United States Files False Claims Suit Against Life Spine, Inc. & Executives: Failed to Disclose in Open Payments
The United States Attorney’s Office for the Southern District of New York recently announced that the United States has filed a civil healthcare fraud lawsuit against Life Spine, Inc., Michael Butler (the founder, president and CEO of Life Spine), and Richard Greiber (the vice president of business development of Life Spine).
In the complaint, the government alleges that Life Spine, Butler, and Grieber caused hospitals and surgeons to submit false claims for payment to Medicare and Medicaid by paying millions of dollars worth of kickbacks to surgeons to entice them to use Life Spine’s spinal implants, devices, and equipment. The specific forms of kickbacks involved in this case are allegedly consulting fees, royalties, and intellectual property acquisition fees. The complaint alleges that the surgeons who received the payments made up roughly one half of Life Spine’s total domestic sales of spinal products from 2012 through 2018.
According to the complaint, Life Spine paid surgeons to get them to use Life Spine products during their surgeries. The company “aggressively recruited” surgeons who had the potential to use a high volume of Life Spine products, getting them to enter into agreements to serve as paid consultants and/or to transfer their patents or patent applications to Life Spine in exchange for payments and promised support to bring the surgeons’ new products to the market.
Life Spine, with the knowledge, involvement, and participation of both Butler and Greiber, entered into dozens of these agreements with surgeons. The agreements included medical education agreements under which the surgeons were paid to provide training and/or educational services; product development agreements under which the surgeons were paid to purportedly provide input on new products and then would receive royalties on future sales of the product; and intellectual property agreements under which the surgeons were paid large up-front acquisition fees for their patents/patent applications and then would receive royalties on sales of any products developed based on the patents.
These agreements were allegedly tied to the surgeons’ use of Life Spine products, with the expectation that the participating surgeons would commit to using Life Spine products at a certain frequency in exchange for consulting fees, royalties, and intellectual property acquisition fees paid to them.
Butler allegedly told Life Spine employees that he expected surgeons who were paid for their consulting services to commit to using Life Spine Products. To that end, senior management, including Butler, closely tracked surgeons’ usage of Life Spine Products to ensure that the payments to surgeons were generating sufficient sales revenues for the company and that the surgeons were fulfilling their “commitment” to use Life Spine Products. The company even went so far as to generate a report that compared surgeon consulting, royalty, and intellectual property payments to surgeon product usage levels, and then calculated an “ROI” (return on investment) for each surgeon based on those figures. If a surgeon’s usage was too low, Life Spine managers, including Butler, pressured the surgeon to use more Life Spine Products during his or her surgeries.
During the Relevant Period (January 2012 through at least December 2018), Life Spine, with the knowledge, involvement, and participation of Butler, paid more than $7 million in consulting fees, royalties, and intellectual property acquisition payments to surgeons. Life Spine did not report all of these payments to the Centers for Medicare and Medicaid Services (CMS) as required under the Physician Payment Sunshine Act (Open Payments). For a portion of the Relevant Period, Life Spine also compensated surgeons in the form of warrants in the company.
DOJ’s intervention in this case is a reminder of the United States’ long-standing scrutiny over compensation arrangements between device companies and health care providers.