C.R. Bard, Inc. (“Bard”) will pay just shy of $51 million to the Government and a former employee-turned whistleblower over allegations that the New Jersey medical device giant overbilled Medicare from January 1, 2004 through August 31, 2005 for radioactive seeds implanted into the prostate as part of a brachytherapy process.  According to the Department of Justice, Bard’s scheme to push higher sales began in 1998 and involved multiple schemes to inflate medical pricing for radioactive seeds used in the treatment of prostate cancer.  What the settlement really shows is that when it comes to Government enforcement actions, Bard and other companies remain at risk for behavior that occurred years ago. 

Background

Although many of documents in this case remain under seal, on May 13th, it was revealed that the Government had intervened in some but not all of the claims alleged in an amended complaint filed by former Bard sales rep Julie Darity (who left the Company in 2005).   According to the charges in the complaint that DOJ agreed to pursue, Bard had engaged in numerous schemes to defraud the Government, which included the manipulation of the Medicare pricing formula for reimbursement of the radioactive seeds that included bundling non-reimbursable needles, catheters and related delivery components into the price of the seeds.  Since the cost of the seeds was covered under Medicare on a cost or pass-through basis, Bard’s bundling of non-reimbursable pre-loaded needles and other items effectively inflated the cost of the seeds to its hospital customers, which passed the bundled costs onto Medicare, the Government charged.

When Bard’s customers complained about the high cost of the seeds, the Company allegedly instructed its sales reps to inform its customers that they would not save any money from a lower seed price. In fact, according to the complaint, Bard sales reps were encouraged to explain how hospitals would actually save money when the Government ultimately replaced the brachytherapy cost reimbursement model with an Ambulatory Payment Classification (APC) model.

In addition to the “bundling scheme,” the Government charged that Bard engaged in systematic bribes or “kickbacks” to physicians at hospitals.  The illegal remuneration allegedly took the form of donation of capital equipment, loans, research grants, guaranteed minimum rebates, conference fees, marketing assistance and/or free medical equipment that Bard provided to hospital customers and/or physicians who then used the seeds to perform the treatments for prostate cancer.   The hospitals ultimately submitted bills to Medicare for these seeds, which the Government alleged rendered them as false claims.  Targeted customer hospitals nationwide ranged from Mt. Sinai Hospital in New York City, to the Chicago Prostate Institute and the Seattle Prostate Institute.

Observations

As part of the settlement agreement, Bard committed to tightening its compliance program, including making revisions to its corporate code of conduct, and will implement enhanced oversight for medical education grants.  Really?  I would be surprised if Bard waited until it became aware of the Government’s investigation and the unsealing of Ms. Darity’s qui tam complaint to beef up its compliance program, since much of the alleged “kickbacks” in this case covered conduct that most companies abandoned by at least the middle part of the last decade when it became obvious to pharma and medical device companies that the Goverment was focusing on gifts and other remuneration to healthcare professionals.  What is not surprising is that the Government is still going after conduct the most recent of which occurred nearly ten years ago.  For companies that have ”cleaned up their act” in the last 5+ years, the Bard case is a stern reminder that the Government is always lurking in the background and that former and mostly long forgotten employees like Julie Darity — who, by the way, will earn a cool $10 million bonus for her years of service to Bard – have a way of letting their former employers know that they haven’t forgotten them.