Medtronic will pay U.S. $9.9 million to settle kickback allegations

WASHINGTON – Medtronic Inc. will pay the U.S. Justice Department $9.9 million to settle a whistleblower lawsuit that accused the company of paying kickbacks to doctors for using its defibrillators and pacemakers.

The alleged kickbacks, according to the newly unsealed suit, included "gifts of wine and alcohol" and "trips to strip clubs" paid for by the Fridley-based company. The lawsuit also says Medtronic paid to fly doctors to events in San Francisco, Las Vegas, New Orleans, New York, Minneapolis and other cities that some physicians used as "a free vacation."

"As this settlement indicates, health care executives who try to boost profits by paying kickbacks to doctors will instead pay the government for their improper conduct," lead investigator Ivan Negroni of the Department of Health and Human Services said Wednesday in a statement.

Medtronic said it did not admit that any of its activities were improper or illegal and that the settlement would bring to a close a long-running review of events dating from 2001 to 2009. It also said it has taken measures to prevent inappropriate sales practices, including voluntarily disclosing payments to health care professionals on its website.

"Over the last several years we have adopted a number of important policies and procedures related to collaboration with health care professionals," the company said.

"As stated in our Business Conduct Standards, Medtronic does not provide or pay the costs for a customer's participation in entertainment or recreational events."

The Justice Department had accused Medtronic of violating the federal False Claims Act by providing speaking fees, developing free marketing plans and providing tickets to sports events to doctors who used its defibrillators and pacemakers in Medicare and Medi­caid patients and who recommended their use to others.

The case stemmed from the claims of former Medtronic employee Aldolfo Schroeder, who sued Medtronic under a federal whistleblower law that lets private citizens bring suits and share in any penalties the government collects.

Schroeder will receive $1.73 million for his role in bringing Medtronic's misdeeds to light, the Justice Department said.

Schroeder could not be reached, but his lawyers, Brooks Cutter and John Parker of Sacramento, Calif., said they were pleased with the outcome.

The lawsuit, whose details remained secret until Tuesday, describes Medtronic business plans with names such as "Project Wildfire" that had sales representatives offer "cash payments, expensive trips and meals, expensive gifts and entertainment to physicians as kickbacks in exchange for the physicians' agreement to implant Medtronic devices."

The lawsuit alleged that Medtronic "funneled millions of dollars in unrestricted grant money to physicians" to get them to encourage the use of Medtronic defibrillators and pacemakers in patients whose "mild heart failure symptoms did not meet [Food and Drug Administration] criteria for an implantable device."

Those procedures were not only unnecessary, the suit alleged, but potentially dangerous.

The suit describes payments of thousands of dollars in speaking fees to doctors for attending dinners at which they spoke for only a few minutes, if at all. In other cases, Medtronic allegedly prepared entire presentations that physicians offered almost verbatim.

The suit talks of a plan that "instructed sales representatives to personally review patient charts in friendly doctor's offices" and to flag those patients the sales representative "felt should receive an implant."

Asked to comment specifically on the strip club allegations and the accusation that it financially facilitated unnecessary implantations, Medtronic reiterated that its $9.9 million payment was not an admission that it had done anything illegal or improper.

Jim Spencer • 1-202-383-6123