Orthofix Bone Growth Stimulators: False Medical Records and Audit Obstruction

The Orthofix bone growth stimulator fraud case led to a $34,234,263 civil settlement over allegations of false medical-necessity forms, kickbacks, waived copayments and failure to tell patients they could rent the devices. The criminal information described sales staff preparing the medical paperwork that justified Medicare payment. When a Medicare contractor came to audit the company, Orthofix concealed how that paperwork was being prepared, conduct that became the subject of its criminal guilty plea.

Orthofix manufactured the Spinal-Stim, Cervical-Stim and Physio-Stim products. Medicare accounted for approximately 25% of its bone growth stimulator business, according to the government’s account of the criminal case. The civil settlement, announced on June 7, 2012, resolved allegations brought by a whistleblower against the McKinney, Texas company.

For someone inside device sales, a physician’s office or a billing business, the case follows familiar handoffs: the representative who helps with a form, the clinician whose signature appears on it, and the supplier seeking payment. Here, those handoffs connected commercial decisions to documents presented as medical judgment.

How Does Reimbursement Work for Medical Devices?

Bone growth stimulators in this case were billed to Medicare as durable medical equipment, with payment available on a rental or purchase basis. That matters because many implanted devices are paid for within a hospital’s procedure payment. These non-invasive stimulators had their own supplier claims, making the choice between renting and buying central to what Medicare paid.

The court’s December 2010 account of the case described the devices as lightweight, battery-operated equipment that used weak electrical currents or ultrasonic waves to help healing after spinal surgery or in non-healing fractures. The billing-company co-owner’s whistleblower suit named several bone growth stimulator manufacturers, and the court described purchase-only and lifetime-need allegations against the group. The payment system it described put the purchase price at approximately ten monthly rental payments. Patients owed a 20% copayment.

The expected treatment period therefore mattered to both the government and the patient. A recommendation to buy carried a different financial consequence from a recommendation to rent for a short course of treatment.

The whistleblower alleged that patients typically needed the devices for three to six months, yet the claims schedule attached to the suit against those manufacturers showed purchase billing throughout. The allegation tied the commercial preference for a sale to what patients were told about their options. The patient’s treatment period was supposed to drive the paperwork. The complaint alleged that the purchase model drove it instead.

The Forms Behind the Medicare Claim

The claim documents connected the supplier’s promise to follow Medicare rules with the patient’s medical need and the type of payment requested. The court described several places where those statements had to line up.

The supplier’s enrollment application certified compliance with Medicare requirements, including the requirement to tell patients about renting or purchasing the equipment. The CMS-1500 claim form identified whether the supplier billed a rental or a purchase. The supplier also certified on that claim form that the services were medically necessary.

The Certificate of Medical Necessity carried the clinical information. Its signature attested to that information’s accuracy, and its estimated length of need stated how long the physician expected the patient to use the device. The form used code 99 when the patient was expected to need it for life.

The whistleblower, a co-owner of a medical-billing business, alleged that clerical staff often completed the medical-necessity section and relied on equipment representatives for instructions that would get claims paid. That is the point at which a salesperson’s knowledge of reimbursement could become influence over the medical account itself.

The Civil Allegations Behind the Settlement

The civil settlement addressed four alleged ways Orthofix’s promotion and billing practices caused federal programs to overpay. The Justice Department’s announcement tied each to the company’s bone growth stimulator business.

Waived Copayments Allegedly Misstated the Cost

The government alleged that Orthofix improperly waived patient copayments, misstating the devices’ true cost and causing federal overpayments. The patient-facing price and the price supporting the government’s payment allegedly no longer told the same story.

The 2020 Journal of Forensic and Investigative Accounting paper A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud explains that routine copayment waivers belong in the analysis of benefits used to influence health care business, alongside free or below-market goods and services. A benefit can take the form of money a patient is never asked to pay. That helps explain why a collection practice can matter alongside payments to people who generate orders.

Fitter and Referral Fees Allegedly Bought Influence

The government alleged that Orthofix paid physicians and their staff fitter fees, referral fees and comparable payments to induce use of its products. The alleged purpose was to bring in device orders that generated federal claims.

The distinction matters inside a sales organization because the people surrounding a prescription can influence which product gets ordered. The settlement’s account expressly included staff as well as physicians. An account review limited to payments made directly to the doctor would miss part of the conduct alleged here.

Allegedly False Certificates Supported Payment

Orthofix allegedly caused falsified certificates of medical necessity to be submitted in support of federal payment. Those forms supplied the medical explanation for the claim, so changing them affected more than the completeness of a file.

