WHISTLEBLOWER CASE TO PROCEED AGAINST MEDICAL DEVICE MANUFACTURERS

January 3, 2008 - The guilty plea today by Searcy neurosurgeon Dr. Patrick Chan and his settlement in a related civil whistleblower case does not end the whistleblower case against other defendants.

The whistleblower case, called a “qui tam” lawsuit, was filed by John Thomas of Little Rock on April 14, 2006, in federal court in Little Rock. It alleges that Dr. Chan, medical device manufacturers Blackstone Medical, Inc. (acquired by Orthofix International in September 2006) and Synthes, Inc. and other entities connected to the defendants participated in kickback schemes in connection with the sale and use of medical devices. These devices include pedicle screws and other “hardware” used in surgeries to repair the spine. The lawsuit alleges, among other things, that defendants Blackstone and Synthes used sham physician consulting contracts and bogus research “studies” to entice physicians to select their products. As the first defendant to reach a settlement in this lawsuit, Chan agreed to pay the United States $1.5 million, and to plead guilty to a felony violation of soliciting and receiving kickbacks in the related criminal case. Judge Susan Webber Wright, the judge presiding in Dr. Chan’s criminal case, found that Thomas was the first person to bring to the government’s attention that Dr. Chan was receiving kickbacks in violation of the Anti-kickback Statute. But the allegations extend far beyond Dr. Chan. “As alleged in our lawsuit, Dr. Chan is only one piece of a big scheme that has been going on across the United States. This is by no means confined to Arkansas,” said David Ivers, of Little Rock, one of the attorneys for Thomas. Thomas was a sales representative for a company that competed with the defendant device makers. Thomas noticed that he was losing business as a result of what he believed were illegal marketing schemes by the defendants. He found that the schemes were going on with doctors’ offices in Arkansas, Mississippi, Missouri and other states, as his complaint explains. He brought the information to the U.S. Attorney’s office and later filed the whistleblower suit.

“This case is about preventing conduct that not only defrauds taxpayers but corrupts physicians’ judgment,” Ivers said.

In September 2007, four device manufacturers of hip and knee surgical implants, Zimmer Inc., Depuy Orthopedics, Inc., Smith & Nephew Inc., and Biomet Orthopedics, Inc., were accused by the United States in criminal complaints of using consulting agreements with orthopedic surgeons as vehicles to induce surgeons to use their companies’ products. The four companies paid the United States a combined $311 million and agreed to the appointment of federal compliance monitors.

“While we applaud the aggressive actions of the United States in cracking down on kickback activities in the sale of hip and knee devices, this is not a problem that we can afford to address one body part at a time,” said Janet Goldstein, of Washington D.C., one of the attorneys for Thomas. “We look forward to joining forces with the government in a thorough investigation of the rampant use of kickback arrangements throughout the medical device industry.”

Ms. Goldstein noted that, according to Orthofix’s filings with the Securities and Exchange Commission, the government has issued subpoenas against Blackstone for its physician agreements and related matters for the period January 1, 2000 through July 31, 2006. In addition, the U.S. Attorney’s Office for Nevada issued a grand jury subpoena for Blackstone’s payments of gifts to physicians. In a November 7, 2007 SEC report, Orthofix stated that of the total purchase price for Blackstone, Orthofix had set aside $50 million in an escrow account in case it had to make payments for certain “contingencies”, including the investigations into, and lawsuits concerning, its physician consulting compensation arrangements.

Thomas is represented by Mitchell Blackstock Law Firm, PLLC, in Little Rock and by Vogel, Slade & Goldstein, LLP of Washington, D.C.