A phony consulting agreement, laundered pay-offs, backdated time sheets and a cast of characters named DZ, RM, JM, Dr. P and Dr. S, star in the latest federal prosecution of medical device reps and, allegedly, docs gone bad.
Guerrieri Pleads Guilty
Thomas P. Guerrieri, a former medical device company vice-president pled guilty on April 9 to violating the federal Anti-Kickback statute in Boston.
According to the U.S. Attorney in Boston, Guerrieri facilitated signing up a surgeon in New York to a phony “consulting” agreement with the company identified in the court documents only as “Company A”, to induce the surgeon, identified as “Dr. S”, to prescribe the company’s bone growth stimulators.
Guerrieri also pled guilty to “executing” a scheme to pay Michael Cobb, a Rhode Island physician’s assistant to a neurosurgeon named “Dr. P” for each bone growth stimulator he ordered for his boss. Cobb, says the government, was paid $50-$100 for each stimulator.
Guerrieri is widely known to have been a vice-president for Orthofix, Inc. and left the company under undisclosed terms in 2010. In court documents released April 9, the government said Guerrieri lied to company lawyers about details of the consulting work.
Orthofix Resolution
Orthofix was not part of any of these pleadings. The company had already announced on February 6, 2012, that it was finalizing definitive agreements with the U.S. Attorney’s Office, the Department of Justice, and the Office of Inspector General (OIG) of the Department of Health and Human Services, to resolve criminal and civil matters related to the investigation of its bone growth stimulation business. The agreements include the resolution of a qui tam lawsuit pending in the U.S. District Court for the District of Massachusetts.
Under the terms of the agreements, the company agreed to pay the government $43 million. In addition, the company expects to plead to a violation related to an obstruction of a June 2008 federal audit. The company also expects to enter into a five-year Corporate Integrity Agreement (CIA) with the OIG as part of the resolution of these matters.
When contacted by OTW and asked why the names of the surgeons and companies were not identified in the documents charging Guerrieri, a source in the prosecutor’s office told us that at this time they could not comment because the investigation is ongoing.
Orthofix management declined to comment other than pointing to their February 6 announcement of the resolution with the federal government.
Bone Growth Stimulators
As vice-president of sales, Guerrieri was responsible for sales of the company’s Spine-Stim and Cervical-Stim bone growth stimulators through a sales force of approximately 75 territory managers who reported to approximately six regional sales directors. The regional directors reported to two area vice-president, who in turn reported to Guerrieri.
The stimulators are worn externally and emit pulsed electromagnetic fields to stimulate regeneration of bone in connection with spinal fusions. Some surgeons prescribe stimulators after surgery.
Anti-Kickback Act
In order to obtain payment from Medicare, the company is required to obtain an order from the treating physician; records describing the condition; and a Certificate of Medical Necessity (CMN). The government said Medicare beneficiaries accounted for between 20% and 25% of sales for the company. The Medicare-approved amount for reimbursement for stimulators ranged from $2, 800 to more than $4, 000 per device.
The Anti-Kickback Act prohibits the payment to physicians or their staff to induce them to order items or services to be paid for by Medicare.
Dr. S “Consulting Agreement”
Guerrieri’s guilty plea to facilitating a “consulting” arrangement with New York’s Dr. S, was with one of the company’s highest prescribing surgeons. The government says the surgeon was paid “tens of thousands” of dollars and did little or no work in return. Guerrieri and others at the company never contemplated that Dr. S would provide legitimate consulting service to the company. Rather, says the government, they offered the “consulting” agreement to Dr. S to induce him to prescribe their stimulators.
The “consulting” agreement, according to the court document, required Dr. S to submit time sheets documenting his work. He failed to complete and submit any times sheets to the company, but was nevertheless paid monthly. During the life of the agreement, Dr. S exclusively prescribed the company’s stimulators.
Backdated Time Sheets
By August 2007, according to the government, Dr. S was aware that consulting arrangements between surgeons and medical device companies were under increased scrutiny. The government said he met with Guerrieri and the company’s territory manager, “JM”, and informed them that he was concerned about his “consulting” agreement because, among other things, he had not been submitting time sheets. He allegedly instructed JM and Guerrieri to create and backdate time sheets for the previous year, making it appear as though he had filled out time sheets contemporaneously. Guerrieri and JM complied and Dr. S signed the backdated time sheets.
