Reliance Medical Systems: The Salary That Matched the Implant Profits

Reliance Medical Systems agreed to a $1 million physician-owned distributorship settlement over alleged implant kickbacks. The government alleged that physicians earned money from the implants they chose for their own patients. Its complaint followed that money into a purported salary and the timesheet used to justify it. For someone who knows the device business, the question is familiar: what was the surgeon actually being paid to deliver?

The Justice Department announced the settlement in 2022. Reliance was a spinal implant distributor headquartered in Bountiful, Utah. The alleged arrangement reached beyond the distributor’s books, into hospital purchasing and the decision to operate.

How a Physician-Owned Distributorship Gets Paid

A physician-owned distributorship earns revenue by selling, or arranging the sale of, implantable devices that its physician-owners use on their own patients. The hospital buys the implant. The surgeon influences which implant it buys and can receive a share of the distributor’s earnings from that sale.

That influence matters in this trade. In its March 26, 2013 Special Fraud Alert, the Department of Health and Human Services Office of Inspector General described implants as “physician preference items.” The surgeon can strongly influence both brand and type, even though the hospital makes the purchase. A distributor with physician investors can therefore sell to the purchasing department through the people who decide what gets used in the operating room.

The Office of Inspector General called these distributorships inherently suspect under the Anti-Kickback Statute. It assesses intent through the structure, safeguards and actual conduct of the business. Its concern follows the business: who gets invited to invest, what determines the return, and whether a physician can keep the investment after the referrals stop. The Inspector General warned that these incentives can mean unnecessary surgery for patients, higher costs for patients and taxpayers, and unfair competition for other distributors.

Referrals Were Allegedly the Price of Keeping an Investment

The government alleged that Reliance’s distributorships paid physicians according to their referrals, made false statements to health care providers and terminated physicians who did not refer enough patients. Keeping the investment allegedly depended on keeping the business coming.

Reliance’s owners founded it in 2006 and created more than twelve physician-owned distributorships selling its devices, according to the government’s complaint announcement. Apex Medical Technologies and Kronos Spinal Technologies were among them. Each distributorship sold implants ordered by physician-owners for procedures on their own patients.

The complaint also alleged that Reliance’s owners offered a surgeon a share of the profits he generated for Kronos after he proved his “loyalty.” In the earlier announcement, the government alleged that recordings captured the owners describing a plan to “get around” the Anti-Kickback Statute and payments enough to “put their kids through college” in the first month or two. Those were alleged sales pitches for the investment itself.

The Salary Calculation Came First

The government’s amended complaint alleged that a $40,350 salary payment to a Kronos surgeon in April 2013 matched the implant profits he had generated in January. It described the payment as “not based on any “work” he did for Kronos in March.”

To justify that payment, the complaint alleged, Reliance told the surgeon to claim 67.25 hours for March at $600 an hour. The alleged calculation ran backward: start with the implant profits, then supply the hours that make the payment look like compensation for work.

The same complaint alleged that another surgeon received a share of profits she generated during a month of evaluation even though she never became a Kronos investor. The payment formula tells more of this story than the ownership paperwork alone.

A Small Investment and a Change in Implant Use

At Apex, the government’s amended complaint alleged that a neurosurgeon invested $5,000 and received $264,957 during the following eight months. The government’s earlier announcement said he began using Reliance implants only after acquiring his ownership interest and receiving payments from implant sales.

The government also alleged that these payments caused medically unnecessary or excessive surgeries on patients who did not need the implants. That is where the financial arrangement reaches the patient: an incentive to choose a particular device can also become an incentive to use more of it.

The Hospital Could Lose the Surgeries

Reliance’s managers allegedly asked physician-investors to push hospitals that refused to buy its implants and threatened those hospitals with losing scheduled surgeries to induce above-market purchases.

A hospital purchasing department has its own economics. Under Medicare’s inpatient payment system, a hospital receives a payment based on the admission’s diagnosis group, with adjustments, rather than reimbursement of each supply cost. The allegation that a hospital faced losing surgeries over an implant purchase matters because both the cost of the device and the business attached to the surgeon enter the decision.

The Inspector General’s alert describes precisely that pressure: threats to move surgeries, promises to bring them, or demands for exclusive purchasing. It also asks whether a hospital buys the devices to maintain or secure the physician-owners’ referrals. The hospital’s reason for accepting the deal matters alongside the physician’s reason for offering it.

When Implant Profits Meet the Medical Record

The complaint alleged that Pomona Valley Memorial Hospital reviewed a surgeon’s instrumented fusion surgeries using Reliance implants around 2014 and concluded that the surgeries often exceeded medical necessity. That allegation adds a clinical review to the payment trail. The profit calculation addresses why the surgeon got paid. The retrospective review addresses what the patient needed.

Hospital billing for spinal fusion at more levels than necessary appears in a separate case involving CHI Franciscan and St. Joseph Medical Center in Tacoma. Their 2024 settlement covered allegations that the hospital billed for unnecessary fusions and surgery at more spinal levels than necessary. The common question is specific: did the operation go beyond what the patient’s condition called for?

The Settlement and the Separate Whistleblower Case

The Reliance physician-owned distributorship settlement resolved the government’s own kickback lawsuit. The department had previously recovered over $9.25 million from owners of Reliance distributorships.

Two physicians brought a separate qui tam case over the surgeries’ medical necessity, naming Community Memorial Health System and two physicians as defendants. The government joined the medical-necessity claims and brought its own kickback claims. The Reliance action itself had no whistleblower reward.

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

Sanford Shows Why Colleagues’ Warnings Matter

Sanford Health’s $20.25 million settlement shows how hospital management’s response can become part of a device case. In its 2019 announcement, the Justice Department alleged that colleagues repeatedly warned Sanford about a neurosurgeon’s implant financial interest and unnecessary procedures. Despite those warnings, Sanford allegedly continued employing him, allowed him to keep profiting from the devices and kept billing federal healthcare programs for the surgeries.

Sanford ended the neurosurgeon’s employment and prohibited its physicians from profiting from devices they used at Sanford.

For an insider who saw hospital compliance warnings, the recipient and management’s response are part of the evidence. The surgeon’s device ownership is one fact. Colleagues’ warnings and the hospital’s decisions after receiving them can show how far the knowledge traveled.

The Paperwork Behind the Payment

Reliance’s alleged salary calculation shows why a payment total is only the beginning. An employee handling distributions may know how the amount was calculated. A purchasing manager may know what the hospital was told would happen if it refused the implant. A clinician may know what the retrospective review found. Each sees a different part of the same arrangement.

The 2018 paper Healthcare Data Sources and Fraud Research Opportunities, in the Journal of Forensic & Investigative Accounting, proposes combining Medicare provider payment data with Open Payments information about industry payments to identify financial incentives beyond patient service revenue.

The profit calculation, timesheet and communication about the hospital’s purchase can explain what that relationship was supposed to produce.

Your Knowledge of the Implant Deal

From a distributorship, a hospital purchasing office or an operating room, you may have seen what surgeons had to deliver before the investment paid. Talk to our whistleblower experts about the payments and purchasing pressure you witnessed. We build the case with you, bring in whistleblower lawyers who know implant kickback cases and stay in your corner through the resolution.