Orthofix’s Settlement of Medicare Probe Rejected by Judge

Orthofix International NV (OFIX)’s settlement of federal regulators’ accusations that the maker of bone-repair products defrauded Medicare by paying kickbacks to doctors was rejected by a judge.

U.S. District Judge William G. Young in Boston rebuffed an Orthofix unit’s agreement to plead guilty to a felony count of obstructing a government audit and pay a $7.8 million fine after concluding the deal unduly restricted his sentencing power.

“It seems in this case the court’s hands ought not be tied,” Young told prosecutors and lawyers for Orthofix today at a hearing. “I have extreme unease of treating corporate criminal conduct like a civil case.”

It’s unclear whether Young’s refusal to accept the plea also scuttles Orthofix’s agreement to pay $34.2 million to resolve civil claims first raised in a whistle-blower’s lawsuit that the company defrauded the federal Medicare program through payments to doctors who used its bone-growth stimulators.

Unusual Situation

“It’s an unusual situation,” David Schumacher, an assistant U.S. attorney handling the Orthofix case, said in an interview after Young rejected the plea.

Mark Quick, an Orthofix spokesman, didn’t immediately return calls for comment on Young’s decision.

Five Orthofix employees have pleaded guilty in connection with the probe, the U.S. Justice Department said. Thomas Guerrieri, a company vice president, pleaded guilty this year to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products. Guerrieri, 51, hasn’t been sentenced, according to court dockets.

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 a whistle-blower suit filed by Jeffrey Bierman, a Missouri businessman who learned about alleged Medicare fraud by Orthofix.

Medicaid Costs

He alleged company official improperly waived patient co- payments, which wound up misstating the bone-stimulator’s true cost and generating Medicare overpayments, prosecutors said in June when they announced the accord with the company.

Bierman, owner of a company that provides billing services to doctors and hospitals, sued under the federal False Claims Act, which lets whistle-blowers file cases on behalf of the government and share in any recoveries. He was to receive $9.2 million of the civil settlement in the Orthofix case, according to the Justice Department.

Neil Getnick, a New York-based lawyer representing Bierman, said in a telephone interview that he couldn’t immediately comment on whether Young’s rejection of the plea would affect the settlement of the whistleblower claims.

Bierman 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.

Purchase Price

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

The devices cost as much as $5,000 and are needed by recovering surgery patients for no longer than six months, and Orthofix should have submitted claims that amounted to rental, according to the complaint.

In July, a physician’s assistant in Rhode Island was sentenced to six months in prison followed by six months’ home confinement for taking kickbacks from Orthofix on the stimulators.

A federal judge in Boston also ordered the man, Michael Cobb, 42, to pay a $3,000 fine and forfeit $10,000. Prosecutors alleged Cobb received about $120,000 from Orthofix over seven years starting in 2004 tied to orders for the devices.

Federal officials said evidence in the case showed that the neurosurgeon for whom Cobb worked didn’t specify which brand of stimulator should be ordered for patients and didn’t know about the payments from Orthofix.

The case is U.S. ex rel. 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; Janelle Lawrence in Boston at jmlawrence@mac.com.

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

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