Law360 (May 5, 2022, 4:33 PM EDT) — Spinal implant maker Reliance Medical Systems reached a deal Thursday to end the federal government’s False Claims Act suit alleging it orchestrated kickbacks to surgeons who used its products in spinal surgeries, agreeing to a $1 million settlement the day after opening statements in the California federal trial.
The U.S. Department of Justice has given preliminary approval to the deal, prosecutor David M. Finkelstein told U.S. District Judge Dean D. Pregerson early Thursday. The deal, which was cut to avoid expenses and uncertainties associated with further litigation, does not constitute as an admission of liability, Finkelstein said.
“The defendants will pay a sum of $1 million within 30 days of the settlement agreement,” Finkelstein told the court. “The scope of the release says that the government agrees to release the defendants and their agents and affiliates from any and all conduct that relates to or arises out of the allegations in the complaint up to the effective date of the settlement agreement.”
The Office of Inspector General for the U.S. Department of Health and Human Services has said that HHS doesn’t intend to seek to be excluded from the settlement, Finkelstein added.
Each side will bear their own costs and attorney fees.
Judge Pregerson excused the jury Thursday morning as soon as the deal was announced.
Thursday’s resolution closes out the eight-year saga commenced on Sept. 8, 2014, against Reliance Medical and its owners Bret Berry and Adam Pike, who were accused of creating two shell companies, Apex Medical Technologies and Kronos Spinal Technologies, to funnel illegal kickbacks to physicians who used Reliance’s medical devices for spinal surgeries on Medicare patients.
The DOJ told jurors during opening statements on Wednesday morning that Apex and Kronos were set up as “physician-owned distributorships” to bill false claims to Medicare, and also gave physicians ownership interests in the companies. Prosecutors alleged that Reliance paid anywhere from $400,000 to upward of $3 million to the physicians as financial incentives for using their devices and even tried to recruit other potential physician-investors to join the shell companies.
Prosecutors claimed the defendants hid the identities of physician-owners by keeping their names off documents submitted to hospitals, lying to hospitals and denying that they had any financial interest in Apex or Kronos. The purported scheme ran from 2007 to 2013.
Attorneys for Reliance’s owners denied any kickbacks occurred and contended that Medicare never sent Pike, Berry or any of the physicians any money. Instead, the money went to hospitals that billed Medicare, they said. The defendants denied pressuring doctors to use their devices, and maintained that they relied in good faith on the advice of their counsel to ensure their companies were not running afoul of any kind of regulations.
Hospitals generally buy medical devices from outside vendors like Apex and Kronos. Physicians, who are independent contractors and don’t work for hospitals, pick the product to use for procedures and inform the hospitals of their choices, Reliance argued.
The defendants also said they had no idea any of the purportedly unnecessary services or procedures were actually medically unnecessary.
Patric Hooper of Hooper Lundy & Bookman PC, who represents Reliance, Berry and Pike, declined to comment outside the courtroom Thursday after the resolution was announced.
Danielle Blevins, spokesperson for the DOJ, declined to comment.
The USA is represented by David M. Finkelstein, Arthur S. Di Dio, Robert E. Chandler, Jamie A. Yavelberg, David B. Wiseman and Rohith V. Srinivas.
Reliance Medical, Apex Medical Technologies, Kronos Spinal Technologies, Bret Berry and Adam Pike are represented by Patric Hooper and Bridget A. Gordon of Hooper Lundy & Bookman PC.
The case is USA v. Reliance Medical Systems LLC et al., case number 2:14-cv-06979, in the U.S. District Court for the Central District of California.
–By Gina Kim. Editing by Alanna Weissman.
Read more at: https://www.law360.com/articles/1490669/spinal-device-co-inks-1m-midtrial-deal-to-end-fca-claims?copied=1