Earlier this year, the U.S. Department of Justice (DOJ) announced it had intervened in a False Claims Act case against a medical device manufacturer, SpineFrontier, Inc. and related entities, as well as three executives (collectively, the “Defendants”). According to United States’, the Defendants violated the Anti-Kickback Statute by using a third-party company, Impartial Medical Expert, LLC (IME), to pay kickbacks in the form of sham ‘consulting’ payments to spine surgeons to induce the use of SpineFrontier’s surgical devices. IME was far from actually being impartial—the government alleges that this company was created as a front as a way to conceal the ‘consulting’ payments in order to avoid Open Payments reporting and potential government scrutiny of physician-owned distributorships (PODs). While the case remains ongoing, six physicians have already entered into settlement agreements with the government and are cooperating.
Who’s Who
The Defendant entities include SpineFrontier, IME, KIC Management Group, Inc. (KIC Management), and KICVentures LLC (KICVentures). KICVentures is a private investment holding company that owns and operates multiple business, namely SpineFrontier and IME; KIC Management manages SpineFrontier and IME. The remaining Defendants include Dr. Kingsley Chin, SpineFrontier’s founder and Chief Executive Officer and the owner and operator of KICVentures and KIC Management, Adiya Humad, SpineFrontier’s President and the Chief Financial Officer for KICVentures, and Vanessa Dudley, Dr. Chin’s wife and IME’s Business Administrator (Dudley is IME’s only employee).
The United States government is being represented by
The United States’ Complaint-in-Intervention
The United States alleges that from March 2013 through December 2018, the Defendants paid over $8 million in kickbacks through sham ‘consulting’ fees to approximately 35 surgeons. According to the government, these surgeons were responsible for generating for than $100 million in revenue for SpineFrontier.
Specific allegations include that the Defendants:
- Reconsidered their practice of offering direct ‘consulting’ agreements and investment opportunities to surgeons after the 2013 announcements of the Open Payments program and HHS-OIG’s POD Special Fraud Alert (e.g., a sales representative wrote to a prospective surgeon in March 2014 that SpineFrontier’s partnership with IME “eliminates the need for a surgeon to get paid directly from the manufacturer and shields them from OIG, sunshine act [i.e.; the Open Payments program], and kickback concerns”);
- Informed surgeons that they could bill SpineFrontier, via IME, for consulting on a per-surgical-case basis, rather than based on their actual consulting time (e.g., the Defendants told surgeons that they could bill one hour for each cervical case, and two hours for each lumbar case);
- Tracked the number of surgical spine cases each IME ‘consulting’ surgeon performed (e.g., the Defendants kept a monthly spreadsheet that showed the number of surgeons who used SpineFrontier’s medical devices, the sales generated by those cases, and the number of ‘consulting’ hours submitted by the surgeon);
- Paid many surgeons for ‘consulting’ work even though no or little work was performed (e.g., an online portal was used by physicians to input their hours and submit feedback, but some left sparse, repetitive, or trivial comments—or comments unrelated to any medical device they supposedly evaluated); and
- Obtained, but ignored, a legal letterfrom an outside law firm that advised IME’s ‘consulting’ payments ran afoul of the Anti-Kickback Statute (e.g., the Defendants falsely assured surgeons that the IME consulting arrangement complied with the law).
Settlements with Physicians
In the United States’ complaint-in-intervention, the government identifies five physicians who have settled civil health care fraud claims. Each physician has admitted to seeking and obtaining kickbacks from SpineFrontier, via IME, for consulting work they did not perform. They also admitted that they were instructed by SpineFrontier, Dr. Chin, or Adiya Humad to bill ‘consulting’ hours to SpineFrontier for each surgery in which they used a SpineFrontier device. In one settlement, the government highlights how SpineFrontier informed the surgeon that it was ‘outsourcing’ payments made directly by SpineFrontier to IME based on concerns regarding the Open Payments program and HHS-OIG’s POD Special Fraud Alert. The complaint-in-intervention also shows how the government used Open Payments data to link the ‘consulting’ payments the physicians received to the use of SpineFrontier medical devices, which are reimbursed by Federal health care programs, including Medicare.
Separately in April, the DOJ announced a sixth physician had entered into a settlement agreement. The physician admitted to similar conduct and has also agreed to cooperate.
Takeaway
This case is another example that the government will not hesitate to take action against companies, including their executives, and yet another instance of a company being accused of providing sham consulting fees. It is also a wake-up call to companies, especially physician-owned distributors (PODs), that making payments through a third-party to physicians are clearly subject to reporting to Open Payments. This should come as no surprise considering the Centers for Medicare & Medicaid Services has repeatedly made clear that indirect payments are subject to disclosure and that physician-owned distributors that fall within the definition of “applicable manufacturer” must disclose payments provided to a covered recipient (e.g., on reporting indirect payments see Updates to the Open Payments Final Rule, published Nov. 2014, FAQ #8169, FAQ #8155; on POD reporting see Open Payments Final Rule, published Feb. 2013, FAQ #2005, FAQ #8974). PODs that are uncertain about reporting should also take note of a 2019 letter sent by the Senate Finance Committee instructing federal agencies to take action against PODs that are failing to report payments subject to disclosure.