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Prosecutorial Zeal Comes to the Device Industry

Executive Summary

The government is taking aim at medical device companies; in May 2004 it caught Augustine Medical in a sting operation. Augustine paid the US government $12.75 million to settle claims relating to Medicare Fraud and moves to the top of a list that already includes large companies Guidant Corp. and Fresenius AG, which have both paid large sums of money to settle allegations of improper sales, marketing or billing practices that fall within the scope of the False Claims Act. (See Exhibit 1.) Now Medtronic Inc. is the subject of an investigation that alleges that payments and services to surgeons by its Medtronic Sofamor Danek division constitute kickbacks, and the billing and coding practices of Stryker Corp. are also under scrutiny. Medical device companeis are nervous. The pharmaceutical industry has already paid more than $1 billion to settle such cases; and medical device companies, which are subject to exactly the same regulations as pharmaceutical companies with regard to sales, marketing and medical education practices, are perhaps even more vulnerable because the very way they do business involves close relationships with physicians at all stages of development and marketing.

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