Federal prosecutors increasingly target individual healthcare execs in anti-fraud efforts


A blue door with two small holes in it.Last month’s sentencing of the former president and CEO of OtisMed Corporation to two years in prison should serve as yet another example that federal prosecutors are not holding back when it comes to holding corporate executives accountable.

Charlie Chi was sentenced for intentionally distributing a medical device used in knee replacement surgery despite the fact that the Food and Drug Administration had denied the company’s application for marketing clearance. In December 2014, Chi admitted to distributing, with the intent to defraud and mislead, adulterated medical devices into interstate commerce in violation of the Federal Food, Drug, and Cosmetic Act.

In addition to the 24-month prison sentence, Chi was ordered to serve one-year of supervised release and to pay a $75,000 fine. Prior to his own sentencing, OtisMed Corp., in September 2014, was hit with a criminal fine of $34.4 million and ordered to pay $5.16 million in criminal forfeiture.

In a related civil settlement, the company agreed to pay $41.2 million to resolve its civil liability for submitting false claims to Medicare, TRICARE, Federal Employees Health Benefits and Medicaid programs. That settlement resolved whistleblower claims filed against OtisMed in 2009 by Stryker sales executive Richard Adrian under the qui tam provisions of the False Claims Act,(United States ex rel. Adrian v. OtisMed Corp. et al., No. 2:09-cv-5083 (D.N.J.)

Stryker acquired OtisMed in November 2009. It cooperated with investigators and agreed to a series of compliance measures to prevent future misconduct from taking place, according to the U.S. Justice Department.

In announcing Chi’s sentencing, the head of the Justice Department’s Civil Division noted that punishment “should send a clear message to others in positions of authority within the medical device and pharmaceutical industries†that DOJ will “vigorously prosecute not only corporations, but also the individuals at their helm who are responsible for endangering public health and safety in pursuit of profit.â€

Chi was among the founders of OtisMed and conceived of the OtisKnee orthopedic cutting guide, its primary product, which was used by surgeons during total knee replacement surgery to assist them in making bone cuts specific to individual patients anatomy based on MRIs performed before surgery. However, none of the company’s claims regarding the device had been evaluated by the FDA before the company used them in advertisements and promotional material. For three years OtisMed sold more than 18,000 devices generating about $27.1 million in revenue. It wasn’t until 2008 that OtisMed even submitted a pre-market notification to the FDA seeking clearance to market the device, which the FDA later denied on the basis that the company had failed to demonstrate that it was as safe and effective as other legally marketed devices.

Although the company’s board of directors decided to stop any further shipments, Chi directed employees to organize a mass shipment of all of the devices that had been manufactured. His rationalization was that they were needed for surgeries that had already been scheduled.

The prosecution of OtisMed and Chi was the work of a number of agencies including the FDA’s Office of Criminal Investigations and the Department of Health and Human Services’ Office of Inspector General.

As we have seen in recent years, many of these cases are the result of coordinated efforts among government agencies on the state and national level as prosecutors continue to go after healthcare fraud and abuse.

The Health Law Offices of Anthony C. Vitale has the experience to assist those swept up into the government’s intensified efforts in the healthcare fraud arena.

Our firm represents healthcare professionals in state and federal court who are charged with fraudulent billing, kickbacks, Medicare, Part D and Medicaid fraud and false claims, among others. Our team of highly skilled attorneys and consultants are here to help you before you become the focus of an investigation and will aggressively defend you should you become the target of one.

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