lets whistle-blowers file lawsuits on behalf of the government and share in any recovery. He will receive $9.2 million of the civil settlement, according to the Justice Department.

Medicare Billings

Bierman originally sued in 2005 questioning Medicare billings for bone-growth stimulators, which are often used by patients who have had back surgery, according to court filings.

In his suit, Bierman alleged Orthofix and other makers of bone-growth stimulators defrauded Medicare programs by submitting claims that patients needed to purchase the devices rather than rent them.

The devices, which cost as much as $5,000, are only needed by patients for as much as six months to recover from surgery and Orthofix should have submitted reimbursement claims that amounted to rental, rather than purchase, charges, according to the complaint.

‘Sitting Idle’

“Between 1998 and 2008, Medicare purchased more than 120,000 brand new stimulators on behalf of patients,” Bierman’s lawyers said in the complaint. “The vast majority of these devices are currently sitting idle in the homes of patients, have been thrown out or otherwise disposed of.” The stimulators sell for about $50 on EBay Inc. (EBAY)’s auction website, according to the complaint.

To enable such billings, Orthofix officials duped doctors and staff into miscoding documents sent to federal regulators, Bierman claimed. The civil settlement resolves claims that Orthofix improperly waived patient copayments, submitted false certificates of medical necessity to support federal payments, failed to advise patients of their right to rent rather than buy products, and paid kickbacks to induce use of its devices.

Bierman also has sued other makers of bone-growth stimulators, such as London-based Smith & Nephew Plc (SN/) and Warsaw, Indiana-based Biomet Inc. He intends to pursue those claims, said Neil Getnick, a New York-based lawyer with Getnick & Getnick LLP who is representing Bierman.

“The industry is plagued by kickbacks, falsified medical records and other illegal conduct designed to get orders and get claims paid,” Getnick said in an e-mailed statement. “Medicare has lost hundreds of millions of dollars to fraud and we intend to recoup that.”

The Orthofix case is U.S. ex rel Jeffrey Bierman v. Orthofix International NV, 05-10557, U.S. District Court, District of Massachusetts (Boston).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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