Made in China, Not U.S. – Medtronic Settles False Claims Charges

Dublin-based Medtronic plc has agreed to pay the U.S. government $4.4 million to settle charges that the company deliberately brought spinal surgery devices in from China, relabeled them “Manufactured in Memphis, Tennessee, ” and then sold them to the government for use in U.S. soldiers and veterans.

In an April 2, 2015 Department of Justice (DoJ) press release, the government said the agreement settled allegations that the company violated the False Claims Act by “making false statements to the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Defense (DoD) regarding the country of origin of certain Medtronic products.”

The government also said the claims resolved by the settlement are only allegations and no determination of liability had been reached.

Medtronic Implicates Third-Party Suppliers

The Star Tribune of Minnesota reported on April 2, 2015 that Medtronic spokeswoman Cindy Resman said that although the company has since improved its country-of-origin disclosures in government contracts, it “makes no admission that any of its activities were improper or unlawful.”

Made in China and Malaysia

The settlement focused on “a limited number of accessories and surgical instruments used in spinal surgeries that were provided to Medtronic by third-party suppliers and were manufactured in China or Malaysia. The overwhelming majority of Medtronic’s products are manufactured in the United States or its trading partners, such as Mexico or Ireland, ” she said in an e-mail to the newspaper.

“Domestic manufacture is a required component of many military and Veterans Administration contracts, ” said U.S. Attorney Andrew M. Luger of the District of Minnesota. “Congress has mandated that the United States use its purchasing power to buy goods made in the United States or in designated countries. We take that mandate seriously and will not hesitate to take appropriate legal action to ensure compliance.”

According to the settlement agreement, between 2007 and 2014, Medtronic sold the VA and DoD products it certified would be made in the U.S. or other designated countries. The requirement is part of the Trade Agreements Act of 1979 (TAA). The government alleged that Medtronic sold the VA and DoD products manufactured in China and Malaysia, which are prohibited countries under the TAA.

The specific Medtronic products at issue included anchoring sleeves sold with cardiac leads and used to secure the leads to patients, certain instruments and devices used in spine surgeries, and a handheld patient assistant used with a wireless cardiac device. The agreement covers the period from January 1, 2007 to December 31, 2013, and for one device (the handheld patient assistant), the period from January 1, 2014 to September 30, 2014.

Medtronic In Settlement Mode

The country of origin settlement, according to the Tribune, is the third federal lawsuit Medtronic has settled with DoJ since moving its headquarters to Dublin, Ireland, in late January.

On February 5, 2015, according to the Tribune, Medtronic subsidiary ev3 Inc. agreed to pay $1.25 million to settle allegations that its corporate predecessor, Fox Hollow Technologies Inc., encouraged 12 hospitals to overbill Medicare for atherectomy procedures. On February 6, 2015, the company agreed to pay $2.8 million to settle claims that it caused “dozens” of doctors to bill Medicare for investigational neurostimulation procedures that were not reimbursable.

Whistleblowers Strike Again

The most recent settlement resolves allegations originally brought in a lawsuit filed by three whistleblowers under the qui tam provisions of the False Claims Act. The relators will receive a total of $749, 700 of the recovered funds.

The underlying case is United States of America ex rel. Samuel Adam Cox, III, Meayna Phanthavong, and Sonia Adams v. Medtronic, Inc., Medtronic USA, Inc., and Medtronic Sofamor Danek USA, Inc., Civil No. 12-cv-2562 (PAM/JSM). Cox, according to the Tribune, was the same whistleblower who made similar allegations against London-based Smith & Nephew. That case was resolved in September 2014, with an $11.3 million settlement. Smith & Nephew also denied any wrongdoing.