On July 19, 2006 the US Department of Justice issued a press release announcing the settlement. The DOJ alleged that, between 1998 and 2003, Medtronic paid kickbacks in a number of ways, including sham consulting agreements, sham royalty agreements and lavish trips to desirable locations and that these kickbacks violated the Anti-Kickback Statute and the False Claims Act.
"Kickbacks to physicians are incompatible with a properly functioning health care system," said Peter Keisler, Assistant Attorney General for the DOJ's Civil Division. "They corrupt physicians' medical judgment and they cause overutilization and misallocation of vital health care resources."
"Today's settlement," he added, "reflects the progress we are making in the ongoing fight against abusive and illegal practices in the healthcare industry."
"The settlement," said David Kustoff, the US Attorney for the Western District of Tennessee in the press release, "demonstrates that schemes involving submissions of false or fraudulent claims by health care companies and health care providers to federal health care programs will be vigorously and energetically pursued."
"This agreement," he noted, "should serve as a deterrent to those entities that attempt to defraud or deceive the taxpayers."
The company must also set up an outside review organization, improve training and employee screening practices, and make a compliance officer a member of senior management, who reports directly to the chief executive and has access to the company's board of directors
The two whistleblower lawsuits filed by former employees claim Medtronic paid millions of dollars in kickbacks. For instance, Dr Thomas Zdeblick, a Wisconsin surgeon who is listed as a defendant in one of the lawsuits, signed a 10-year consulting contract with the company in 1998, that only required him to consult with Medtronic for eight days a year for $400,000.
A Virginia physician received close to $700,000 in consulting fees for the first 9 months of 2005, and received $1.39 million between 2001 and May 2005, according to the lawsuit.
Internal Medtronic documents filed as part of the lawsuit in the US District Court in Memphis, reveal the details of the rigorous campaigns that Medtronic set up to influence doctors. The documents show the company made payments of at least $50 million to doctors over a four years period through June 2005.
In the lawsuit unsealed in January 2006, the plaintiff, Jacqueline Poteet, a former senior manager of travel services for Medtronic until 2003, says she handled the travel arrangements for doctors to attend medical conferences and is familiar with the company's efforts to win the doctors' favor.
Spinal implants are used in a procedure known as spinal fusion, to make a patient's spine more stable. The cost of a devices used in this type of surgery is about $13,000, according to Orthopedic Network News, an industry newsletter.
In a subsequent amended complaint, Ms Poteet, accuses the company of continuing the improper payments to doctors in 2004 and 2005, leading them to perform unnecessary spinal surgeries.