Feds investigating kickback allegations against Cardiovascular Systems

Federal officials are investigating allegations that Cardiovascular Systems Inc. (CSI), one of the largest medical technology companies in Minnesota, illegally paid doctors to use its products, according to court documents unsealed Wednesday.

The New Brighton company vowed to vigorously defend itself against the allegations, which were laid out in a 77-page federal whistleblower lawsuit that was filed by a former sales manager in 2013 and among the newly unsealed documents.

"CSI has successfully engaged in a fraudulent marketing scheme … to maximize its profits through an ongoing pattern of fraud and deception involving illegal kickbacks, off-label promotion, and violations of [federal] laws and regulations," says the lawsuit from Travis Thams, who claims to have seen the activity firsthand. He now lives in Spokane, Wash.

Cardiovascular Systems makes devices that doctors can use to drill out severely calcified plaque from clogged blood vessels in the legs and around the heart. The allegations in the lawsuit center on ways the company tried to sell its peripheral atherectomy devices, which are used in the legs.

The company said it hasn't been served with the lawsuit and didn't directly respond to allegations that it used free training trips and paid speaking jobs to influence doctors and health care facilities to invest in the devices. The lawsuit, filed in federal court in North Carolina, alleges violations of the federal False Claims Act and similar laws in Minnesota and 27 other states.

"CSI maintains rigorous policies and procedures to prevent violations of the False Claims Act and other regulatory requirements," company spokesman Jack Nielsen said in an e-mail. "We cannot predict when the investigation or the potential litigation arising from the complaint will be resolved, their outcome, or the potential impact on CSI."

Nielsen said the company is working with the Justice Department to promptly respond to its civil investigative demand letter.

Thams originally filed the lawsuit under seal in 2013, and CSI disclosed last year that it had received a civil investigative demand for information. The underlying lawsuit was unsealed Wednesday after federal officials announced they are not intervening in the case, which means Thams will have to prosecute the case himself without the government's help.

However, federal officials said in a court filing that they are continuing their investigation, and they may eventually take over the case.

CSI was listed as the 55th-largest public company by revenue in Minnesota last year in the Star Tribune 100. The 26-year-old company has never reported a profit; last year it lost $35 million on revenue of $136 million, securities filings say. Thams' lawsuit said company executives' ultimate goal is to hit analysts' quarterly revenue targets in order to attract new investors or sell the company.

The lawsuit alleges several schemes to drive up sales, including "kickbacks" in which doctors are sent on all-expenses-paid trips for training seminars in fancy settings and then told to use CSI devices on their next five or 10 cases.

"Now that the course is over, what is your next plan of attack?" a CSI executive wrote in an e-mail to his sales staff, according to the lawsuit. "It is your right to ask for their next five cases, hopefully this week. Gaining commitment to treat immediately post-course is a major way to convert your doctors."

Joe Carlson • 612-673-4779