Medical Device Kickbacks: The Payments Behind Implant Selection

Medical device kickbacks are payments or benefits intended to buy a physician’s product choice, a purchasing recommendation or a hospital’s business involving items or services payable by a federal health care program. The benefit can arrive as consulting fees, royalties, ownership profits or free equipment. The surgeon influences the choice, the hospital buys the implant, and the government pays for the resulting care. If you work in device sales, finance or purchasing, you may see the payment and the sales expectation sitting beside each other in the same file.

The Physician Chooses, the Hospital Buys

Implantable devices are often physician preference items. The surgeon can strongly influence both the brand and the type of device, while the hospital or ambulatory surgery center buys it. That separation gives a manufacturer a reason to pay the person making the recommendation even though the purchase order comes from somewhere else.

The HHS Office of Inspector General’s alert on physician-owned entities describes that purchasing relationship and its consequences. A financial incentive can distort medical judgment, encourage more extensive procedures and shut out competing products. Patients depend on the recommendation, taxpayers fund the care, and competing suppliers can lose business to a payment hidden behind it.

Consignment brings the sales process into the operating room. The manufacturer may retain ownership while the hospital holds the inventory. Use or implantation completes the sale. Instrument sets carry different sizes so the surgeon can select the implant during the procedure, and unused components remain for other cases. A sales representative may manage those sets and the replenishment that follows.

The product used, the hospital’s usage report and the manufacturer’s sales record connect the surgeon’s decision to the transaction. A payment designed to influence that decision can sit in an entirely different account.

How Does Reimbursement Work for Medical Devices?

Medicare usually includes an implanted device’s cost in the payment for the procedure or hospital stay. The hospital’s invoice from the manufacturer and its claim to Medicare serve different purposes. A device code or charge can appear on the claim even when Medicare pays for the device within the procedure’s rate.

The payment to the surgeon can buy implant sales while Medicare pays for the surgery that uses the implant.

What Are Some Examples of Kickbacks in Healthcare?

Medical device kickback examples include consulting paid according to implant use, royalties intended to secure a surgeon’s business, profits through a physician-owned distributor, and free equipment offered for preferred purchasing status. Education, research, travel and services for a physician’s practice can carry the same sales incentive. Each arrangement leaves a different trail.

Consulting Fees Measured Against Device Sales

Sham device consulting pays for product use under the name of professional work. The revealing records connect compensation to sales, show hours that were never worked, or explain why the company selected that surgeon.

In its civil settlement announced in November 2019, Life Spine admitted producing management reports that placed surgeon payments beside use of its spinal products. One report calculated return on investment by dividing sales associated with a surgeon’s use by the consulting fees and royalties paid to that surgeon. When use declined, senior sales managers contacted surgeons or their distributors to urge more use.

The company measured its return on consulting in implants sold.

A surgeon’s April 2020 civil settlement in the SpineFrontier investigation shows the invoice side. The surgeon admitted estimating consulting hours from the number of times he used the company’s products, rather than tracking time spent consulting. He also admitted seeking consulting payment for time spent operating while federal programs were already paying him for the surgery. The same operating time became a second invoice to the device company.

The government also alleged that SpineFrontier routed payments through a consulting intermediary, Impartial Medical Expert, to give the appearance of an independent business. According to the government’s complaint, the intermediary served only SpineFrontier and existed to pay surgeons to use its devices.

Royalties and Intellectual Property Agreements

A device royalty pays for rights to an invention or contribution to a product. In a kickback case, the inquiry reaches the contribution, the payment terms and the business expected in return. Product-development files and sales expectations can tell very different stories about the same agreement.

Arthrex settled in November 2021 to resolve allegations that royalties purportedly for contributions to its SutureBridge and SpeedBridge products were intended to induce a surgeon’s use and recommendation of its products.

The whistleblower’s complaint against Innovasis describes that purpose in the words allegedly used by a sales executive:

The complaint also alleged that product developers received inquiries from surgeons about inventions the company had declined to fund. The sales team allegedly expected purchases while the development team had no funded work to advance. An insider in either department could hold the missing half of that story.

Intellectual property acquisition fees can move money before a product reaches the market. Life Spine paid upfront fees for patents and patent applications, with royalties to follow on products that might be developed. In one admitted episode, the company discussed continued project funding alongside the surgeon’s declining use of its products. The development budget and the surgeon’s purchasing history belonged to the same conversation.

Physician-Owned Distributors

A physician-owned distributor puts the surgeon on both sides of device selection. The entity earns revenue from selling implants the physician-owner orders for use on the physician’s own patients. The hospital pays the distributor, and the physician can share in the profit.

The Inspector General’s March 2013 alert identifies concrete features that reveal the incentive. Investment opportunities may vary with expected device use. Profit distributions may follow purchasing volume instead of ownership. A physician may face reduced distributions or a forced sale of the ownership interest after stopping use of the distributor’s products.

The pressure can run toward the hospital, too. The alert describes surgeons threatening to move procedures elsewhere unless a hospital buys from their distributor, or promising to bring procedures to a hospital that agrees. The purchasing department is then negotiating with a supplier whose owners also control surgical business.

