CareFusion: Distributing Surgical Devices Under a False Pre-Amendment Claim

In the CareFusion unapproved devices settlement, the San Diego distributor agreed to pay $3.3 million to resolve civil fraud claims over surgical instruments sold under an unsupported claim that they qualified for a Food and Drug Administration exemption. The distributor admitted buying and selling devices without the required approval or clearance. The manufacturer had given CareFusion evidence for its claimed exemption, but that evidence was insufficient. The devices still reached hospitals and other providers, and some were used in procedures billed to federal healthcare programs.

The Justice Department announced the settlement on May 13, 2019. A whistleblower brought the case, and the United States joined it.

What CareFusion Admitted

CareFusion admitted distributing devices whose manufacturer had neither obtained the required Food and Drug Administration authorization nor demonstrated that the devices qualified for the pre-amendment exception, a grandfather exemption for devices legally sold before the modern requirements took effect.

To qualify for that grandfather exemption, the device’s owner, typically the manufacturer, had to have marketed the device before May 28, 1976, among other requirements. The commercial history of the product was therefore part of the authorization question.

From 2007 through 2014, the manufacturer sold devices while relying on that exception without the evidence required to establish it. CareFusion purchased those devices and resold them to hospitals and other health care providers. It admitted that the manufacturer wrongly claimed the devices qualified.

The evidence had crossed the same company boundary as the product. CareFusion admitted that the manufacturer supplied the material it relied on to justify the exemption and that the material was insufficient. For someone inside distribution or regulatory affairs, that is the detail that matters: the supplier’s claim had supporting paperwork, and the supporting paperwork did not establish the claim.

The grandfather claim was doing the work of an authorization the manufacturer had never obtained. An insider who saw that exchange may know what the supplier represented, what it offered as proof and how the distributor responded.

Why a Distributor Could Cause the Claim

CareFusion’s admitted conduct connected its own purchases and sales to procedures for which providers sought federal reimbursement. The company selling the instrument and the provider submitting the government claim occupied different places in the same transaction.

The instrument supply chain also reaches into the operating room. A Senate Finance Committee minority staff report on the implant supply chain describes manufacturer representatives and independent sales agents stocking and sterilizing instruments and assisting surgeons. Employees in that channel can see how a product gets used even when they never prepare the hospital’s bill.

How Does Reimbursement Work for Medical Devices?

Medicare commonly includes a device’s cost in its payment for the hospital stay or procedure. A device used during surgery can therefore reach a government claim through the provider’s bill for care. A hospital claim may still report device codes and charges even when the device cost is included in the procedure rate. That is the payment connection described in CareFusion’s settlement: providers used some of the devices in procedures and submitted claims to Medicare, Medicaid and other federal health care programs.

A 2020 analysis in the Journal of Forensic and Investigative Accounting puts the focus on the payment request:

The instrument reached the government through a bill for care. The False Claims Act case reached back to the distributor whose sales helped cause that bill.

The Warning Letter and Recall

CareFusion stopped selling and distributing the devices after the Food and Drug Administration issued a warning letter to the manufacturer in 2014 and the manufacturer issued recall notices.

For an insider who worked on product withdrawals or customer communications, the earlier authorization representations may explain why the products entered distribution in the first place.

Avalign and Instrumed’s Manufacturer Settlement

Avalign Technologies and Instrumed International agreed to a separate $9.5 million settlement, announced on September 13, 2019, over the manufacturer side of the same device sales. The manufacturer settlement was larger than the distributor settlement. They admitted conduct alleged in the government’s complaint. Instrumed was the manufacturer behind the pre-amendment claims in the CareFusion matter.

The later settlement supplied a much sharper account of what happened inside the manufacturer. In February 2009, Instrumed’s head of Quality and Regulatory Affairs wrote that the company could not claim grandfather status because it had not sold or marketed the device before the cutoff. By April 2009, its distributor had repeatedly told Instrumed that the evidence supporting the exemption was insufficient.

The company’s own regulatory head said it could not claim the exemption. The company kept selling.

The Food and Drug Administration’s March 2014 warning letter said the devices were not grandfathered devices legally on the U.S. market before the cutoff. The manufacturer admitted continuing to sell the devices from 2007 through 2014. The manufacturer announcement described devices used in spinal surgeries, circumcisions and other procedures.

Patients underwent those procedures with devices that lacked the required authorization, and taxpayers paid for care involving some of them. The exemption claim had consequences beyond the companies exchanging the paperwork.

What Evidence Is Needed to Prove Fraud?

For a device case like CareFusion’s, we work with the insider to connect what the companies knew about authorization to the products sold and the procedures billed. The manufacturer’s internal regulatory assessment and the distributor’s repeated objections show why someone inside the business can make the difference.

People in different jobs see different parts. A regulatory employee may know why the claimed exemption lacked support. A distribution employee may know which products continued to ship. Someone at the provider may understand how the instruments entered a procedure and how that care was billed. Our work is to connect those accounts around the conduct that caused the claim.

CareFusion’s Separate ChloraPrep Settlement

CareFusion’s ChloraPrep settlement concerned a pharmaceutical product and a different set of allegations. The Justice Department announced that resolution in January 2014, years before the surgical-device settlement.

How Much Is a Whistleblower Claim Worth?

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

You Saw the Authorization File Behind the Sale

If you saw a device sold as grandfathered despite evidence that failed to support it, speak with our whistleblower experts about what happened inside the business. We build the case with you around the product, the authorization claim and the government billing, and bring in medical device fraud whistleblower lawyers who understand that chain. We stay with you from the first call through the whole case, working for your strongest medical device whistleblower case.