OtisMed, a unit of Stryker Corp., will pay more than $80 million to settle both criminal charges and civil claims relating to distribution of its knee replacement surgery devices. The company was charged with distributing the devices without proper federal clearance. OtisMed’s former chief executive officer, Charlie Chi, pled guilty as a part of the agreement. Paul Fishman, U.S. Attorney for the District of New Jersey and other federal officials announced the guilty pleas of both OtisMed and its former CEO Chi. The pleas involve the intentional shipping of OtisKnee orthopedic cutting guides in September 2009. That came after the U.S. Food and Drug Administration (FDA) had denied the company’s 501(K) application for permission to market the device. The FDA refused to find that OtisKnee was substantially equivalent to another legally marketed product. U.S. Attorney Fishman said in a statement:
It is vital that products like the OtisKnee are subjected to the appropriate level of scrutiny. Patients seeking medical care are vulnerable; they are often afraid, and in pain. They should be able to trust their doctors. And they should be entitled to trust that the devices their doctors are using are safe, effective, tested, and approved. OtisMed and Charlie Chi betrayed that trust.
OtisMed had already generated $27.1 million through the sale of more than 18,000 OtisKnee devices between May 2006 and September 2009. About 75 percent of those devices were sold in conjunction with a Stryker knee replacement system. Stryker acquired OtisMed in November 2009 and it should be noted that the criminal conduct occurred while OtisMed was still a privately held company.
OtisMed admitted to violating the Food Drug and Cosmetic Act (FDCA) by distributing adulterated medical devices into interstate commerce with the intent to defraud and mislead. U.S. Judge Claire Cecchi imposed a $34.4 million fine and $5.16 million in criminal forfeiture. Those sums are in addition to $40 million plus interest that OtisMed will pay to settle a whistleblower’s False Claims Act suit in New Jersey federal court over the marketing and distribution of OtisKnee without FDA clearance starting in 2006. The settlement covers false claims submitted to Medicare, Medicaid and other programs in connection with the product. Joel D. Hesch, a lawyer with The Hesch Firm LLC, who represented Richard Adrian, the whistleblower, said in a statement: “This is a textbook example of how the whistleblower reward program is supposed to work.”
The OtisKnee cutting guide was marketed as a tool to help doctors make accurate bone cuts as part of knee replacement surgeries. The prosecutors said none of the claims surrounding the device were evaluated by the FDA before the company used them in advertising materials. OtisMed did make a 501(K) submission to the FDA in October 2008. The company had been telling buyers that the product was a Class I device that was exempt from FDA pre-market approval and clearance requirements.
But the company never sought a statement from the regulator confirming that classification. The FDA’s eventual denial the following year put OtisMed on notice that distributing OtisKnee without its approval would violate the FDCA. However, the government says Chi, concerned with inconveniencing surgeons and harming the company’s reputation, directed employees to arrange a mass shipment of manufactured OtisKnee devices that the company had yet to distribute. It appears that Chi also suggested ways to hide the shipments from the FDA.
Some 218 OtisKnee devices were ultimately shipped after the FDA denied the company’s clearance request, according to prosecutors. As part of the settlements, OtisMed will be excluded from participating in federal health care programs for 20 years. Stryker will be required to undertake compliance efforts that include an audit of whether other marketed devices have appropriate FDA approvals. Chi pled guilty to three counts of introducing adulterated medical devices in interstate commerce, which are misdemeanor charges.
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