Judge nixes $42M Orthofix, Justice Dept. settlement

Orthofix

A federal judge in Boston yesterday put the kaibosh on a $42 settlement deal between Orthofix (NSDQ:OFIX) and the U.S. Justice Dept. over charges that the medical device company illegally promoted its bone-growth stimulators.

Judge William Young of the U.S. District Court for Massachusetts rejected the proposed deal during a hearing yesterday, saying the agreement would limit his ability to impose further penalties, according to Bloomberg BusinessWeek.

"It seems in this case the court’s hands ought not be tied," Young said, according to the website. "I have extreme unease of treating corporate criminal conduct like a civil case."

Orthofix president & CEO Robert Vaters said the company is still working with DoJ lawyers to put the case to bed.

"The company and the government stand behind their agreements and continue to discuss a resolution of the matter following the court’s rejection of the plea," Vaters said in prepared remarks. "We remain confident that this matter will be resolved amicably and in a manner that is in the best interests of our shareholders."

In June, Orthofix and federal prosecutors agreed to the deal, which would have seen the company cop to a felony obstruction charge and fork over $42 million.

The government alleges that Orthofix sales reps falsified the certificates of medical necessity required for Medicare reimbursement for its Spinal-Stim, Cervical-Stim and Physio-Stim bone-growth stimulators.

The company agreed to plead guilty to concealing the scheme during a 2008 Medicare audit. The settlement would have included a criminal fine of nearly $7.7 million and another $34.2 million plus interest, but no admission of wrongdoing in the civil portion of the case.

The whistleblower, Jeffrey Bierman, was slated to pull down a bit more than $9 million from the settlement.

In February, Lewisville, Texas-based Orthofix said it was close to a deal with the feds over the case. In April, a former sales VP pleaded guilty to helping run a scheme to pay doctors to use the Spinal-Stim and Cervical-Stim devices.

The U.S. attorney’s office said the case resulted in charges against other Orthofix employees and contractors. A former regional sales director, Mitchell Salzman, pleaded guilty to making a false declaration to a federal grand jury in December 2011. Two territory managers, Derrick Field and Michael McKay, pleaded guilty this spring to falsifying patients’ records, and a physician’s assistant named Michael Cobb copped guilty to accepting kickbacks for ordering the stimulators.

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