The Department of Justice has announced a significant settlement with Shire Pharmaceuticals LLC and its subsidiaries, totaling $350 million. This resolution addresses allegations under the False Claims Act, accusing Shire and Advanced BioHealing (ABH), a company acquired by Shire in 2011, of engaging in kickbacks and unlawful practices. These actions were intended to improperly encourage clinics and physicians to use or overuse Dermagraft, a bioengineered skin substitute. Dermagraft is FDA-approved for treating diabetic foot ulcers. Shire plc, the multinational parent company, is based in Ireland, with its US operational headquarters in Lexington, Massachusetts. The Dermagraft assets were sold by Shire in early 2014.
Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, emphasized the gravity of the settlement. “This settlement is the largest recovery under the False Claims Act in a kickback case involving medical devices,” he stated. “Kickbacks from healthcare suppliers undermine the integrity of our healthcare system. Patients are entitled to the unbiased and independent judgment of their healthcare providers.”
The allegations highlight a scheme where Dermagraft salespersons incentivized clinics and physicians through various illegal inducements. These included lavish dinners, entertainment, travel, medical equipment and supplies, and improper payments disguised as speaker fees or payments for sham case studies. Cash, credits, and rebates were also allegedly used to boost Dermagraft usage. Such practices violate the Anti-Kickback Statute, which prohibits offering remuneration to induce the use of medical devices covered by federal healthcare programs like Medicare, Medicaid, and the Department of Veterans Affairs (VA). Claims resulting from Anti-Kickback Statute violations are considered false under the False Claims Act. Furthermore, the Anti-Bribery statute and Federal Acquisition Regulations forbid bribing government officials, including VA physicians, to secure contracts or preferential treatment in supply contracts. The government contended that ABH and Shire’s violations led to the submission of hundreds of millions of dollars in false claims to federally funded healthcare programs for Dermagraft.
U.S. Attorney A. Lee Bentley III for the Middle District of Florida (MDFL) condemned the scheme, stating, “Flagrant and systemic kickback activity like that in this case is designed to corrupt physician’s independent medical judgment, and it will not be tolerated.” He added, “This settlement and the landmark amount recovered demonstrate our office’s unwavering commitment to protecting federal healthcare program beneficiaries from such illegal and deplorable conduct.” The MDFL has also pursued criminal charges against individuals involved, securing convictions against three high-level executives who oversaw the kickback scheme, as well as numerous healthcare providers who accepted kickbacks.
The U.S. Attorney’s Office for the District of Columbia also played a crucial role in the investigation, focusing on the losses incurred by the VA. U.S. Attorney Channing D. Phillips stated, “Offering kickbacks to healthcare providers corrupts medical treatment by introducing personal financial incentives into decisions that should prioritize patient well-being.” He further emphasized the severity of such incentives when targeting veterans’ healthcare, “These unlawful incentives are particularly concerning when they aim to corrupt the medical care provided to our nation’s veterans. We will aggressively prosecute any company that prioritizes financial gain over the best medical treatment for those who bravely served in our Armed Forces.”
The U.S. Attorneys’ Offices for the Eastern District of Pennsylvania and the Middle District of Tennessee also contributed to the investigation. Acting U.S. Attorney Louis D. Lappen for the Eastern District of Pennsylvania called the fraud against veterans’ healthcare and Medicare “reprehensible and unacceptable.” U.S. Attorney David Rivera for the Middle District of Tennessee added, “The patient’s best interest must be the primary factor in physician decisions. Federal law protects patients from providers seeking illegal profits through bribes and kickbacks, which undermine physician-patient relationships and inflate healthcare costs.”
Special Agent in Charge Michael E. Seitler of the VA OIG Northwest Field Office highlighted the breach of trust, stating, “VA healthcare providers must deliver care free from improper financial influences. This is especially critical at the VA, where we serve heroes who have sacrificed for our freedom. ABH’s sales to the VA dramatically increased during the kickback period, eroding public trust. The VA OIG is dedicated to investigating and prosecuting those involved in these illegal practices.”
Beyond kickbacks, the settlement also addressed allegations that Shire and ABH illegally marketed Dermagraft for unapproved uses, made false statements to inflate its price, and caused improper coding and certification of Dermagraft claims.
The settlement originated from six whistleblower lawsuits under the False Claims Act, allowing private individuals to sue on behalf of the government and receive a share of the recovery. The whistleblower shares in this case are yet to be determined.
The cases, consolidated in the U.S. District Court for the Middle District of Florida, are: United States ex rel. Vinca v. Advanced BioHealing, Inc., Case No. 8:11-cv-176-T-30MAP; United States ex rel. Harvey v. Advanced BioHealing, Inc., Case No. 8:16-cv-303-T-30TBM; United States ex rel. Medolla v. Advanced BioHealing, Inc., Case No. 8:12-cv-575-T-30TBM; United States, et al., ex rel. Petty v. Shire Regenerative Medicine, Inc., Case No. 8:14-cv-969-T-30TBM; United States ex rel. Webb v. Advanced BioHealing, Inc., Case No. 8:14-cv-1055-T-30EAJ; and United States, et al., ex rel. Montecalvo v. Shire Regenerative Medicine, Inc., Case No. 8:16-cv-268-T-30TBM.
The investigation involved collaboration between the Civil Division’s Commercial Litigation Branch, U.S. Attorneys’ Offices, FBI, HHS-OIG, VA OIG, and the Department of Defense Criminal Investigative Service.
Shire cooperated with the investigation and has been under a Corporate Integrity Agreement with HHS since late 2014, implemented after the alleged misconduct and related to a separate False Claims Act settlement.
HHS Inspector General Chief Counsel Gregory E. Demske emphasized patient trust, “Patients must trust that their doctors’ decisions are unbiased and not influenced by personal gain. OIG will continue to oversee Shire’s compliance through its Corporate Integrity Agreement.”
This settlement is part of the government’s HEAT initiative against healthcare fraud, highlighting the effectiveness of the False Claims Act. Since 2009, the Justice Department has recovered over $31.4 billion through False Claims Act cases, with nearly $19.6 billion from healthcare fraud cases.
It is important to note that the settled claims are allegations, and there has been no determination of liability.
The settlement marks a significant step in combating healthcare fraud and ensuring ethical practices within the medical device industry. It underscores the government’s commitment to safeguarding patient care and the integrity of federal healthcare programs.
