BRIBES DISGUISED AS ROYALTIES? WHY HEALTHCARE PROVIDERS SHOULD BE CAUTIOUS ABOUT MEDICAL DEVICE ROYALTY PAYMENTS

Some medical device companies pay physicians royalty fees to help develop their products. While these payments are permissible when structured appropriately, they are unlawful when their true purpose is to pay kickbacks to physicians for using or recommending medical devices.

Federal enforcement agencies are cracking down on illegal kickbacks under the guise of royalty payments that improperly influence providers and result in the submission of false claims. In a recent settlement, Arthrex Inc., an orthopedic device company, agreed to pay $16 million dollars to resolve allegations it violated the False Claims Act (FCA) and Anti-Kickback Statute (AKS) by paying royalties intended to reward a physician for using and referring its products.

How does this affect providers?

The Arthrex settlement was initiated by a whistleblower (“qui tam”) lawsuit, actions brought under the FCA that reward whistleblowers if the government recovers money lost to fraud. Whistleblowers are often staff members who have a front row seat to improper billing practices, including claims associated with medical devices. While this lawsuit was brought against a medical device company, many qui tam actions target providers.

Additionally, the Sunshine Act requires medical device manufacturers to publicly disclose payments to physicians, including royalty payments, giving government agencies and whistleblowers easy access to payment details. Physicians that receive excessive royalty payments from device manufacturers could come under scrutiny for improper financial relationships.

Providers should take precautions to ensure royalty payments they receive are appropriate and not structured in a manner that rewards them for recommending or utilizing the products they help develop. If you are a provider that receives royalty payments, ask the following questions:

• Are the services you’re required to perform for a medical device company reasonable and necessary?
• Does the device company require your level of expertise to further develop or improve a product?
• Do the payments you receive seem excessive based on the amount of time and effort you contribute?
• Have you had your contract with a device company reviewed by an independent appraiser to determine if your compensation is fair market value?
• Does your contract meet an AKS safe harbor? (Call us if you need guidance.)

Providers deserve to be compensated when their contributions advance medical products and improve patient outcomes. However, they should also be wary of medical device companies seeking to boost profits by incentivizing providers to use products and refer business.