A newly announced multimillion-dollar settlement of a qui tam False Claims Act (“FCA”) case has continued a highly successful run for the United States of recovering taxpayer dollars in connection to healthcare fraud. In recent weeks, the Department of Justice (“DOJ”) has settled whistleblower initiated FCA cases alleging fraudulent healthcare billing for unnecessary genetic testing ($42.6 million) and knee injections ($7.13 million). Adding to that list, the DOJ announced an October 28 settlement with Sanford Health, Sanford Medical Center, and Sanford Clinic (collectively “Sanford”) of Sioux Falls, South Dakota.

The settlement, totaling $20.25 million, resolves allegations that Sanford submitted false claims to federal healthcare programs deriving from violations of the Anti-Kickback Statute and billing for unnecessary spinal surgeries to implant devices. A qui tam lawsuit filed by two Sanford-employed surgeons, Dr. Carl Dustin Bechtold and Dr. Bryan Wellman, exposed the allegedly fraudulent practices. Dr. Bechtold and Dr. Wellman will receive $3.4 million of the settlement.

The whistleblower’s complaint centered around a Sanford neurosurgeon who was allegedly receiving kickbacks for conducting surgeries on patients to implant spinal devices. The neurosurgeon’s physician-owned distributorship distributed these devices, and the neurosurgeon received a share of the profits for each device that was sold and implanted. Such kickbacks were alleged to violate the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), which prohibits soliciting, receiving, offering, or paying bribes in exchange for referrals of items or services covered by federal healthcare programs, such as Medicare or Medicaid.

Federal courts throughout the country have established that violations of the Anti-Kickback Statute can form the basis for FCA liability. In addition to the kickbacks, the whistleblowers’ complaint alleged that many of the surgeries the neurosurgeon performed were medically unnecessary. The complaint further alleged that Sanford had repeatedly been made aware of these improper actions but failed to take proper corrective actions and instead allowed the neurosurgeon to continue to profit from his misconduct.

Physician-owned distributorships (“PODs”), like that one at the center of the controversy here, are companies that are owned by physicians and earn revenue through the distribution of implantable medical devices. The physician-owners of the PODs order these devices for use in the surgeries they subsequently perform on their patients. The susceptibly to abuse of the POD business model is evident as the number of devices they implant into patients directly impacts their income. Therefore, it is in their financial best interest to advise as many patients as possible to undergo surgery. This economic pull can easily sway the physician’s medical judgment and lead to risky and unnecessary procedures whose dangers are not balanced out by possible benefits to the patient but rather by an increase to the physician’s economic standing.

The dangers to the public from PODs have long been at the forefront of government oversight. A United States Senate Finance Committee Majority Staff Report released in 2016 contained a thorough analysis of PODs. It concluded that the “Committee remains highly concerned about the damage that PODs have done, and are continuing to do, to patient safety and federal healthcare programs.” The report further stated that there was “little doubt that POD financial incentives can and do alter surgeon behavior and result in a higher utilization rate by POD surgeons.”

Two years following this report, the Medicare Payment Advisory Commission, an independent congressional agency, released a report which outlined concerns about the risks to the Medicare program and Medicare patients caused by PODs. Finally, as stated by Curt L. Muller, Special Agent in Charge, Office of Inspector General at the U.S. Department of Health and Human Services in the DOJ press release announcing the Sanford settlement, “PODs [are] inherently suspect under the Anti-Kickback Statute . . . Patients in government healthcare programs rightly expect that surgeries are medically indicated, not performed to increase provider profits.”

In addition to the monetary settlement, Sanford will also terminate the employment of the neurosurgeon. It will no longer allow its physicians to profit from PODs for devices used at Sanford. The litigation against the neurosurgeon and the POD at the heart of these allegations is still ongoing. Sanford, as part of the settlement, has agreed to cooperate with the DOJ moving forward in the litigation.

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