Sanford Health: Spinal Device Profits and the Hospital’s Response to Warnings

Sanford Health agreed to a $20.25 million spinal device settlement over alleged implant kickbacks and medically unnecessary surgery. The Department of Justice alleged that colleagues warned the hospital about both, yet Sanford kept the surgeon employed, let him keep profiting from the devices and kept billing federal health care programs. For someone whose surgical concerns reached management and went nowhere, that last part is the point.

The settlement covered Sanford Health in Sioux Falls, South Dakota. The Department of Justice announced the agreement on October 28, 2019.

The Surgeon’s Alleged Financial Interest in the Devices

The government alleged that a Sanford neurosurgeon profited from the implants he used in surgery through his own physician-owned distributorship. That arrangement put a financial interest in the hardware alongside the professional payment for performing the operation. The more devices used, the more business available to the company selling them.

The whistleblowers’ complaint described the purchasing arrangement in concrete terms. It alleged that the surgeon’s company, Medical Designs, sold the cages, the surgeon ordered them for his patients, and Sanford bought them. The doctor choosing the implant had an interest in the seller. The hospital was the customer.

The complaint also identified the surgeon’s Bullet Cage and Samba Screws among colleagues’ concerns about unnecessary and medically non-indicated operations.

Spinal implants give the physician unusual influence over purchasing. In its March 26, 2013 Special Fraud Alert on Physician-Owned Entities, the Department of Health and Human Services Office of Inspector General explained that implants are often physician-preference items. The physician can choose, or strongly influence, both the brand and the type of device. The hospital buying it may have less say than the person using it.

The alert called these distributorships inherently suspect under the Anti-Kickback Statute. It warned that device profits could encourage more operations, more extensive operations or the use of a less appropriate device. That is the clinical concern behind the financial arrangement: a patient can bear the consequences of an implant sale.

The inspector general also addressed the hospital’s side of the kickback arrangement. It would examine whether a hospital bought the devices to retain or attract the physician-owners’ referrals. A purchasing decision could buy access to the surgeon’s patients as well as the surgeon’s hardware.

Sanford Allegedly Kept Billing After Surgical Warnings

The government alleged that Sanford received warnings about the surgeon’s device profits and repeated warnings about medically unnecessary procedures. Physician colleagues and others raised the concerns. The government also alleged that Sanford knew the heightened compliance risks associated with physician-owned distributorships.

Despite those warnings, Sanford allegedly kept employing the neurosurgeon and allowing him to profit from devices he used at Sanford. The hospital also allegedly kept submitting claims to federal healthcare programs for his surgeries, including unnecessary procedures.

The whistleblowers’ complaint went further in describing management’s alleged response:

The allegation puts the hospital’s priorities in plain view. Colleagues questioned the care. Management allegedly protected the practice. For an insider, what happened after the warning can be as revealing as the original device arrangement.

Sanford Changed Employment, Device Profits and Oversight

Sanford terminated the neurosurgeon’s employment and prohibited every Sanford physician from profiting from medical devices they used at Sanford. The response reached both the employment relationship and the financial interest in the hardware.

Sanford also entered a corporate integrity agreement requiring independent review and compliance certifications from Sanford Medical Center’s board and key executives.

A 2009 survey in the Journal of Forensic & Investigative Accounting compared managers’ perceptions of billing risk at hospitals under mandatory integrity agreements with those using voluntary compliance programs. The study reported:

Sanford’s colleagues had already brought that concern to management.

Two Sanford Surgeons Brought the Whistleblower Case

Two surgeons at Sanford brought the qui tam case. The settlement announcement allocated them a joint whistleblower reward of $3.4 million. Their vantage point mattered: this was a case about clinical decisions, device profits and concerns raised inside their own hospital.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The Sanford case shows why colleagues’ knowledge can matter beyond the operating room. They can know both why an operation was questioned and what the hospital did when someone questioned it.

What Device Ownership and Colleagues’ Warnings Can Reveal

The Sanford neurosurgeon’s alleged financial interest in implants connected the seller, the surgeon choosing the devices and the hospital buying them. Colleagues’ warnings questioned the operations themselves.

A hospital can be the surgeon’s employer, the device buyer and the institution submitting the claim. Sanford’s alleged sequence touched all of those roles.

The inspector general’s alert identifies recognizable features of these arrangements. An ownership offer may depend on how much device business the physician can generate. A physician may condition referrals on the hospital buying the distributorship’s products. Owners may face pressure to use those products, conceal their ownership or begin performing more extensive surgery around the time they invest.

In the Sanford allegations, the claims continued after the warnings. Someone who knows that sequence has more to explain than a disputed choice of implant.

Other Spinal Surgery and Device Kickback Cases

Reliance Medical Systems agreed to a $1 million physician-owned distributorship settlement in 2022. The Department of Justice alleged that its distributorships rewarded referrals and removed physicians who did not refer enough patients. That case shows the distributor’s side of the incentive: the value of the investment depended on the business a physician brought to it. Sanford shows the hospital side, where warnings allegedly failed to interrupt employment, device profits and claims.

CHI Franciscan and St. Joseph Medical Center in Tacoma agreed to pay $745,654 in a settlement announced in 2024. The government alleged hospital billing for spinal surgery at more spinal levels than necessary and for medically unnecessary spinal fusions. Those allegations addressed both whether a fusion was needed and how many spinal levels required surgery. That is a distinction a colleague reviewing the treatment can recognize.

When Your Surgical Concerns Reached Management

If you questioned a surgeon’s operations and saw the hospital keep the device arrangement, speak with our whistleblower experts about what happened when you raised the concern. We connect the clinical concerns, implant profits and hospital decisions with you, build your hospital fraud case and bring in whistleblower lawyers who know surgical necessity and device kickbacks. We stay beside you from that first account through the case’s resolution.