Medical Device Manufacturer Coding Advice Fraud: When the Reimbursement Guide Creates a False Claim

Medical device manufacturer coding advice fraud occurs when a device company knowingly directs providers to bill government health care programs falsely. The instruction may be to substitute a procedure code, add a charge or admit a patient for treatment that belongs in outpatient care. The sales pitch offers a less invasive procedure. The billing advice calls it something more invasive, or more expensive. Someone inside the company knows who wrote that advice, who approved it and how it reached the customer.

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

Yes. A manufacturer can face a False Claims Act case for knowingly causing false claims that healthcare providers submit. The manufacturer’s instruction, the provider’s decision and the resulting bill connect the device sale to government payment.

The Centers for Medicare & Medicaid Services’ fraud guidance describes liability for both submitting a false claim and causing one to be submitted. That reaches the reimbursement department whose advice tells a customer how to bill. In the cases below, the government pursued the device company behind the instruction.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The employee who handled reimbursement questions can be as important to that case as the person who submitted the claim.

How Does Reimbursement Work for Medical Devices?

Medicare usually includes the cost of an implanted device in payment for the procedure or hospital stay. That makes the manufacturer’s interest in a customer’s coding decision immediate: the hospital buys the device, while the payment for treating the patient must cover its cost.

A Food and Drug Administration marketing authorization answers a different question from Medicare coverage or payment. For the reimbursement team, the issue is what care the customer provided and which payment the coding advice proposes to change.

Hospital outpatient payment generally packages implanted and inserted devices into the service. Inpatient payment includes device costs within the diagnosis-related group for the stay. Ambulatory surgery centers also package implanted prosthetics and implanted durable medical equipment, subject to specific exceptions. A device can appear on a claim while its cost remains inside the facility payment.

Defined exceptions include inpatient new technology add-on payments and outpatient transitional pass-through payments for qualifying devices.

Code Substitution and Category III Codes

Code substitution changes the service represented on the bill. Advice to add another code can also change reimbursement while leaving the actual procedure untouched.

THD America agreed to a $700,000 civil settlement in September 2024 over allegations that it caused physicians to obtain inflated Medicare and Medicaid reimbursement by using incorrect codes for its Slide One Kit. Surgeons used the kit for transanal hemorrhoidal dearterialization, a hemorrhoid procedure.

The Justice Department alleged that, between 2014 and 2017, physicians were required to bill the procedure using a temporary T-code. The department said reimbursement for this procedure was often denied. THD allegedly coached surgeons to use the T-code with an additional CPT code, or to use other CPT codes instead, to avoid denials and increase reimbursement from Medicare and Medicaid.

The temporary Category III code is the center of that particular allegation. The comparison is between the code required for the procedure at the time, the additional or substitute code recommended, and the claim the surgeon submitted. A reimbursement employee may know why the guidance changed after denials and whether customers received the change as a sales instruction.

The question runs in both directions: what the company told the customer to include, and what it told the customer to leave off.

Upcoding a Less Invasive Procedure

In a manufacturer case, the useful comparison is the clinical procedure against the billing description the company recommended.

EndoGastric Solutions developed EsophyX to treat gastroesophageal reflux disease as an alternative to a more invasive procedure requiring abdominal incisions. The government alleged that EndoGastric caused providers to use codes for the more invasive procedure, obtaining higher reimbursement for the less invasive treatment. Its February 2014 settlement provided for payment of up to $5.25 million and also resolved kickback allegations.

The device’s selling point was the less invasive treatment. According to the government’s allegation, the higher payment depended on billing as though the provider had done the more invasive work.

TranS1’s AxiaLIF system supplied a parallel in spine surgery. In its July 2013 settlement announcement, the Justice Department alleged that TranS1 counseled physicians and hospitals to use inaccurate diagnosis or procedure codes intended for more invasive spinal fusion surgery. Providers allegedly received greater reimbursement for the minimally invasive AxiaLIF procedures than they were entitled to receive.

The EndoGastric matter also involved alleged payments for patient seminars and co-marketing arrangements. TranS1’s settlement included alleged payments for speaker programs and consultant meetings intended to induce product use. The sales incentive and the coding instruction can sit in the same customer relationship, each explaining a different part of the transaction.

When Coding Guidance Leaves Out the Coverage Policy

A company’s reimbursement materials can reveal what it chose to tell customers about coverage, including contrary advice it allegedly withheld. Paradigm Spine’s case puts that omission beside the coding recommendation itself.

The May 2016 civil settlement addressed distinct allegations involving different products. The government alleged that Paradigm marketed coflex-F for unapproved surgical uses and gave false coding recommendations for procedures involving coflex. The coding allegations concerned guidance provided from 2012 to 2015. A former sales representative brought the whistleblower case.

