Blackstone Medical: Consulting Agreements With a Sales Target

The Blackstone Medical kickback settlement required parent company Orthofix International to pay $30 million to resolve allegations that Blackstone bought spinal surgeons’ business through sham consulting agreements, royalties, research grants, and travel and entertainment. Behind those respectable payment labels, the whistleblowers’ complaint described a sales operation that tracked surgeons’ implant use, ended consulting contracts when that use stopped, and asked sales staff to produce paperwork supporting consulting hours.

The Justice Department announced the civil settlement on November 2, 2012. Blackstone developed and sold spinal fixation devices, implants and instruments. A former regional manager and an independent distributor brought the original False Claims Act qui tam complaint. Their account connected what happened inside the sales organization to surgeries billed to Medicare, Medicaid and TRICARE.

How Does Reimbursement Work for Medical Devices?

Implanted devices are generally paid for within the hospital’s payment for a procedure or inpatient stay. The hospital buys the implant, but the surgeon can strongly influence which manufacturer’s product it buys. That split explains why a manufacturer would aim its payments at the physician while the alleged false claim came from the hospital.

In its 2013 alert on physician-owned entities, the Department of Health and Human Services’ Office of Inspector General described implantable devices as physician preference items. Both the brand and type of device may be chosen or strongly influenced by the physician. The commercial leverage sits with the person selecting the implant, even when another organization pays the bill.

The Blackstone complaint alleged that payments induced physicians to use Blackstone products in spinal surgeries, causing hospitals to submit false claims for the surgical services. The alleged kickbacks reached the hospital bill through the surgeon’s choice of implant.

Consulting Agreements Built Around Product Use

Blackstone’s Medical Advisory Board allegedly served as a way to secure high-volume surgeons’ business through consulting contracts. According to the complaint, the contracts called for a specified number of consulting hours each month, but most physicians did not perform the contracted hours. Monthly stipends ranged from $1,666 to $8,000.

The complaint described close attention to sales alongside poor documentation of services. Blackstone allegedly tracked monthly sales to each advisory-board physician. Before prospective members met senior management, sales representatives supplied questionnaires asking about their annual sales with Blackstone. Management’s sales planning included how many advisory-board doctors a region needed to reach its target.

That connection also appeared when sales were lost. The complaint described internal reports tracking revenue lost because advisory-board surgeons had not been signed, research or education projects had not been provided, or consulting payments and contracts were late. In that account, the payment relationship was a source of implant revenue.

The alleged consequence of switching products was particularly revealing. A physician who stopped using Blackstone devices could be reprimanded or lose the consulting contract. The complaint gave an example of a contract terminated after a surgeon began using a competitor’s products. The work was called consulting, but the alleged condition for keeping it was continued implant use.

Sales Staff Were Asked to Supply the Hours

The complaint alleged that representatives were asked to describe interactions with advisory-board doctors and email those accounts to Professional Relations. That department allegedly turned the emails into support for consulting hours. A sales manager’s email, quoted in the complaint, captured the pressure:

The complaint also described an attempt to pay physicians for the time they actually spent on consulting. Payments fell, physicians complained, and the company allegedly instructed sales personnel to begin documenting the hours. In that account, the payments came first. The hours had to catch up.

Royalties and Research Grants Served the Same Alleged Purpose

The Blackstone settlement included alleged sham royalty arrangements and sham research grants alongside consulting fees. Each was another alleged way of paying for the surgeon’s implant choice. The complaint’s research examples show how the offer of funding could enter a conversation about keeping the business.

When an advisory-board surgeon indicated that he intended to end his relationship with Blackstone, the complaint alleged, the company offered cash and payments for two research studies at $50,000 per study to keep him using its products. The timing gives the allegation its force: the research offer arrived when the product business was about to leave.

The complaint described another offer to a licensed practical nurse who had professional relationships with physicians. It alleged that Blackstone offered unrestricted grants, a commission and $1,000 per day in expenses if he would promote its products to those physicians. The nurse declined.

Travel and Entertainment to Secure Surgeon Business

Blackstone allegedly used expensive meals, travel and entertainment to secure surgeons’ business alongside its formal payment programs. The complaint described the expectation placed on managers and representatives:

The allegation concerns what those expenses were meant to buy: continued implant business. The complaint linked the inducements to surgeries involving Medicare, Medicaid and other federally funded patients. Patients depended on their surgeons’ judgment, and public health care programs paid for procedures involving the products selected.

The complaint also described a hospital trying to learn about the relationship behind that selection. According to an account another Blackstone distributor gave the former regional manager, a hospital asked Blackstone for details about its relationship with a physician on staff. Blackstone allegedly refused. The hospital reportedly ended the physician’s privileges and contacted the FBI, and the distributor told the former regional manager he was shredding documents.

Can a Whistleblower Take Legal Action Against a Medical Device Company?

Yes. Blackstone’s case proceeded on allegations that the manufacturer caused false hospital and physician claims through kickbacks. In its June 1, 2011 decision, the First Circuit reversed the dismissal and allowed the case to proceed. It explained that a company can knowingly cause a false claim even when an innocent provider submits it.

That is the practical connection for a device-company insider. A manufacturer can make the payment, a surgeon can select the implant, and a hospital can send the bill. The allegation follows the decisions across those organizations.

What Kind of Proof Is Needed to Be a Whistleblower?

Our whistleblower experts help you assess the evidence for your case. In a case like Blackstone, that means connecting payments, the work supposedly purchased, implant use and the resulting government claims.

A 2020 paper in the Journal of Forensic and Investigative Accounting focuses on the bill sent to the government and whether a false statement got it paid. For this case, that means following the alleged inducement through the surgeon’s choice to the hospital’s claim.

The most revealing records may compare things that normally sit in different departments: a consulting payment with implant sales, reported hours with actual work, or a research offer with a threatened loss of business. Our whistleblower experts work with you to connect what you know inside the company or hospital to the government payments at issue.

The Civil Resolution and Whistleblower Reward

Orthofix agreed to the settlement as Blackstone’s parent. It also agreed to a corporate integrity agreement with the Department of Health and Human Services’ Office of Inspector General.

The Justice Department announced that the former regional manager would receive an $8 million whistleblower reward as a share of the settlement. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Payments Were Buying

If consulting hours appeared only after sales staff were pressed for them, or research funding depended on a surgeon’s implant business, talk with our whistleblower experts. We build your medical device fraud case with you and bring in medical device whistleblower lawyers who understand surgeon payments and hospital claims. We stay with you as the sales story becomes a case for recovering public money.