Device Acquisitions and Enforcement: Who Answered for the Earlier Conduct?

Medical device acquisition successor liability concerns which company answers for the acquired business’s earlier conduct. Medtronic Spine settled allegations over Kyphon’s marketing, and Stryker resolved Entellus allegations even after its compliance personnel rejected an inherited consulting arrangement. If you worked in the business before and after a sale, you may know which sales instructions, physician payments or product problems crossed the ownership change, and who decided what happened next.

The Device Sale and the Medicare Claim Run Through Different Hands

A device manufacturer can influence the treatment decision that produces a hospital’s Medicare claim. That is the commercial connection behind several of these cases. A physician chooses a product, the hospital buys it, and the manufacturer may earn its sale when the device is used. Medicare generally pays the hospital for the procedure, with the implant’s cost included in that payment.

The Office of Inspector General’s analysis of physician-owned device businesses explains why the chooser matters: physicians can strongly influence both the brand and the type of implant. The manufacturer and the institutional buyer have different roles, even when their money depends on the same operation.

Consignment makes that connection especially close. The hospital may hold devices on its shelves while the manufacturer still owns them. Use or implantation can trigger the transfer to the hospital and the manufacturer’s revenue. The inventory history and the treatment history then describe the same product from different sides of the transaction. That is why someone who handled the stock may know something the billing record cannot explain on its own.

For a reimbursement employee, the important instruction may concern whether the patient becomes an inpatient. For a sales representative, it may concern a payment tied to product use. For a quality employee, it may be the decision to keep selling inventory after a defect becomes known. Kyphon, Entellus and Guidant show each of those connections. An acquisition adds a new owner to that history, while the underlying business records still identify who gave the instruction and which patients or claims it affected.

Covidien’s Stroke Device Registry Drew Kickback Allegations

Covidien allegedly used a stroke device registry to pay kickbacks to hospitals and institutions. In the resolution announced on December 4, 2018, Covidien LP agreed to a $13 million civil settlement over those payments involving Solitaire.

Solitaire is a mechanical thrombectomy device used to remove a clot from a brain artery during an acute stroke. The government alleged that, after receiving Food and Drug Administration clearance, Covidien launched the registry to collect information about hospitals’ experience with the device. The alleged kickbacks connected the manufacturer’s sales interest to the institutions using its product.

The same announcement sets out the ownership chain: Covidien acquired ev3 in 2010, after the conduct covered by ev3’s Onyx plea agreement, and Medtronic acquired Covidien in 2015. The Solitaire registry fees were Covidien’s own, paid for about two years beginning in August 2014, so they ran into the period after Medtronic’s purchase. In the separate Onyx criminal case, Covidien’s acquired subsidiary ev3 pleaded guilty to distributing an adulterated device. Covidien’s Solitaire civil settlement addressed the registry payments.

The Earlier Hospital-Admission Case

An earlier ev3 settlement announced on February 5, 2015 concerned atherectomy, a different procedure. ev3 Inc., described in the announcement as formerly Fox Hollow Technologies Inc., agreed to pay $1.25 million over allegations that it induced hospitals to seek payment for unnecessary inpatient admissions for minimally invasive atherectomy.

Here the alleged sales advantage came through the hospital’s admission decision. The company could make its procedure more attractive by encouraging a more expensive hospital claim. That is the same practical connection seen in the Kyphon case, even though the device, procedure and settlement were different.

Kyphon and Medtronic Spine Put the Hospital Bill at the Center

Medtronic Spine LLC agreed to pay $75 million as Kyphon’s corporate successor to resolve allegations that Kyphon caused hospitals to submit false Medicare claims. The Justice Department’s May 22, 2008 announcement names both companies and their respective roles plainly.

Kyphoplasty is a minimally invasive procedure for spinal compression fractures. The government alleged that Kyphon ran a seven-year marketing scheme encouraging certain hospitals to perform it on an inpatient basis when outpatient treatment was clinically appropriate and less expensive. The hospital submitted the bill. The manufacturer allegedly supplied the advice that made the bill larger, leaving taxpayers to cover unnecessary inpatient costs.

The commercial appeal was straightforward. A hospital considering the procedure could also be considering what Medicare would pay for it. Reimbursement advice became part of the sales pitch. The alleged excess payment arose from the patient’s admission status, giving the manufacturer influence over a claim submitted in somebody else’s name.

Two former Kyphon employees brought the whistleblower case. Their work in reimbursement and regional sales put them close to the connection between the company’s message and the hospital’s billing decision. The announced settlement provided them a collective $14.9 million share.

The Hospital Cases Followed the Same Billing Decision

The later hospital settlements addressed the providers’ own allegedly unnecessary inpatient admissions. Those claims put the hospitals’ decisions alongside the manufacturer’s advice. The manufacturer case and the hospital cases concerned different defendants occupying different positions in the same payment chain.

The resolution also reached future conduct. The manufacturer announcement says Kyphon entered a corporate integrity agreement with the Department of Health and Human Services’ Office of Inspector General, containing measures intended to ensure compliance with Medicare rules.

Entellus and Stryker Show What Changed After the Acquisition

Stryker’s compliance personnel flagged an inherited Entellus consulting arrangement and elected not to renew it. The Justice Department’s December 8, 2021 announcement describes the acquirer’s response alongside the alleged conduct that preceded it.

The government alleged that Entellus supplied cash payments and all-expense-paid trips to the physician who ran Milton Hall Surgical Associates. In exchange, he allegedly required the practice’s physicians to use Entellus sinuplasty devices and increase the number of sinuplasty procedures. The alleged payments went to the person who directed the other physicians’ work.