The earlier civil court account described allegations that supplier representatives instructed doctors to enter a lifetime need or another treatment period supporting purchase. Those allegations concerned the same group of manufacturers. Orthofix’s own criminal case later described specific ways its sales staff manipulated the forms.

The Alleged Failure to Offer Rentals

The government alleged that Orthofix failed to tell patients they could rent instead of purchase its stimulators. The complaint against those manufacturers connected that failure to sales conversations and paid claims: representatives allegedly said the devices were available only for purchase, while the listed claims used the new-purchase modifier.

The court described a billing client’s account of a form showing lifetime need even though the patient did not need the device for life. According to that account, the doctor understood the device to be purchase-only because that was what manufacturers were telling the supplier. A commercial instruction had allegedly worked its way into a clinical field.

That made the rental allegation much more concrete than a missing disclosure. It connected what the sales channel said, what the medical-necessity form showed and what Medicare was asked to buy. The government and the patient were both paying on the strength of that chain.

The Audit Obstruction Reached the Same Forms

Orthofix pleaded guilty to obstructing a federal audit. The government’s December 2012 account of the criminal information described sales representatives completing entire certificates, forging physicians’ signatures and filling in or coaching office staff to enter nine months of need for every patient, regardless of the physician’s judgment.

A field meant to describe an individual patient’s treatment became a standard sales answer, as though every patient needed the same treatment period. A competing supplier relying on the physician’s judgment would have no such shortcut.

In June 2008, a Medicare contractor audited Orthofix at its McKinney headquarters to check supplier-standard compliance. As described in the criminal case, Orthofix failed to disclose that territory managers completed entire certificates without physician input, coached the length-of-need entries and sometimes forged signatures.

The inspector general’s office put the company’s responsibility plainly:

As part of the civil settlement, Orthofix also agreed to a corporate integrity agreement with the Department of Health and Human Services’ Office of Inspector General. It required procedures and reviews intended to prevent and promptly detect similar conduct.

The People Behind the Orders and Records

The government described the individual guilty pleas alongside the corporate audit obstruction.

A Sales Vice President Paid for Prescriptions

A former Orthofix vice president of sales pleaded guilty on April 9, 2012, to paying kickbacks to induce a doctor and a physician assistant to prescribe Orthofix products, according to the government’s account of the individual criminal cases.

A Physician Assistant Accepted Payments for Orders

A physician assistant pleaded guilty on April 19, 2012, to accepting kickbacks from Orthofix in return for ordering its bone growth stimulators.

A Territory Manager Falsified Patient Records

A former Orthofix territory manager pleaded guilty on March 22, 2012, to falsifying patient medical records to induce Medicare to pay for the company’s bone growth stimulators.

Another Territory Manager Falsified Records for Payment

A second former Orthofix territory manager pleaded guilty on May 11, 2012, to falsifying patient medical records to induce Medicare payment for its stimulators.

The Office-Staff Pattern Appeared at Biomet Too

EBI, a Biomet subsidiary, resolved a separate case alleging payments to doctors’ office staff to influence orders for its bone growth stimulators.

Blackstone: Alleged Kickbacks to Spinal Surgeons

Orthofix International agreed to a separate $30 million civil settlement over allegations that its Blackstone Medical subsidiary paid kickbacks to spinal surgeons.

What Evidence Is Needed to Prove Fraud?

In this case, the useful evidence connected the sales instruction, the medical-necessity statement and the claim Medicare paid. The civil court account described a schedule showing claims allowed and denied, amounts submitted and paid, and purchase treatment. It also described conversations in which supplier representatives said renting was unavailable.

Those records answer different parts of the same question. Someone who handled the form can explain who supplied the treatment period, who signed it and what sales staff told the office.

The audit adds the company’s knowledge to that chain: what it knew about the forms and what it disclosed when asked about compliance. Our work with an insider is to connect those decisions to the actual claims. The billing employee, office assistant and sales representative may each recognize a different handoff.

The Orthofix Whistleblower Reward

The Justice Department announced that the whistleblower would receive $9.24 million as a share of the civil settlement. A private citizen brought the qui tam case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Who Filled Out the Form

If you saw sales instructions become medical records, or payments steer stimulator orders, speak with our Whistleblower Experts about who really filled out those forms. We work with you to build your strongest medical device whistleblower case and bring in medical-device fraud whistleblower lawyers who understand supplier billing and kickbacks. You have a partner from that first account through the pursuit of the government’s recovery.