The time sheets included numerous tasks that Dr. S had not completed, “Indeed, the vast majority of the tasks included in the backdated time sheets were phony, ” say the documents.
Lying to Company Lawyers
Dr. S also requested that the two sales reps obtain a letter from the company’s general counsel stating that the surgeon was compliant with his “consulting” agreement. Guerrieri then brought the request to the company’s in-house attorney and his superiors. He told them that time was of the essence because Dr. S was a very large customer.
Prosecutors say the company’s lawyers were unaware that Dr. S had backdated the time sheets and that he had not performed any real services for the company.
The following month, September 2007, the company’s general counsel sent a letter to Dr. S indicating that “the entries on the Consultant Report forms appear to accurately detail the consulting services that you have provided, ” that the “services are of use to us, and that “all payments for consulting services must be documented before payments can be made.”
Guerrieri, according to his guilty plea, knew that these statements were untrue.
Guerrieri: “Give Us Our Due”
In spite of asking Guerrieri and JM to create the phony time sheets and obtain a letter from the company’s general counsel “under false pretenses, ” the government says Dr. S still decided to cancel his “consulting” agreement and stopped using the company’s stimulators.
After the cancellation Guerrieri sent Dr. S an email stating that he [Guerrieri] “jumped through hoops to get you the information that you requested” and “please give us our due.“
Rhode Island: DZ, RM, Cobb and Dr. P
Guerrieri didn’t keep his inducements activities to just New York. He was also busy in Rhode Island.
Between 2001 and 2010, the government says Michael Cobb was a physician’s assistant for “Dr. P, ” a neurosurgeon in Rhode Island. He was also the company’s largest customer in New England.
Cobb Payments
For many years, according to the government, “DZ, ” the company’s territory manager in Massachusetts and Rhode Island, paid Cobb between $50 and $100 for each stimulator prescribed by Dr. P and ordered by Cobb. The payments were disguised as “fitting” fees: payments for showing a patient how to wear the stimulator. In fact, say prosecutors, Cobb rarely performed such fittings for patients and DZ paid Cobb to induce more orders from Cobb and the surgeon. Cobb was in a position to determine which company’s stimulators would be used for Dr. P’s patients. In return for the payments, Cobb ensured that the company’s device was always used.
Professional acquaintances of Dr. P in Rhode Island and familiar with the case told us that it’s a small state and believe the wool was pulled over Dr. P’s eyes by those involved. They say physicians normally tell their assistants to order the device and would likely have no knowledge of which company’s device was ordered.
Laundering Required
In September 2008, Orthofix established a new policy that expressly prohibited any payments, including “fitting” fees, to any employee of a surgeon who prescribed the company’s products. Prosecutors say Guerrieri understood that the policy was established based on ongoing concerns that payments to surgeons’ employees could violate the Medicare Anti-Kickback Act.
Concerned that the company would lose business, Guerrieri contacted three regional sales directors and asked if the company would lose any business when the policy went into effect. He found that if they could no longer pay Cobb, the company might lose the business.
So Guerrieri, according to prosecutors, and others executed a scheme that would allow Cobb to continue to receive payments. The payments to Cobb would be assumed by Company B, a vendor that relied almost entirely on Guerrieri’s company for all its business. Cobb would continue to be paid, but it would be more difficult to trace the paper trail for the payments back to the company.
Guerrieri contacted RM, the company’s regional sales director while RM was playing a round of golf with Cobb. Guerrieri instructed RM to contact Company B and inform it that it had to begin paying “fitting” fees to Cobb. RM did as he was instructed.
Company B agreed to pay Cobb for several months before informing Guerrieri that it was no longer comfortable assuming these payment and stopped doing so.
Plea Hearing Set
Guerrieri’s plea hearing is set for April 19, 2012 at 3:15 p.m. before Judge George A. O’Toole, Jr. In addition to forfeiting any property derived from the offense, Guerrieri faces up to five years in prison and three years of supervised release as well as a $250, 000 fine and forfeiture.
And Dr. S in New York? Apparently the prosecutors aren’t done. Stay tuned.
