Spine Implant Company Used Hookers and Strippers as Kickbacks, Case Claims

Faced with a case in which Blackstone Medical sales reps allegedly provided prostitutes and strippers to doctors who agreed to use its spinal implants, a federal appeals court has ruled that the trial judges underneath them have applied the false claims and anti-kickback statutes too strictly.

The ruling follows a string of at least seven federal court decisions which have required that conspirators expressly acknowledge they are breaking the law when fraudulently applying for reimbursement from the federal government for medical expenses. For all practical purposes, this high technical bar meant that Medicare, insurers and healthcare coverage providers would have to find a written confession in order to demonstrate they were being ripped off. As such, the decisions virtually legalized drug price inflation through fraud and kickbacks.

The case, brought by former Blackstone regional manager Susan Hutcheson, features such spectacular allegations of wrongdoing that it would have left the First Circuit appeals court looking ridiculous if it had agreed with the Massachusetts trial judge's decision to dismiss the case for "failing to state a claim."

Hutcheson alleges that Blackstone paid spine doctors between $1,666 and $8,000 a month to make sure they used Blackstone's implants in their surgeries. Although the payments were officially to recruit surgeons for Blackstone's "medical advisory board," the company expressly linked the payments to sales of its products for the physicians' surgeries, Hutcheson claimed. Doctors who stopped using the devices were admonished by company reps and then dropped from the payment list, Hutcheson claims. All advisory board contracts were signed by BMI president Matt Lyons, Hutcheson claims.

The Department of Justice supported the case with an amicus brief, perhaps because it noticed that Hutcheson alleged Blackstone executives destroyed documents when they believed they were under investigation by the feds.

"Shredding documents 24 hours a day"
In the summer of 2006, a Blackstone distributor learned that St. Dominic's hospital in Jackson, Miss., was conducting an internal probe of a doctor who had taken payments from the company. After Blackstone declined to provide documents to St. Dominic's to help them with their inquiry, the hospital contacted the FBI. At that point the executive allegedly told Hutcheson he was "shredding documents 24 hours a day."

The scheme was so thorough -- Hutcheson lists all the doctors allegedly on Blackstone's payroll -- that it became burdensome for sales reps to execute. Each month they had to create a fictitious paper trail of "engagements" with the doctors to justify paying them the stipends, she claims. One rep, sales manager Brian Dukate, allegedly complained to vp Paul Sendro, "I cannot just make things up out of thin air":

Surgeons at a strip club
The scheme reached its tawdry nadir in Dallas, where reps procured hookers for doctors, the suit alleges. One female rep even allegedly partied with her customers at a strip club:

At the district court level, the trial judge followed previous rulings by saying that Hutcheson did not prove the stipends were kickbacks because when the doctors made reimbursement claims to Medicare they did not expressly link them to the cash they supposedly received from Blackstone. The appeals court threw that logic out in favor of a common-sense test that requires judges to look at all the facts at hand:

First, we reject the argument that, in the absence of an express legal representation or factual misstatement, a claim can only be false or fraudulent if it fails to comply with a precondition of payment expressly stated in a statute or regulation.

Second, we reject the argument that a submitting entity's representations about its own legal compliance cannot incorporate an implied representation concerning the behavior of non-submitting entities. These purported limitations do not appear in the text of the [False Claims Act] and are inconsistent with our case law.

... nor do we adopt any categorical rules as to what counts as a materially false or fraudulent claim...

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• 5 Amgen Execs Plead the Fifth on Alleged Kickbacks Described in Spreadsheet
• When Is a Kickback Not a Kickback? In Amgen Case, It's When You Filled Out Paperwork to Get It