California medical device maker EndoGastric Solutions agreed this month to pay $5.3 million plus interest to settle Justice Dept. allegations that the company engaged in Medicare fraud and illegal kickbacks to promote its EsophyX acid reflux disease treatment device.

The company admitted no wrongdoing but to the settlement and entered into a Corporate Integrity Agreement, under which EndoGastric will undergo extra training and monitoring for at least 5 years. Former employee and whistleblower Glenn Schmasow will receive up to $945,000 for his role in the investigation, the DOJ said.

"EGS cooperated fully with this investigation, and was able to bring the matter to a quick resolution due to internal corrective actions and new policies that had been initiated long before we learned of the investigation," EndoGastric board chairman Michael Kleine said in prepared remarks. "The settlement is consistent with the company’s direction which values integrity and has demonstrated a commitment to compliance since I have become a part of the organization. We believe the full resolution of this matter and the elimination of related financial uncertainty is in the best interests of the company, its investors and, most importantly, patients who benefit every day from our products."

The whistleblower lawsuit claimed that EndoGastric encouraged doctors to use inappropriate billing codes to obtain higher reimbursement for performing procedures with the incision-less EsophyX system.

The device is inserted through the mouth in a procedure called "transoral incision-less fundoplication" (TIF) to create folds that help reconstruct the anti-reflux valve. The procedure costs hospitals about $6,500 according to the legal complaint filed with a Montana District Court. The procedure can also be performed laparoscopically (LIF or Lap Nissen), which "lends itself to more inpatient coding," the complaint says.

"If a hospital or surgeon codes and bills for inpatient, they receive a reimbursement from Medicare that is substantially more than for the outpatient coding and billing for a TIF," according to legal documents. "The TIF procedure has been performed successfully as an outpatient procedure for years but there is no CPT Code for this procedure because it is experimental. Therefore, the only CPT code that can be used for this procedure is the "unlisted" CPT Code, 43499. However, using the unlisted CPT Code, 43499, for the non-surgical, outpatient procedure results in unstable and lower reimbursement rates from Medicare and private carriers."

In order to make its EsophyX product more alluring to doctors, EndoGastric allegedly encouraged them to use an unlisted LIF code when billing for a TIF procedure, allowing hospitals to collect as much as $14,500, the complaint claimed.

"By billing TIF under the CPT code for a Lap Nissen, physicians could illegally obtain coverage of claims even from carriers with "no coverage" policies for TIF," according to the lawsuit. "Physicians could avoid the review of their claim that would be triggered by billing under the unlisted code."

Prosecutors named several hospitals that allegedly received instructions to upcode their TIF procedures, including Mountain View Hospital in Idaho Falls, Idaho; Northwest Specialty Hospital in Post Falls, Idaho; North Canyon Medical Center in Gooding, Idaho; and North Valley Hospital in Whitefish, Montana. "Numerous physicians" at those facilities supposedly confirmed the allegations.

EndoGastric was further accused of paying illegal kickbacks to doctors by offering to fund their events, send out marketing brochures and pay for print ads.

"If the medical facility agreed to purchase 6 EsophyX devices at $3,400 per device, Defendant supposedly agreed to contribute up to 50% of the cost of the event up to $2,000 per event with no limit on the number of events," the lawsuit states. "However, although the medical providers were supposed to fund 50% of the costs of the events, this rarely occurred and the patient referral events were funded entirely by Defendant in violation of the Anti-kickback Statute."

EndoGastric admitted to none of the allegations, saying only that it’s glad to put the matter behind it. The $5.3 million settlement will be paid in part over 5 years and in part timed with specific milestones, the company said.

"Now that this matter has been settled, the company will work diligently to build upon its current achievements," according to an EndoGastric press release. "Moving forward the company is investing in initiatives to demonstrate the value of its products to providers and the health care marketplace so that patients and providers will continue to have access to the TIF procedure."