Orthofix Pays $30M To Settle Foreign Kickback Allegations By Blackstone Subsidiary

by Tara Arick on November 8, 2012 · 0 comments

in anti-trust,Contract Law

- From LexisNexis® Mealey’s™ Daily Legal News.

Orthofix International NV will pay the federal government $ 30 million plus interest to settle allegations that the company’s Blackstone Medical Inc. subsidiary violated the Foreign Corrupt Practices Act by paying illegal kickbacks to doctors to induce them to use Blackstone’s spinal products, the parties announced Oct. 29 and Nov. 2 (United States of America, ex rel. Susan Hutcheson v. Blackstone Medical, Inc., No. 1:06-cv-11771, D. Mass.).

The settlement was announced on Oct. 29 by Orthofix and on Nov. 2 by the U.S. Attorney’s Office for the District of Massachusetts.

Relator Susan Hutcheson will receive $ 8 million as her statutory share of the settlement, according to the agreement. It says Hutcheson and Blackstone have separately resolved the claim for attorney fees and expenses.

In addition, the government said Orthofix has entered into a five-year corporate integrity agreement with the Inspector General’s Office of the Department of Health and Human Services.

According to the settlement agreement, Blackstone continues to deny the allegations but agrees to settle to avoid the time and expense of protracted litigation.

2006 Escrow Fund Awaited

In an Oct. 29 press release, Orthofix said the settlement will be paid out of an escrow fund that was established when Orthofix acquired Blackstone in 2006.

Orthofix President and CEO Robert Vaters said Orthofix has made significant improvement to its compliance practices.

According to the settlement agreement, Blackstone violated the anti-kickback statute through fraudulent medical advisory board memberships and agreements, stock options, royalties, expensive meals, gifts, entertainment and sporting event tickets, domestic and international travel, unrestricted grants and charitable donations, all intended to induce doctors to promote, buy or use Blackstone products.

Case Tested Compliance Theory

The settlement stemmed from a False Claims Act lawsuit filed in 2006 in the U.S. District Court for the District of Massachusetts by Hutcheson on behalf of the federal government. In March 2010, Judge William G. Young dismissed the case after finding that a violation cannot be predicated on hospitals certifying their compliance with federal kickback laws.

In June 2011, the First Circuit U.S. Court of Appeals reversed the dismissal. In December, the U.S. Supreme Court denied review of the appeals court decision.

In February, the parties told the District Court that they had settled and that the case was closed.

The United States has not intervened in Hutcheson’s suit. According to the settlement agreement, she has agreed to dismiss her case.

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