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The "qui tam" (whistleblower) lawsuit, which the government joined, waskept under seal and so was not publicly known until today, when the settlementwas announced.
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Kyphon, based in Sunnyvale, Calif., and recently acquired by MedtronicInc., sells costly equipment and medical devices, including bone cement, foruse in spinal procedures known as "kyphoplasty."
Kyphon's phenomenal sales growth was funded, in large part, by itssuccessful efforts to sell kyphoplasty as an inpatient procedure. Theminimally invasive procedure can be performed safely in about an hour on anoutpatient basis. But Kyphon persuaded doctors and hospitals to keep patientsovernight -- which allowed hospitals to charge Medicare up to $10,000 perprocedure -- even though the patients typically had fully recovered within afew hours.
Because Kyphon was able to convince healthcare providers to performkyphoplasty as an inpatient procedure, the company was able to price itsproducts so that its profit margin exceeded 80 percent.
"A big, inpatient price tag allowed Kyphon to make thousands of dollarseach time it sold a kyphoplasty kit," said Mary Louise Cohen, a Washington,D.C., attorney whose firm, Phillips & Cohen LLP, represented thewhistleblowers in their qui tam case. "Because of the company's scheme, theMedicare program paid many millions of dollars more than it needed to pay."
Tens of thousands of kyphoplasty procedures were done as one-day inpatientstays as a result of Kyphon's marketing and sales strategy.
"The government was unaware of the fraud until Craig Patrick and ChuckBates courageously came forward," said attorney Matthew Smith of Phillips &Cohen. "They also provided crucial assistance to the government in itsinvestigation and pursuit of the case."
Phillips & Cohen filed the qui tam lawsuit in 2005 in federal districtcourt in Buffalo on behalf of Patrick and Bates. Patrick, of Hudson, Wis., wasa reimbursement manager for Kyphon, and Bates was a regional sales manager inBirmingham, Ala. Patrick left Kyphon after complaints he made about its salesstrategy went unheeded.
The U.S. Attorney's Office (USAO) in Buffalo took the lead for thegovernment on the case. "The successful outcome was due in large part to thework of the U.S. Attorney's Office and investigators from the Department ofHealth and Human Services," said attorney Cohen. "They did an impressive jobin all aspects of the case."
In particular, Cohen recognized the work of Assistant U.S. Attorney RobertTrusiak, USAO investigator Peggy McFarland, USAO auditor Theresa Tetlow aswell as Cindy Pangallo and Peggy Glynn, who are Department of Health and HumanServices special agents.
Phillips & Cohen specializes in representing whistleblowers in qui tamlawsuits. Under the False Claims Act, private individuals can sue companiesdefrauding the government and recover funds on the government's behalf.Whistleblowers, known as "relators," are entitled to 15 percent to 25 percentof the amount recovered as a result of the lawsuit. For more information aboutPhillips & Cohen and qui tam lawsuits, see http://www.phillipsandcohen.com.
SOURCE Phillips & Cohen LLP