That representative’s complaint alleged that the material reaching customers omitted contrary guidance:

For someone who prepared or reviewed those materials, the coverage policy and the customer version belong side by side. The question is what the company knew when it selected the recommendation it distributed.

Site-of-Service Advice That Sells an Inpatient Stay

Site-of-service advice can increase the hospital’s payment by steering a procedure into an inpatient admission. The Kyphon allegations concerned hospitals billing Medicare for inpatient kyphoplasty when less costly outpatient treatment was clinically appropriate.

Medtronic Spine, Kyphon’s corporate successor, agreed in May 2008 to pay $75 million to settle allegations that Kyphon’s marketing caused false Medicare claims. Former employees had brought the case.

Their original complaint described the sales problem in blunt commercial terms:

The amended complaint alleged that managers trained sales representatives to sell hospitals on the profit from an inpatient procedure with a one-night stay. The alleged pitch made the admission a way to accommodate the product’s price. Under that alleged scheme, taxpayers paid for an inpatient stay when the patient could have been treated as an outpatient.

Fox Hollow Technologies supplied the same admission mechanism in atherectomy. In the February 2015 settlement with ev3, formerly Fox Hollow, the government alleged that Fox Hollow advised hospitals to bill Silver Hawk procedures as inpatient claims to increase purchases of the device. Hospitals allegedly received higher reimbursement for medically unnecessary inpatient stays associated with the minimally invasive procedure. A former sales representative brought that case too.

For the insider, the admission instructions belong beside the clinical record and the hospital bill. That is where a sales recommendation becomes a claim for an inpatient stay.

Headache Devices and Claims for Noncovered Procedures

Coding advice can also be the route to payment for a procedure alleged to be outside Medicare coverage. The Allevio and SphenoCath matters connect the reimbursement instruction with what the device was sold to do.

The civil settlement involving Jet Medical in January 2023 resolved a whistleblower lawsuit concerning the Allevio catheter. The suit alleged that the device lacked FDA authorization for the intended headache treatment, that Medicare did not cover the procedure, and that Jet Medical coached providers to submit improper billing codes.

Dolor Technologies’ December 2023 civil settlement addressed allegations that it coached providers to submit improper Medicare codes for services using SphenoCath to treat migraines.

In the related criminal case, Dolor’s former chief executive admitted in his guilty plea that the company had not sought Food and Drug Administration approval or clearance for that intended use. He also admitted that Dolor continued marketing the device without conducting the investigational study the agency had recommended.

Where the Coding Instruction Lives

Manufacturer coding advice reaches customers through sales training, reimbursement presentations and direct conversations with billing staff. The person answering the hospital’s reimbursement questions may see both the commercial pressure and the instruction sent to the customer.

The original Kyphon complaint alleged that sales representatives and reimbursement managers visited hospital coders to explain how to maximize reimbursement. It also alleged that training presentations described codes for open treatment as potentially related to kyphoplasty. According to the complaint, a reimbursement executive opposed use of the open-reduction codes but the sales force repeatedly ignored her.

That gives an internal disagreement a specific purpose in the case: it identifies a warning, who received it and the advice that continued afterward. A customer email, training deck or reimbursement guide can carry the recommendation. The employee who reviewed or circulated it can explain how the company chose it.

A 2020 review in the Journal of Forensic and Investigative Accounting, A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud, asks whether a false statement led the government to pay money it should not have paid. Applied to coding advice, the question is whether the provider’s bill described the care the patient actually received. The person who wrote the guide and the person who used it each see part of that connection.

What Evidence Is Needed to Prove Fraud?

The useful evidence connects the manufacturer’s instruction, the care actually delivered, the claim and what the company knew. We work through those connections with you, including the coding and coverage rules in effect when the advice reached customers.

THD’s alleged response to denials, Paradigm’s alleged omission of contrary guidance and Kyphon’s alleged internal disagreement each put the company’s knowledge into view. The paid claim shows the result, while the internal discussion can explain why the customer was told to bill that way. Whether you worked for the manufacturer or an outside reimbursement service, that is inside knowledge we can help turn into your case.

When You Know Who Chose the Code

If you wrote, reviewed or delivered coding advice that steered customers toward false claims, speak to one of our Whistleblower Experts about the coding advice you saw. We work with you to build your strongest medical device whistleblower case from the company’s recommendation through the provider’s billing, and bring in medical device fraud whistleblower lawyers who understand manufacturer reimbursement programs. We stay beside you as that inside knowledge becomes the foundation of your case.