United States Resolves False Claims Act Allegations Against Blackstone Medical Inc. for $30 Million

BOSTON—The United States Attorney for the District of Massachusetts announced today that the United States has reached a settlement with Orthofix International NV (Orthofix) subsidiary Blackstone Medical Inc. (BMI) in connection with an investigation of alleged violations of the False Claims Act.

Blackstone, a manufacturer of medical devices, notably spinal implants and spinal surgery products, will pay $30 million to resolve civil claims related to the government’s investigation of Blackstone’s conduct. The civil settlement resolves claims brought against Blackstone in a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act that is pending in the District of Massachusetts: United States ex rel. Hutchison et al v. Blackstone Medical, Inc., et al.

The United States alleges that Blackstone provided kickbacks to health care providers in order to induce those providers to utilize Blackstone products during spinal surgeries. The kickbacks provided by Blackstone took many forms, including sham “consulting” agreements, stock options, gifts, travel, unrestricted grants, and entertainment. The United States further alleges that these payments and benefits resulted in the submission of false claims for payment to government health care programs and violated the federal False Claims Act, on the theory that claims tainted by kickbacks are false and ineligible for payment. The affected federal health care programs, each of which will recover a portion of the settlement, include Medicare, Medicaid, the Veteran’s Administration health care system, and TRICARE, which provides health care for military service members and their families. The conduct in question is alleged to have taken place between October 1, 2000 and September 30, 2007, a period which spans both Blackstone’s existence as an independent company, and its acquisition as an Orthofix subsidiary in 2006.

In the wake of the government’s investigation, Blackstone entered into a settlement agreement with the United States, agreeing to pay $30 million to resolve the civil claims. As part of the resolution, the whistleblower, Susan Hutchison, will receive payments totaling more than $8 million from the civil recovery; Hutchison participated substantially in the development of the investigation that gave rise to the civil settlement. Orthofix and Blackstone have not admitted liability or wrongdoing in connection with the settlement.

Orthofix has also entered into a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. That agreement provides for procedures and reviews to be put in place to prevent or promptly detect similar misconduct at Blackstone in the future.

“This settlement demonstrates the government’s continued resolve to ensure that patients receive, and the government pays for, health care that is based solely on sound medical judgment, not compromised by kickbacks. We believe that this is a just and meaningful resolution that is in the best interests of the citizens of the Commonwealth and taxpayers across the nation,” said United States Attorney Carmen M. Ortiz.

“To those contemplating taking advantage of Medicare for their own gain, today’s settlement sends a loud, clear message,” said Susan Waddell, Special Agent in Charge of the U.S. Department of Health and Human Services Office of Inspector General New England region. “Law enforcement will work aggressively to eliminate efforts to abuse vital taxpayer funded health care programs.”

“Our men and women in uniform and their beneficiaries rely on their health care providers to perform their jobs without bias and make decisions in the best interest of their patients,” said Kathryn Feeney, Resident Agent in Charge for the Defense Criminal Investigative Service, New Haven Resident Agency. “Kickbacks, like those alleged here, undermine the TRICARE Military Health System. A settlement like this helps maintain the integrity of an important program our armed services depend on.”

“Blackstone Medical, Inc. now knows the FBI and our law enforcement partners are committed to investigating and uncovering health care fraud in all its forms, particularly schemes like the kickbacks Blackstone perpetrated to obtain profits at the expense of taxpayers,” said Richard DesLauriers, Special Agent in Charge of the Federal Bureau of Investigation Boston Field Division.

The civil investigation and settlement were handled by Assistant U.S. Attorneys Sonya A. Rao, Zachary A. Cunha and Michelle L. Dineen Jarrett of Ortiz’s Office, together with Senior Trial Counsel David T. Cohen of the Commercial Litigation Branch of the Justice Department’s Civil Division. The Corporate Integrity Agreement was negotiated by the Office of Inspector General of the Department of Health and Human Services.