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Orthofix Will Pay U.S. $30 Million to Settle Kickbacks

Nov. 2 (Bloomberg) -- Orthofix International NV, a maker of spinal implants, agreed to pay the U.S. $30 million to settle claims that a subsidiary paid illegal kickbacks and provided prostitutes to doctors in return for orders.

The subsidiary, Blackstone Medical Inc., paid kickbacks to spinal surgeons in the form of phony consulting and royalty agreements, and travel and entertainment to entice them to use its products, the U.S. Justice Department said in a statement today.

“Kickbacks to physicians are incompatible with a properly functioning health-care system,” Stuart Delery, the acting assistant attorney general for the civil division, said in the statement. “They can corrupt physicians’ medical judgment and cause misallocation of vital health-care resources.”

The allegations in this case arose from a whistle-blower lawsuit filed under the False Claims Act. Susan Hutcheson, the whistle-blower, will get $8 million out of the settlement, according to the statement.

The company said in February it would pay $32 million to settle claims by Hutcheson, an ex-sales manager, who filed a fraud suit over the device maker’s sales tactics.

“I am very pleased with the final resolution of this matter,” Robert Vaters, the chief executive officer of Orthofix, said in a statement. “Orthofix has made a significant improvement to its compliance practices.”

Separate Suit

The settlement’s approval comes after Orthofix officials agreed to pay $42 million to resolve a separate whistle-blower suit and a criminal probe of allegations it paid kickbacks to doctors who used its bone-growth stimulators.

One of its units will plead guilty in federal court in Boston federal court to a single felony count of obstructing a U.S. government audit and pay a $7.8 million fine, according to a June 7 regulatory filing. Orthofix also will pay $34.2 million to resolve whistle-blower claims that the company defrauded the federal Medicare program over bone-growth stimulators, which patients wear after surgery to speed healing.

Five Orthofix employees have pleaded guilty to criminal charges in connection with probes of the kickback allegations. Thomas Guerrieri, an Orthofix vice president, pleaded guilty in April to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products.

Sham Agreements

Hutcheson alleged that officials of Blackstone, purchased by Orthofix in 2006, violated kickback and false-claim laws by setting up a system to compensate doctors under sham consulting agreements and phony research grants, according to court filings. The sales executive said the company also offered lavish travel opportunities to doctors who implanted its products, the filing said.

Some doctors were paid as much as $8,000 a month under the fictitious consulting agreements, Hutcheson said in her suit, filed in federal court in Massachusetts. Orthofix’s U.S. unit is based in Lewisville, Texas. Some also received phony research grants for as much as $18,000, the suit added.

Blackstone salespeople also were urged to take surgeons out for expensive dinners, escort them to strip clubs and pay for liaisons with prostitutes to get their business, Hutcheson said in the suit.

One female sales manager in Dallas agreed to disrobe and join strippers on stage at the request of two surgeons to whom she was pitching the company’s products, Hutcheson said in her suit. The sales manager was demoted, not fired, over the incident, Hutcheson said in the suit.

Orthofix, based in Curacao, fell 23 cents to $39.66 in Nasdaq Stock Market trading.

The case is U.S. ex rel Hutcheson and Brown v. Blackstone Medical Inc. and Orthofix International NV, 06-11771, U.S. District Court, District of Massachusetts (Boston).

To contact the reporters on this story: Don Jeffrey in New York at; Jef Feeley in Wilmington, Delaware, at; Margaret Cronin Fisk in Southfield, Michigan, at

To contact the editor responsible for this story: Michael Hytha at

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