Kickbacks and Consequences: Lessons from the Innovasis Settlement

On May 29, 2024, the U.S. Department of Health and Human Services’ Office of Inspector General (HHS OIG) announced a $12 million settlement with Innovasis Inc., a medical device manufacturer, and two of its senior executives following an investigation into alleged kickback practices. This investigation was initiated by a whistleblower—a former regional sales director for Innovasis—who is set to receive approximately $2.2 million of the settlement.

The Case Against Innovasis

The settlement resolves allegations that between January 1, 2014, and December 31, 2022, Innovasis engaged in improper financial practices aimed at incentivizing seventeen orthopedic surgeons and neurosurgeons to use their spinal implants and related devices in surgeries covered by Medicare. These practices allegedly violated the False Claims Act by paying kickbacks. Innovasis is accused of offering various forms of improper compensation, including inflated consulting fees, payments for intellectual property that lacked proper valuation or was never utilized, registry payments, and performance shares.

Additionally, Innovasis allegedly provided luxury perks such as ski resort trips, lavish meals, and holiday events for surgeons, their office staff, and their family members. These perks were allegedly part of a broader scheme to improperly influence the surgeons’ decisions. During this time, the company’s founder and his brother, who held key leadership roles, were purportedly responsible for the strategic decisions and agreements that facilitated these improper payments.

Lessons Learned

The Innovasis settlement serves as a critical reminder for medical device companies about the importance of an effective compliance program at all levels of the company. This case highlights several areas where lapses in compliance can lead to significant legal and financial consequences. The key lessons from the Innovasis settlement below can help companies bolster their compliance programs and prevent similar issues.

1. Ensure Fair Market Value (FMV)

Payments to healthcare providers must strictly reflect fair market value for the services rendered. These payments must be appropriate and thoroughly documented to confirm that the services were actually provided. Overcompensating or paying for services that aren’t performed can lead to significant compliance risks.

2. Avoid All Things Luxury, Lavish, or High-End

High-end perks, such as luxury resort stays and extravagant parties, should be strictly avoided. These benefits can easily be perceived as inducements or kickbacks, which are prohibited under the Anti-Kickback Statute. Companies must ensure that any hospitality or gifts are modest and align with industry standards.

3. Proper Valuation and Utilization of Intellectual Property (IP)

When acquiring or compensating HCPs for intellectual property, it’s crucial to conduct a proper valuation before purchasing. Additionally, ensure that the IP is used effectively in meaningful product development. This helps avoid compliance issues and ensures that the investment aligns with the company’s strategic goals.

4. Importance of a Strong Compliance Program and Audits

The Innovasis case underscores the importance of strong compliance programs and regular compliance audits and routine monitoring. These measures can help identify and address potential compliance issues before they escalate. Continuous evaluation of compliance programs and comprehensive training for all employees, including executives, are essential to ensure adherence to legal and regulatory requirements.

Contact Gardner Law for More Information

If your company needs assistance conducting a compliance audit or assessing risk under the Anti-Kickback Statute or False Claims Act, contact Gardner Law.