On Wednesday, October 26, 2011, the Department of Justice (DOJ) issued a press release announcing a $2.39 million dollar settlement with DFine Inc., a San Jose, California-based maker of devices used in spine surgery.

According to the DOJ press release, DFine used customer service surveys, called User Preference Evaluations (UPEs), to pay kickbacks to physicians to induce them to prescribe the DFine device (a vertebral augmentation device) for their patients. The way it allegedly worked was that DFine paid physicians $500 per patient to participate in the survey, but in order to participate in the survey, the use of a new DFine device in the patient was required.

In addition to the $500 per survey payments, the government also alleged that DFine provided improper remuneration to physicians in Chicago and Little Rock, Arkansas in the form of travel expenses, lavish dinners, entertainment, and promotional speaker fees, and also solicited physicians to convert their business from a competitor’s product to DFine’s products and/or to persuade physicians to stay with DFine products.

This case was brought by a whistleblower. We have not yet been able to determine the relationship between the whistleblower and DFine or how he came to be aware of the conduct at issue in the lawsuit. The whistleblower will receive approximately $250,000, which is less than the 15%-30% we would have expected to see; however, there is no explanation for the lower amount either.

DFine was required to enter into a Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General as a condition of the settlement in order to avoid possible exclusion from the Medicare and Medicaid programs. The CIA has a term of five years and requires DFine to institute and maintain a number of compliance measures to monitor its arrangements with physicians and requires DFine’s Board of Directors to adopt a resolution annually that summarizes the Board’s review and oversight of DFine’s compliance with Federal health care program requirements and the CIA.

This settlement should serve as a reminder to hospitals and physicians to watch their arrangements with device makers and other suppliers to ensure that their arrangements are necessary and appropriate, and do not violate the law.