Guidant Settles Allegations of Device Overcharging

So much for pulling one over on Uncle Sam.

Guidant Inc. is paying the price—a hefty $9.25 million, to be exact—for attempting to overcharge the federal government for replacement pacemakers and defibrillators. The Boston Scientific Corp. subsidiary has agreed to compensate the government to resolve False Claims Act allegations with the U.S. Justice Department, authorities announced recently.

Prosecutors claim Guidant convinced doctors to buy its defibrillators and pacemakers by promising generous warranty programs to cover failures and/or defects. The company differentiated itself from competitors by touting the liberal credit program it created for damaged devices still under warranty. When its defibrillators or pacemakers failed, though, the company never granted the credits to customers; rather, it submitted invoices that inflated the cost of the devices to both the U.S. Department of Veterans Affairs and the U.S. Department of Defense, according to a U.S. Justice Department news release.

“Overcharging for lifesaving medical devices wastes taxpayer dollars,” said Tony West, assistant attorney general for the Civil Division of the U.S. Justice Department. “As we all look for ways to reduce public expenditures, settlements like this one—which recapture funds that were spent due to fraud—help support public healthcare programs that many people depend on.”

The case against Guidant was based on a whistleblower lawsuit filed in federal court Tennessee. The whistleblower, former Guidant salesman Robert A. Fry, will get more than $2.3 million from the total settlement. Fry’s lawsuit, filed April 25, 2006, claims that Guidant sales representatives routinely discarded the warranties that explained the company’s credit program for damaged devices (they were “thrown in the garbage,” he argues) and deliberately concealed the warranties when visiting hospitals. As a result, hospitals passed the inflated cost of the replacement defibrillators and pacemakers to Medicare and/or Medicaid.

Fry contends the company’s scheme of overcharging for replacement products has occurred for at least 17 years. In his lawsuit, he claims that a Medtronic Inc. sales agent in Kansas expressed concerns to his superiors in 1994 about the purported suppression of warranty credits to hospitals. Instead of rectifying the situation, Medtronic fired the salesman and settled a subsequent lawsuit in 2001, Fry charged. “Since that time, Medtronic has continued to suppress warranty, warranty replacement and recall credits otherwise available to hospitals,” Fry claimed.

Medtronic was named as a defendant in Fry’s lawsuit in July 1994.

“Major device manufacturers will be held accountable for improper marketing strategies,” said Derrick L. Jackson, special agent in charge of the Department of Health and Human Services Office of Inspector General in Atlanta, Ga. “This settlement sends the clear message that defrauding federal healthcare programs is a losing business proposition.”