During the period described in the announcement, from 2014 through 2018, that executive was a non-practicing physician serving as chief executive and medical director. The government said he directed physicians, often over their objections, to order devices or perform unnecessary procedures and tests. The alleged inducement worked through the practice’s management hierarchy. An employee who heard those objections would know something a consulting contract alone would not explain.

The announcement places Stryker’s acquisition of Entellus in December 2017. Stryker declined to continue the consulting arrangement and still resolved the allegations about Entellus’s earlier conduct.

Stryker’s company-side payment was $1.2 million. The physician’s separate settlement was approximately $3 million and also covered laboratory-referral allegations. Benefits allegedly moved from Entellus to the practice leader, and instructions moved from that leader to the treating physicians. Stryker later addressed the inherited relationship.

Guidant and Boston Scientific Follow the Defect Into the Civil Case

Boston Scientific agreed to a $30 million civil settlement over Guidant’s allegedly defective implantable heart devices sold for Medicare patients. The October 17, 2013 announcement concerned sales during 2002 through 2005. The government’s complaint says Boston Scientific acquired Guidant in 2006, after those sales.

The government’s complaint described an electrical defect in Prizm 2 and Renewal devices. When a device detected an irregular heartbeat and attempted to deliver a shock, the current could arc back into the device instead of reaching the heart. The allegation connected what Guidant knew about the product with what it continued to sell for use in Medicare patients.

The complaint also described a decision about who inside the sales operation would hear about the problem:

The complaint also alleged that the company recommended continuing to sell field inventory containing defective devices. Guidant allegedly kept selling while keeping its own sales force uninformed.

The government’s complaint also put an internal repair beside the explanation sent to the Food and Drug Administration. It alleged that on November 19, 2004, Guidant presented a redesigned header as a change to improve manufacturing throughput and expressly denied that it corrected a flaw threatening patient safety. The government alleged that the redesign actually addressed the arcing problem. The reason for the engineering change and the reason given to the regulator were different.

According to the complaint, the company’s June 2005 letters to doctors acknowledged that the malfunction could damage the circuitry and prevent the required shock. Patients had heart devices that could fail without warning, while the alleged sales plan kept the defect from the people selling them.

In its separate criminal guilty plea, Guidant admitted making false and misleading reports to FDA and failing to notify the agency promptly of a device correction. The civil allegations concerned sales of devices the manufacturer allegedly knew were defective.

Warranty Credits Produced a Different Guidant Settlement

Guidant LLC, identified as a Boston Scientific subsidiary, also reached a separate settlement announced on September 26, 2011. It agreed to pay $9.25 million over allegations that it withheld warranty credits or rebates for removed pacemakers and defibrillators, increasing replacement costs to federal programs.

That case followed the replacement payment. The defective-device case followed the product sold and the company’s knowledge of its condition. An employee handling warranty returns could explain one set of transactions, while an engineer or sales employee could explain the other. Both histories sit under the Guidant and Boston Scientific names, but the business records behind them are different.

Advanced BioHealing and Shire Put the Sales Program Behind the Settlement

Shire Pharmaceuticals agreed to a $350 million federal and state civil settlement over alleged Dermagraft kickbacks, overuse and unlawful promotion. The January 11, 2017 announcement resolved six whistleblower actions involving Advanced BioHealing and Shire Regenerative Medicine.

The announcement alleges that both Shire and Advanced BioHealing, the company Shire acquired in 2011, used the kickbacks. Shire sold the Dermagraft assets in early 2014, before the settlement. An employee who worked in the acquired business may know what sales staff offered, who approved the offers and how the alleged inducements reached product use.

The earlier management’s conduct also had a separate civil outcome. In a settlement announced on June 6, 2019, Advanced BioHealing’s former chairman and chief executive agreed to pay $2.5 million. The government alleged that he permitted sales staff to induce Dermagraft use or overuse through kickbacks. A former sales representative brought that qui tam case.

The allegation reached the management permission behind the sales pitch. An insider may know who approved the practice and whether those instructions continued after the sale.

What Evidence Is Needed to Prove Fraud?

Evidence connects the manufacturer’s conduct to the provider’s claim and identifies the business responsible at the time. The cases above show what insiders can explain: Kyphon’s reimbursement advice, Entellus’s physician payments and Guidant’s internal defect communications. Our whistleblower experts help you assess how what you know fits the company’s history.

The clinical record can also help place a company at the treatment itself. The Association of periOperative Registered Nurses’ position on health care industry representatives calls for the nurse to record the representative’s name, company and time in the operating room. Where the hospital follows that practice, its record can connect a representative and a business to a particular operation. An employee who worked through an ownership change may be able to explain the company identity recorded there.

A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud, published in the Journal of Forensic and Investigative Accounting in 2020, explains the importance of inside information to False Claims Act enforcement:

An employee who stayed through an acquisition may be able to explain the continuity that a settlement headline compresses: the same product, a continuing sales instruction, a contract that came up for renewal, or a quality problem passed to new management. The Entellus case shows why the response matters too. Stryker’s compliance decision belongs in the account alongside the alleged arrangement it stopped.

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

You Know What Happened Across the Sale

If you saw the sales practice, physician arrangement or product problem pass from one owner to another, we can help turn that knowledge into your strongest medical device whistleblower case. We stay beside you through the process and bring in medical device fraud whistleblower lawyers who understand how manufacturer conduct reaches a provider’s claim. Speak with our whistleblower experts about what happened across the sale.