Shire Dermagraft: A Sold Business, a Kickback Settlement

Shire agreed to pay $350 million in the Shire Dermagraft settlement to resolve federal and state False Claims Act allegations that kickbacks drove clinics and physicians to use or overuse its skin substitute. The alleged sales program reached from expensive dinners to medical supplies, speaking payments and rebates. For someone inside a device business, the connection is concrete: what the sales team offered, what the clinician chose, and what the government was asked to pay.

The Justice Department announced the civil settlement on January 11, 2017. Dermagraft was a bioengineered human skin substitute approved by the FDA to treat diabetic foot ulcers. The government alleged that Shire and Advanced BioHealing used financial inducements to expand its use. Taxpayers were paying for care that the government said kickbacks had steered.

At the time, the Justice Department described the resolution as the largest False Claims Act recovery by the United States in a kickback case involving a medical device.

Advanced BioHealing and the Business Shire Bought

Shire acquired Advanced BioHealing in 2011 and sold the assets associated with Dermagraft in early 2014. By the time the company settlement was announced, Shire had already sold the product business. The allegations still followed the sales conduct associated with it.

What Are Some Examples of Kickbacks in Healthcare?

The Dermagraft allegations included lavish dinners, drinks, entertainment and travel, medical equipment and supplies, unwarranted payments for purported speaking engagements and bogus case studies, and cash, credits and rebates. The government alleged that salespeople offered these benefits to clinics and physicians to induce Dermagraft use.

A purported speaking engagement gives a payment the appearance of work performed. The alleged commercial objective runs through all of them: more Dermagraft business from the clinician or clinic receiving the benefit.

A physician may strongly influence the choice while a hospital or surgery center handles purchasing and billing. In this case, the government’s account identified both physicians and clinics as recipients of inducements.

The government alleged that Shire submitted or caused hundreds of millions of dollars in false Dermagraft claims to federally funded health care programs. Its announcement named Medicare, Medicaid and the Department of Veterans Affairs. The allegation reached beyond what a salesperson spent on a customer to the government business those expenditures allegedly produced.

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, explains that kickback arrangements can involve noncash value and economic relationships more complex than a payment for services. Its analysis of False Claims Act cases also puts the claim for government payment at the center.

The VA Sales Increase

The VA inspector general reported a dramatic rise in Advanced BioHealing’s VA sales during the period when the company allegedly provided inducements to multiple VA clinicians across the country. That observation puts the alleged benefits beside a commercial result: increased sales to the institution whose clinicians were receiving them.

The civil agreement addressed the VA’s losses as a government customer.

Patient treatment and government purchasing met at the same customer. A sales employee who knew which clinicians received benefits could see one side of that relationship. Someone handling the account’s orders could see the other.

Off-Label Marketing, Pricing and Claims

The settlement also resolved allegations that Shire and Advanced BioHealing unlawfully marketed Dermagraft for uses not approved by the FDA, made false statements to inflate its price, and caused improper coding, verification or certification of claims for Dermagraft and related services. These allegations extended the case from the reason a customer selected the product to what the government was told about its use and price.

For a reimbursement or billing employee, the relevant connection may be between the sales message, the treatment record and the description submitted for payment. For a sales employee, it may start with what the company told a practice about the product’s uses or reimbursement. Those accounts can meet at the same claim.

Six Whistleblower Cases Behind the Settlement

Six qui tam cases brought the allegations that the company settlement resolved. Private parties used the False Claims Act to bring claims on the government’s behalf.

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

The Existing Corporate Integrity Agreement

Shire’s Corporate Integrity Agreement was already in place when the Dermagraft settlement was announced. The government said Shire had cooperated with its investigation and had been operating under an agreement with Health and Human Services implemented in late 2014. That agreement arose from a separate False Claims Act matter, after the alleged conduct covered by the Dermagraft resolution had occurred.

The Health and Human Services inspector general said it would continue monitoring Shire’s compliance with federal healthcare programs through that agreement.

Shire had sold the business and was already under compliance oversight. It still faced the bill for the earlier alleged sales practices.

The Former Chief Executive’s Separate Settlement

The former chairman and chief executive of Advanced BioHealing agreed to a separate $2.5 million civil settlement, announced on June 6, 2019. The Justice Department alleged that he knowingly allowed sales representatives to use kickbacks and other unlawful methods to induce clinics and physicians to use or overuse Dermagraft.

The allegation reached the executive who allegedly let the sales force do it. What management knew mattered alongside what salespeople spent.

A former Advanced BioHealing sales representative brought the whistleblower case behind this resolution and was allocated a share of the recovery. Someone selling the product could bring an account of the conduct that management allegedly allowed.

What Evidence Is Needed to Prove Fraud?

A case like Dermagraft means connecting what the sales program bought to the product orders, government claims and management decisions behind them. Our whistleblower experts work through those connections with you and bring in medical device fraud whistleblower lawyers who know how to build the case.

A representative, clinic employee or billing specialist may see a different part of the same business. You do not need to arrive with the whole case worked out to speak with us.

You Know What the Sales Program Bought

If you saw a device company’s benefits move a clinic’s product choices, speak with our Whistleblower Experts about what the sales program bought. We help you build your strongest medical device whistleblower case, match you with medical device fraud whistleblower lawyers who understand sales incentives and government claims, and stay beside you through the pursuit of a recovery.