OtisMed: The FDA Said Stop, the Guides Shipped Anyway

The OtisMed cutting guides settlement required the company to pay $40 million to resolve civil allegations that it marketed unapproved knee surgery guides and encouraged providers to bill for MRIs performed solely to make them. The Justice Department’s December 8, 2014 announcement describes a product sold to surgeons and a separate bill sent to health care programs. The whistleblower’s complaint described sales presentations that pitched the MRI as extra hospital revenue.

OtisMed also admitted in its guilty plea that it intentionally distributed cutting guides after the Food and Drug Administration rejected its application for marketing clearance. The civil case reached the payment side: what the company allegedly encouraged healthcare providers to charge the government for using its system.

What the OtisKnee Cutting Guide Did

OtisKnee used a patient’s MRI to help a surgeon make bone cuts during knee replacement. The surgeon had to reshape the ends of the leg bones to accommodate an artificial knee. As the Justice Department explained in its guilty-plea announcement, incorrect cutting angles could cause the bones or the implanted joint to fail. OtisMed marketed its guide as a way to make those cuts fit the individual patient’s anatomy.

The whistleblower’s complaint describes the production sequence. A special MRI supplied measurements of the arthritic knee. Software created a three-dimensional model, and OtisMed used that information to produce cutting guides for the operation.

That sequence also explains the commercial opportunity. A surgeon choosing this system generated demand for the imaging needed to manufacture it. The complaint alleged that sales materials turned that necessary production step into a selling point for hospitals with MRI equipment.

The FDA Rejected Clearance, and the Guides Shipped

In its announcement of OtisMed’s guilty plea, the Justice Department reported that OtisMed sold more than 18,000 guides between May 2006 and September 2009, generating approximately $27.1 million in revenue. The company had been telling physicians and potential purchasers that the product was exempt from premarket requirements. It had not previously sought clearance or approval from the Food and Drug Administration, and the agency had not evaluated the promotional claims before OtisMed used them.

OtisMed submitted its request for clearance on October 2, 2008. The Food and Drug Administration rejected it on September 2, 2009, saying the company had failed to show that OtisKnee was as safe and effective as legally marketed devices. The rejection letter warned that further distribution before approval would violate the law. According to the guilty-plea announcement, the agency viewed OtisKnee as a significant risk device system, posing a potential serious risk to a patient’s health or safety.

The Justice Department’s announcement of the guilty pleas describes a board that unanimously voted to stop shipments. The chief executive nevertheless directed employees to ship the manufactured guides that remained, concerned about inconveniencing surgeons with scheduled operations and damaging the product’s reputation. He also suggested ways to hide the shipments from FDA regulators.

In their guilty pleas, OtisMed and its chief executive admitted that he ordered distribution a week after the rejection. Approximately 218 guides went from California to surgeons around the country. The FDA had said stop. The board had said stop. The guides still went out.

The MRI Became an Extra Bill

In the claims the civil settlement resolved, the government alleged that OtisMed encouraged providers to submit claims for MRIs that were not reimbursable because they served solely to create the guides, rather than to diagnose a patient’s condition. The whistleblower’s complaint explained how that billing pitch worked inside a knee replacement sale.

For the knee procedures it described, the complaint said providers received a fixed payment under a diagnosis-related group. That payment covered the procedure regardless of the provider’s costs. Medicare generally includes an implanted device’s cost in payment for the procedure or stay.

According to the complaint, providers objected that the OtisMed system cost more than alternatives. Sales employees allegedly answered that objection by promoting a separate MRI bill on top of the knee replacement payment. The complaint called this unbundling: charging separately for a component it alleged belonged within the procedure’s fixed payment.

A training presentation acknowledged the scan’s integral place in the OtisKnee process and then gave this instruction:

The complaint also described a hospital selling guide that promoted increased MRI volume and a better return on an in-house imaging system. In that alleged sales pitch, the scan needed to make the product became extra revenue for the buyer. Taxpayers would pay the additional bill.

Sales Training Connected the Manufacturer to the Hospital

The whistleblower alleged that OtisMed promoted its technology jointly with Stryker and Biomet, using their sales employees to reach hospitals, surgeons and MRI centers. The complaint described shared presentations, surgeon training and marketing materials that paired OtisMed’s technology with those companies’ knee implants.

One presentation put the commercial objective plainly:

The complaint also reported that a Stryker manager objected to trips involving joint marketing with OtisMed, yet alleged that joint training and marketing continued. That contrast matters to someone who attended the meetings: what employees were told to sell, what managers questioned, and what the business kept doing can all appear in the same sales operation.

The Civil Settlement and Whistleblower Reward

The civil resolution covered allegations involving claims to Medicare, Medicaid, TRICARE and the Federal Employees Health Benefits program.

A whistleblower who had held sales management positions at Stryker brought the qui tam case under the False Claims Act. The Justice Department announced that the whistleblower would receive approximately $7 million. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

What the Sales and Billing Records Can Show

An insider’s account can connect a particular sales instruction to the provider’s decision and the resulting bill. In OtisMed, the complaint identified the training presentations, the MRI workflow, the separate billing pitch and managers’ objections. Those are concrete links between the product and the alleged payment claim.

The 2020 Journal of Forensic and Investigative Accounting paper A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud focuses attention on the request for payment and the statements that induced it. In OtisMed, a sales slide explains the instruction to seek payment. Imaging and billing records can show whether a provider followed it. We work with insiders to connect those parts of the transaction.

A similar discrepancy in sales material appeared in the whistleblower’s complaint against NuVasive. It alleged that promotional images showed a device use while a small-print disclaimer said the device was not approved for that use. In both complaints, what the sales force presented to customers was part of the evidence about how the manufacturer influenced product use.

Stryker Acquired OtisMed After the Shipments

Stryker acquired OtisMed in November 2009. The Justice Department said Stryker executives were unaware, when the September shipments occurred, that OtisMed had shipped guides after the FDA rejection.

The Justice Department also credited Stryker’s cooperation over OtisMed’s conduct before the acquisition. Stryker agreed to review and audit whether other marketed devices had appropriate FDA approvals and to share the results with the government. The announcement also reported that the president of Stryker’s orthopedics group and its board of directors would certify annually that the compliance program was effective.

You Know How the Product Was Sold

If you saw a device’s sales pitch turn a manufacturing step into an extra medical bill, speak to one of our whistleblower experts about how that bill was pitched. We build your strongest medical device whistleblower case with you, bring in medical device fraud whistleblower lawyers who understand manufacturer promotion and hospital billing, and stay beside you through the pursuit of a recovery.