DS Medical and Midwest Neurosurgeons: A Reversed Judgment and a Later Settlement

DS Medical, Midwest Neurosurgeons and their owners agreed to pay $825,000 to settle spinal implant kickback allegations after the DS Medical kickback case reversal set aside an earlier civil judgment. The government alleged that a surgeon’s implant choices generated commissions for a distributor owned by his fiancée, who used the money for purchases they shared. The hospital bought the implants. Medicare and Medicaid paid hospital and physician claims connected to the surgeries.

The Justice Department announced the settlement on March 22, 2023.

The Surgeon Chose the Implant, the Hospital Paid

DS Medical supplied spinal implants used by the owner of Midwest Neurosurgeons, a practice in Cape Girardeau, Missouri. According to the government’s complaint, the surgeon and his fiancée operated the distributor together, and he used it as his virtually exclusive source of implants. His fiancée was its sole owner. He was its only physician customer generating significant commission revenue.

That arrangement sat inside a familiar feature of the implant business. The Department of Health and Human Services Office of Inspector General’s 2013 alert on physician-owned entities describes implants as physician preference items: the surgeon may choose or strongly influence the brand and type, while the hospital purchases the product.

The complaint described how the money moved in this case. After surgery, the hospital paid the manufacturer’s invoice for the implants used. The manufacturer then paid the distributor a commission calculated as a percentage of the hospital’s payment. The government’s allegation connected that commercial arrangement to benefits for the surgeon making the choices.

The Distributor Owner’s Alleged Use of Commissions for Shared Purchases

The government alleged that DS Medical’s commission income benefited both its owner and the surgeon. The complaint traced a shared home directly to the distributor’s bank account: the owner used commission revenue to buy the residence where they lived.

The Justice Department’s announcement of its intervention also alleged that commissions funded a boat, an airplane and home improvements they shared. Those purchases supplied the government’s explanation of how money paid to the fiancée’s business reached the surgeon.

The complaint also described the surgeon’s involvement in negotiating the business. After an inventory and commission dispute with one manufacturer, he allegedly stopped buying its implants and approached another manufacturer’s executives. Following a meeting with the surgeon and the distributor owner, the new manufacturer raised DS Medical’s commission to 50% and added $1,700 a month.

The government alleged that the manufacturer agreed because the pair had led it to believe the surgeon’s implant choices depended on the higher commission. Large purchases from that manufacturer followed. The allegation tied the change in supplier to the money the distributor would receive.

The Surgeon’s Implant Choices and Practice Claims

The complaint alleged that the surgeon performed more surgeries and used more implants per surgery while DS Medical operated than he generally did before or afterward. In December 2008, approximately its first full month, he allegedly caused the hospital to order about $1,331,090 in spinal implants, more than twice the amount ordered by his nearest local medical peer. DS Medical supplied virtually all of the implants he used.

Hospital employees saw the cost from the purchasing side. The complaint quoted an employee comparing connectors priced at $3,150 through the surgeon’s vendor with $1,341 from another hospital vendor. It also described a separate pricing dispute over a cervical fusion product that the hospital could obtain from another vendor at a substantially lower price.

The surgeon allegedly became involved in resolving that dispute. In an email quoted in the complaint, he urged the distributor owner to settle the pricing and accept what the hospital would pay.

The distributor owner saw the volume from the sales side. The complaint described text messages celebrating surgeries using nine or twelve spacers, with “more is better” as her conclusion. For the distributor, more implants meant more sales on which to earn commissions. The government’s allegation was that the same financial incentive reached the person deciding how many implants a patient received. In that alleged arrangement, the patient’s operation was also the distributor’s sales opportunity, with taxpayers paying the health care claims.

How Does Reimbursement Work for Medical Devices?

In the DS Medical complaint, the hospital billed Medicare Part A and Medicaid for hospital services and supplies associated with the surgeries, including the implants. Midwest Neurosurgeons separately billed Medicare Part B and Medicaid for the surgeon’s services.

An implant invoice, a distributor’s commission statement and a physician’s bill each describe a different part of that chain. Connecting them shows how a decision made before surgery reached a request for public money afterward.

Why Was the Judgment Reversed?

The Eighth Circuit set aside a $5,495,931 civil judgment because the jury had not been required to decide whether the claims would have included the same items or services without the alleged kickbacks. Its July 26, 2022 opinion required that connection between the kickbacks and what the government was billed.

The court ordered a new trial. It also said the evidence was strong enough for a jury to find the defendants responsible for false claims.

What Did the Later Settlement Resolve?

The later civil settlement resolved allegations that DS Medical, Midwest Neurosurgeons and their owners solicited and received manufacturer payments in return for arranging use of the manufacturers’ products in the surgeon’s operations. The announced settlement amount covered the four defendants collectively.

Several physicians, a spinal implant salesperson and a former Midwest Neurosurgeons employee brought the original qui tam case. The government joined it.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

What Evidence Is Needed to Prove Fraud?

In DS Medical, the government’s complaint connected the alleged financial benefit, the surgeon’s decisions and the government claims through manufacturer negotiations, commission terms, hospital pricing communications, implant purchases and shared expenses.

The 2020 paper A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud, published in the Journal of Forensic and Investigative Accounting, explains that kickbacks can run through business relationships more complex than a direct payment for a service. That helps explain why the DS Medical complaint followed the commissions into the shared home: the alleged benefit reached the surgeon through the distributor owner’s spending.

A related pattern appeared in the government’s case against Reliance Medical Systems. The Justice Department’s settlement announcement described allegations of referral-based payments through physician-owned implant distributors and the removal of physicians who generated insufficient referrals. In DS Medical, the distributor belonged to the surgeon’s fiancée. Both cases focused on allegations that distributor income rewarded the decisions that brought in surgical business.

An employee inside a manufacturer may know why a commission changed. Someone in hospital purchasing may know who insisted on a vendor and what happened when prices were challenged. A practice employee may know the billing. The DS Medical complaint brings those views together.

You Know What Drove the Implant Sales

If you know how distributor payments affected a surgeon’s choices, speak to one of our Whistleblower Experts about the commissions behind the implant orders. We bring in healthcare whistleblower lawyers who understand distributor payments and hospital claims, and stay beside you to build your strongest implant kickback whistleblower case.