On Nov. 11, 2021, the US DOJ announced that Arthrex agreed to pay $16 million to resolve a qui tam lawsuit initiated by a whistleblower that alleged that Arthrex bribed a physician by agreeing to pay him royalties on products Arthrex sold in order to induce him to use Arthrex’s products. I will have an upcoming post on why medical device companies should be concerned about a recent enforcement focus on them, but this settlement is interesting for a couple of reasons.

  • The settlement highlights the caution that must be exercised whenever a life sciences company enters into a payment agreement with a physician. The agreement at issue here was a royalty agreement where Arthrex agreed to provide royalties to an HCP that contributed to the development of Arthrex’s products. The HCP that is the subject of this settlement had sought royalties from Arthrex for at least 4 years prior to Arthrex entering into the payment agreement. Despite this history, the government claimed “one purpose of Arthrex’s payments was to induce Millet to purchase, order, or recommend the purchasing of ordering of Arthrex medical devices.” The government claimed that it could show that one of the reasons that Arthrex entered into this agreement was to retain the HCP’s business because the HCP allegedly claimed he would switch to a competitor’s products.

    Many federal courts have held that the False Claims Act is implicated if “one purpose” of a payment was to induce business. Keep in mind that this applies even if (1) the payment didn’t actually induce business or (2) the HCP had no understanding that this was one of the purposes of the payment. This highlights the diligence and caution that must be taken whenever a Life Sciences company enters into a payment agreement with an HCP. If there is any suggestion in a document, including emails or texts, or witness testimony that a purpose of the agreement is to retain or gain business than the government will have a strong claim that they payment was intended at least, in part, as a bribe.

  • Interestingly, the relator sued the HCP in 2017 claiming that he consulted with the HCP in his negotiations with Arthrex and the HCP did not pay him. See Shea v. Millett, USDC, D. MA (17-cv-12233). The relator claimed in his lawsuit against the HCP that the HCP did legitimate development work and that relator’s consultant work enabled the HCP to get a royalty agreement from Arthrex. The relator didn’t file his qui tam complaint until 2020. This history suggests the relator’s story had some significant issues and it is likely he took prior inconsistent positions in his other lawsuit. An imperfect relator isn’t unusual. This settlement highlights that issues with a relator, however, are often not that significant once the government is involved. Too often the company being investigated focuses on attacking the relator, in part, because they know the relator’s history and issues. This focus can be additive to a good defense, but don’t overestimate the significance of weakness in a relator. Once the government starts an investigation it will look at information independent of the relator (documents and witnesses) and that information will drive the case. The history of interactions with this relator also show why companies should take a pragmatic approach to how they handle threatened or pending litigation involving payments they make to an HCP.
  • Medical device companies have not traditionally received the same attention as pharmaceutical companies. $16 million is not an enormous settlement in the grand scheme of Life Sciences settlements. The relator that brought this qui tam action will receive $2.5 million as his “bounty” for bringing this case. As more company insiders learn about potential bounties will they start to think more seriously about bringing qui tam matters? Now is definitely the time for medical device companies to audit and bolster their compliance programs to make sure the company is prepared.

The press release and settlement can be found here: https://www.justice.gov/usao-ma/pr/arthrex-agrees-pay-16-million-resolve-kickback-allegations

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