Orthofix International NV (OFIX:US)’s settlement of federal regulators’ claims that the maker of bone repair products defrauded Medicare by paying kickbacks to doctors was rejected for a second time by a judge.
U.S. District Judge William G. Young in Boston today rebuffed an Orthofix unit’s offer to plead guilty to a felony count of obstructing an audit and pay a $7.8 million fine after concluding the agreement improperly restricted his sentencing powers. He originally rejected the deal in September.
Young said while he has traditionally “gone along” with plea deals, he said he felt accepting the agreement wouldn’t “ensure the public interest.”
It’s unclear whether Young’s refusal to accept the plea also scuttles Orthofix’s agreement to pay $34.2 million to resolve civil claims first raised in a whistle-blower’s lawsuit that the company defrauded the federal Medicare program through payments to doctors who used its bone-growth stimulators.
Mark Quick, an Orthofix spokesman, didn’t respond before a first call to him was discontinued. He didn’t immediately return a second call seeking comment on Young’s ruling. Assistant U.S. Attorney Jeremy Sternberg, representing the government in the case declined to comment after the hearing.
Five Orthofix employees have pleaded guilty in connection with the probe, the U.S. Justice Department said. Thomas Guerrieri, a company vice president, pleaded guilty to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products.
Orthofix, based in Curacao, in the Netherlands Antilles, said in February that it had reserved $43 million to settle the false-claims allegations.
The government joined a whistle-blower suit filed by Jeffrey Bierman, a Missouri businessman who learned about alleged Medicare fraud by Orthofix.
He alleged company officials improperly waived patient co- payments, which wound up misstating the bone-stimulator’s true cost and generating Medicare overpayments, prosecutors said in June when they announced the accord with the company.
Bierman, owner of a company that provides billing services to doctors and hospitals, sued under the federal False Claims Act, which lets whistle-blowers file cases on behalf of the government and share in any recoveries. He is slated to receive $9.2 million of the civil settlement in the Orthofix case, according to the Justice Department.
At today’s hearing, Young declined to give Orthofix’s and the government’s lawyers more time to immediately salvage the deal. “The docket should reflect the plea is withdrawn,” the judge said at the end of the hearing.
He rejected the plea after David Schumacher, another prosecutor, strongly urged him to give final approval to the deal. Schumacher cited Orthofix’s cooperation with the investigation which resulted in felony prosecutions over the Medicare fraud allegations.
“As far as the government’s concerned, there’s a high degree of confidence Orthofix’s crimes will not reoccur,” Schumacher said.
Orthofix’s attorneys argued the medical-device company has fired or forced out managers involved in wrongdoing and begun training programs designed to change the company’s sales practices.
“It is understood that good compliance is good business,” Brien O’Connor, one of the company’s lawyers, told the judge.
The case is U.S. ex rel. Bierman v. Orthofix International NV, 05-10557, U.S. District Court, District of Massachusetts (Boston).
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