Innovasis Inc. Lawsuit Settles $12M Lawsuit Over Kickback Scheme Call for the Medical Device Industry

Innovasis Inc., a Utah-based spinal device manufacturer, has agreed to pay a hefty $12 million settlement. This agreement comes after allegations that the company engaged in paying kickbacks to physicians to secure business for its spinal products. The case has significant implications not just for Innovasis, but for the broader healthcare industry, where fraud and corruption are major concerns.

Allegations Systematic Scheme of Kickbacks

The crux of the lawsuit stems from accusations that Innovasis, along with its senior executives—Brent Felix (founder and president) and Garth Felix (CFO)—paid kickbacks to spine surgeons. These payments were allegedly designed to encourage these doctors to use Innovasis’s spinal devices, often at the expense of competing products. The kickbacks included lavish dinners, excessive consulting fees, and intellectual property agreements that led nowhere. These actions, if proven, represent a clear violation of the U.S. False Claims Act and the Anti-Kickback Statute, both of which prohibit such unethical business practices in healthcare.

The allegations were brought to light by Robert Richardson, a former regional sales director at Innovasis. Richardson filed a whistleblower complaint that revealed the company’s attempt to hide these payments through “house accounts” that were kept secret from most employees​ Office of Inspector General, Compliance Cosmos.

Government’s Role Investigations and the Self-Disclosure Dilemma

Innovasis had hoped that its proactive steps would result in a more lenient outcome. Before the whistleblower lawsuit, the company had self-reported its actions to the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) under the Health Care Fraud Self-Disclosure Protocol (SDP). However, despite the self-disclosure, the case did not go away quietly. Instead, the government pursued the case, leading to the eventual $12 million settlement​Office of Inspector General.

This development raises key questions about the risks of self-disclosure in the healthcare sector. While companies may feel they can avoid harsher penalties by reporting wrongdoing, they often find themselves in a position where the government pushes for greater financial settlements, as seen in this case​ Compliance Cosmos.

Financial Fallout: $12 Million Settlement

The $12 million settlement is significant, but it is just one piece of a larger conversation about fraud in the healthcare system. This settlement is a reminder of the costs companies can face when they engage in unethical practices, with potential consequences that extend far beyond the courtroom. Innovasis’s decision to settle, rather than fight the case in court, was likely influenced by the high stakes and the government’s aggressive approach.

To put the figure into context, $12 million is a large sum, but it pales in comparison to the financial losses that companies can face if such cases go to trial. The U.S. Department of Justice, which handled the case, has been pursuing aggressive action against healthcare fraud, with the total amount recovered in False Claims Act cases reaching $3.3 billion in fiscal year 2023 alone​ Office of Inspector General.

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Why This Case Matters

The Innovasis lawsuit is a stark reminder of the vulnerability of the healthcare sector to fraud and unethical business practices. With healthcare spending in the U.S. exceeding $4.3 trillion in 2022, the financial implications of fraud are staggering. The settlement not only serves as a warning to other companies in the industry but also underscores the importance of transparency and accountability in healthcare transactions​ Compliance Cosmos.

Furthermore, it highlights the crucial role of whistleblowers in holding companies accountable. Without the actions of Robert Richardson, these kickback schemes might have continued unchecked. Whistleblowers are often essential in uncovering hidden fraud, and the False Claims Act provides legal protections to those who expose wrongdoing.

FAQs

What are the long-term implications for Innovasis after the settlement?

Innovasis faces significant reputational damage as a result of the lawsuit, even after settling. A $12 million settlement is a substantial financial penalty, and the public nature of the case could affect its relationships with healthcare providers, surgeons, and patients. Moreover, the company may be subjected to stricter regulatory oversight in the future, and its compliance practices could be under constant scrutiny. Companies in similar sectors are likely to be more cautious as they see the repercussions Innovasis faced for non-compliance.

How does the False Claims Act work in cases like this?

The False Claims Act (FCA) allows the government to take action against individuals or entities that submit false claims for government reimbursement or engage in fraudulent practices that harm government programs. In Innovasis’s case, paying kickbacks to doctors to use its devices constituted a violation of the FCA, as it delayed reimbursement claims for Medicare and other federal health programs. The Act is a powerful tool for holding companies accountable, and it includes provisions for whistleblowers to receive a portion of the recovery (referred to as qui tam actions).

What are the potential penalties for violating the Anti-Kickback Statute?

Violations of the Anti-Kickback Statute can result in severe penalties, including substantial fines, criminal charges, and exclusion from participating in federal healthcare programs such as Medicare and Medicaid. In Innovasis’s case, the $12 million settlement resolved both civil and criminal claims, and while the company avoided a criminal conviction, the financial penalty was still steep.

How do whistleblowers contribute to cases like this?

Whistleblowers play a critical role in exposing fraudulent activities that might otherwise go unnoticed. In this case, Robert Richardson, a former sales director, filed a whistleblower complaint, which ultimately led to the government’s investigation into Innovasis. Whistleblowers are often entitled to a percentage of the financial recovery resulting from the case, providing an incentive for insiders to report unethical or illegal practices.

What are the risks of self-disclosure for companies?

While Innovasis attempted to self-disclose the issue through the Health Care Fraud Self-Disclosure Protocol, the company found that this did not shield them from a full investigation or an adverse settlement. Self-disclosure can sometimes reduce penalties, but it does not guarantee that the company will avoid significant financial and reputational damage, as seen in this case. The Innovasis situation illustrates the complexities involved and the risks of not addressing compliance issues more thoroughly before they become public.

Conclusion Ongoing Need for Vigilance and Reform

The Innovasis case demonstrates the high financial and reputational costs of fraud in the healthcare industry. It also raises important questions about the effectiveness of self-disclosure programs and whether companies can rely on these mechanisms to avoid serious penalties. As the healthcare sector continues to evolve, maintaining robust compliance measures and ensuring ethical practices are paramount.

For companies, the Innovasis case is a warning: the consequences of cutting corners or engaging in illegal activities can be devastating. And for the public, it underscores the need for ongoing vigilance to ensure that healthcare practices remain transparent and accountable.