Ownership records, distribution calculations and communications with hospital buyers show how those interests fit together.

Free Goods and Equipment

Free devices can supply the benefit while purchases elsewhere supply the return. DePuy Synthes admitted providing free implants and instruments that a Massachusetts surgeon used in overseas surgeries. The government’s allegation was that those benefits induced the surgeon to use DePuy products for Medicare and Medicaid patients at home. DePuy settled those allegations for $9.75 million in January 2023, after providing more than $100,000 in free product.

The location of the gift and the location of the federally funded business were different. That makes the sales representative’s delivery records relevant alongside the surgeon’s domestic purchasing history.

Free supplies can also disappear from the customer’s price quote. In a complaint against Vascular Solutions, the whistleblower alleged that purchases of a laser console brought free procedure kits and supplies:

The inventory account contained something the sales quote omitted. For free goods and discounts, the useful comparison includes what the customer received, what it paid and how the benefit was recorded and disclosed.

Training, Research and Educational Grants

Training payments can turn the company’s education budget into compensation for its customers. In the Biotronik settlement announced in July 2022, the government alleged that physicians received payments for excessive training sessions, including sessions that never happened or offered little value. The physicians were supposed to train the company’s new employees. Its compliance department had raised concerns about salespeople’s influence over which physicians received that work.

The allegations also covered business-class airfare and honoraria for brief conference appearances. Attendance records and the selection of invitees help explain what the company was buying.

Post-market studies and device registries collect information about products after authorization. In the St. Jude Medical settlement announced in January 2011, the government alleged that the company used studies and a registry to induce physicians to select its pacemakers and defibrillators, paying fees of up to $2,000 per patient.

Grant timing can make the commercial expectation especially clear. Olympus Corporation of the Americas acknowledged that the criminal complaint against it was true. That complaint described the company withholding a $50,000 research grant until a hospital signed an equipment-purchase agreement. The purchase was the condition for the grant.

Practice Support and Indirect Payments

A manufacturer can deliver value by paying a practice’s expenses or paying someone who influences its orders. In the Merit Medical Systems settlement, the government alleged that an advertising program supplied selected providers with free advertising, practice development, practice support and purported educational grants to reward past sales and induce future sales. It also alleged that the company disregarded warnings from its chief compliance officer.

The recipient can be office staff. The government alleged that EBI, doing business as Biomet Spine and Bone Healing Technologies, paid staff under personal service agreements to influence doctors to order bone growth stimulators. The person holding the contract and receiving the money was different from the physician making the order.

These arrangements put marketing budgets, staff agreements and intermediary payments beside the physician’s own compensation records.

Payments to Switch Patients’ Supplies

Medical device kickbacks also reach supplies patients use at home. In the Coloplast and Liberator Medical settlements, the government alleged payments to suppliers for promotions that switched individual users to Coloplast products.

The whistleblowers’ complaint against Coloplast alleged that lower ostomy-product prices bought a supplier’s campaign telling patients they could no longer order competing products. The supplier’s access to the patient was what the manufacturer wanted to buy.

What the Consulting Arrangement Was Buying

The work performed and the business expected in return explain a consulting arrangement’s purpose. A written description of services, records of actual work, a fair-market-value basis for compensation and the company’s need for those services give us something concrete to compare with the sales team’s expectations.

Missing work, compensation tied to device use and management’s response to falling purchases show what the company was buying. The question is concrete: did the payments follow the work or the implant orders?

Why Is Kickback Illegal?

The Anti-Kickback Statute prohibits knowingly and willfully offering, paying, soliciting or receiving benefits to induce or reward federally payable referrals, purchases or recommendations. It reaches both sides of the transaction. In the device business, a purchasing recommendation can supply the connection even when the physician never sends a patient to another provider.

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, notes that inducing covered business can be one purpose of a payment among others. It also makes a useful distinction for an insider concerned about payments behind device selection:

Since the March 2010 change to the law, a bill for care resulting from an illegal kickback is a false claim under the False Claims Act. For implanted devices, that bill is the provider’s claim for the procedure or hospital stay.

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

Where an Insider Sees the Connection

Device kickback evidence often sits across departments. Finance holds payments and invoices. Sales tracks physician use and purchasing expectations. Product development can explain what work supported a royalty. Hospital purchasing and consignment records connect those accounts to the devices used.

Start with what you saw in your own department. You do not need every department’s files to speak with us. Whether you sell devices as an employee or an independent sales representative, we can assess how the payments and purchasing expectations fit together.

Open Payments entries add another account of the relationship to compare with the company’s own books. In the SpineFrontier investigation, the chief executive pleaded guilty to false statements concerning an Open Payments entry.

Physician financial relationships can raise questions under the Stark law, too. We work through those relationships with you while keeping the purchasing decision and the resulting claim in view.

When the Payment File Tells a Different Story

If you know why a surgeon received the contract, why the grant waited for a purchase or why consulting pay followed implant use, speak to one of our Whistleblower Experts about the payments behind the implant choice. We build your strongest whistleblower case around what you know about the device business and bring in whistleblower lawyers who know medical device kickback arrangements. Our experts stay beside you from assessing the evidence through the case.