Orthofix makes headway in federal beefs

February 7, 2012 by MassDevice staff

Orthofix touts progress in federal lawsuits involving U.S. government investigations into the company's bone growth stimulation business and its Blackstone Medical subsidiary, as well as alleged Foreign Corrupt Practices Act violations regarding a Mexican distributor.

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Orthofix International (NSDQ:OFIX) said it's making strides toward resolving a trio of outstanding legal issues with the U.S. government.

The Lewisville, Texas-based orthopedic device maker is finalizing agreements to close criminal and civil matters related to its bone growth stimulation business and is reaching agreements in principle to settle violations of the Foreign Corrupt Practices Act and investigations into its Blackstone subsidiary for potential violations of the False Claims Act.

"I am very pleased with the substantial progress made regarding these 3 legal matters, which removes a significant amount of risk and uncertainty for the Company," president & CEO Robert Vaters said in prepared remarks. "Orthofix has made significant improvements to its compliance practices, personnel, and financial standing to provide a strong foundation from which to grow."

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The news gave OFIX shares a boost on Wall Street, where shares closed up 3.5% at $42.46.

In April 2001 the office of the U.S. District Attorney for Massachusetts subpoenaed Orthofix under the HIPAA statute, as part of a probe into possible criminal and civil violations related to the promotion of its bone growth stimulator devices, according to SEC filings.

Orthofix and a clutch of other bone growth simulation device makers were accused of misleading physicians and thus causing them to file false claims, violating anti-kickback statues by providing free products to physicians, waiving patients' insurance copayments and "providing inducements" to independent sales reps to spur business.

The company has now reached a settlement in principal to resolve that case for $43 million, according to a press release.

Orthofix also reached an agreement in principal with the Justice Dept. to settle criminal violations of the Foreign Corrupt Practices Act over incidents that it voluntarily reported to the feds regarding a former Mexican orthopedic distributor, Promeca S.A. de C.V. The company launched an investigation in 2010 after it received reports that Promeca had bribed employees of a Mexican governmental health care entity, SEC filings show. The company voluntarily notified the DoJ and received a subpoena from the agency in November 2010.

The department asked several medical device makers in 2007 to look into possible improper payments made to governments-employed doctors and voluntarily report their findings to regulators.

Smith & Nephew (NYSE:SNN) recently closed a case arising from that arrangement, paying $22 million to settle allegations of a decades-long bribery scheme in Greece.

In the 3rd case, Orthofix reached an agreement in principle involving an investigation of its Blackstone Medical subsidiary, which the company acquired in 2006.

Blackstone was named in a number of lawsuits and Orthofix received several subpoenas from various government agencies concerning allegations that the spinal implant-making subsidiary violated the False Claims Act by providing allegedly inappropriate payments and other items of value to physician consultants, SEC filings show.

Orthofix agreed to pay $32 million to resolve the matter, which will be funded by proceeds the company received from the escrow fun established when it acquired Blackstone.

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