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Medtronic Unit to Pay $75 Million to Settle Whistleblower Medicare Fraud Case
Date:5/22/2008

Spinal medical device company Kyphon misled hospitals for profit

WASHINGTON, May 22 /PRNewswire/ -- Medtronic Spine LLC, formerly known as Kyphon Inc., has agreed to pay $75,000,000 to the federal government to settle a whistleblower lawsuit that exposed the spinal medical device company's sales and pricing strategy to increase its profits by defrauding Medicare.

The "qui tam" (whistleblower) lawsuit, which the government joined, was kept under seal and so was not publicly known until today, when the settlement was announced.

Kyphon, based in Sunnyvale, Calif., and recently acquired by Medtronic Inc., sells costly equipment and medical devices, including bone cement, for use in spinal procedures known as "kyphoplasty."

Kyphon's phenomenal sales growth was funded, in large part, by its successful efforts to sell kyphoplasty as an inpatient procedure. The minimally invasive procedure can be performed safely in about an hour on an outpatient basis. But Kyphon persuaded doctors and hospitals to keep patients overnight -- which allowed hospitals to charge Medicare up to $10,000 per procedure -- even though the patients typically had fully recovered within a few hours.

Because Kyphon was able to convince healthcare providers to perform kyphoplasty as an inpatient procedure, the company was able to price its products so that its profit margin exceeded 80 percent.

"A big, inpatient price tag allowed Kyphon to make thousands of dollars each time it sold a kyphoplasty kit," said Mary Louise Cohen, a Washington, D.C., attorney whose firm, Phillips & Cohen LLP, represented the whistleblowers in their qui tam case. "Because of the company's scheme, the Medicare program paid many millions of dollars more than it needed to pay."

Tens of thousands of kyphoplasty procedures were done as one-day inpatient stays as a result of Kyphon's marketing and sales strategy.

"The government was unaware of the fraud until Craig Pat
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SOURCE Phillips & Cohen LLP
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