The Department of Justice (DOJ) recently announced that ev3 Inc. (which acquired Fox Hollow Technologies, Inc. (“Fox Hollow”), a medical device manufacturer, in late 2007) agreed to pay $1.25 million to resolve allegations that Fox Hollow violated the False Claims Act (FCA) by causing certain hospital clients to submit false claims to the Medicare program.

Fox Hollow manufactures the Silver Hawk Plaque Excision System, which is a device used in atherectomy procedures.  Atherectomy is a minimally invasive surgical procedure that utilizes a small cutting device to remove atherosclerosis (or hardening of the arteries) from large blood vessels.  The goal of atherectomy procedures is to open up narrowed coronary arteries and increase blood flow and circulation.

A former Fox Hollow sales representative, Amanda Cashi, filed an FCA qui tam action in December 2009 alleging that in 2006 and 2007, Fox Hollow caused 12 hospitals located in nine states to submit claims to Medicare for medically unnecessary inpatient stays for beneficiaries receiving elective atherectomy procedures.  More specifically, DOJ alleged that Fox Hollow, in an effort to increase hospital purchases of the Silver Hawk device, advised hospitals to bill atherectomy procedures as more expensive inpatient procedures even though many of those patients should have received less costly outpatient procedures.  As a result, those hospitals allegedly received higher reimbursement than they were entitled to for treating certain beneficiaries receiving Silver Hawk atherectomy procedures.  Ms. Cashi will receive $250,000 as her share of the government’s settlement with ev3.

This settlement reflects the same FCA theory that was used by the DOJ in its May 2008 settlement with Kyphon, Inc. in exchange for a payment of $75 million.  In that case, filed by the same relator’s counsel in the same district as the Fox Hollow case, the United States alleged that Kyphon engaged in a seven-year marketing scheme that resulted in certain hospitals billing Medicare for certain kyphoplasties performed on an inpatient basis rather than less costly and clinically appropriate outpatient kyphoplasty treatment.  In the Kyphon case, the settlement with the device manufacturer was followed by a national enforcement initiative against multitudes of hospitals.  Given the similarities between the strategies used by the DOJ in the Kyphon case and this case, we will continue to monitor whether the DOJ next turns its focus to the hospitals mentioned in the complaint, signifying a possible trend in enforcement strategies against device manufacturers and their clients.