OtisMed’s Chi Sentenced to Prison

Charlie Chi, Ph.D., the former CEO of OtisMed Corporation has been sentenced by the U.S. District Court of the District of New Jersey to 24 months in prison, one year of supervised release and ordered to pay a $75, 000 fine.

Selling Adulterated Devices

Chi pleaded guilty last December to introducing adulterated medical devices into interstate commerce. The company also agreed at the time to pay more than $80 million to resolve related criminal and civil charges.

More than 18, 000 of the devices were sold for approximately $27.1 million between May 2006 and September 2009.

In a June 26, 2015 press release, the FDA said that none of the claims regarding the OtisKnee cutting guide used during total knee arthroplasty were evaluated by the agency before being advertised and promoted by the company. The company submitted a 510(k) pre-market notification to the agency seeking clearance to market the products. Until then, the agency says the company had been “falsely representing to physicians and other potential purchasers that the product was exempt from such pre-market requirements.”

510(k) Clearance Denied

The FDA notified the company on September 2, 2009 that its submission had been denied because it had “failed to demonstrate the OtisKnee was as safe and effective as other legally marketed devices.” But a week later the company shipped approximately 218 devices from California to surgeons throughout the U.S.

Between the time of the FDA denial letter and the shipments, Chi and the company received advice from legal and regulatory counsel confirming that, based on the FDA denial letter; it would be unlawful to continue distributing the device. On September 4, 2009, after a conference call regarding the FDA letter, the company’s board unanimously decided to stop further shipments of the devices.

Stryker Deal in Danger

Following that meeting, Chi and others at the company, became concerned of the consequences of the FDA letter. Chi feared that suddenly stopping the shipment of the devices would have a negative impact on the brand, image, reputation, and value of the company its devices. The concern was great because the company was set to be acquired by Stryker Corporation for as much as $100 million (including potential milestone payments) on the condition that FDA cleared OtisMed’s 510(k) submission for the device prior to closing of the acquisition.

So Chi ordered employees to make the shipments. A former employee eventually filed a whistleblower lawsuit before the Justice Department got involved.

Punishment

OtisMed had previously agreed to be excluded from Medicare, Medicaid and all other federal health care programs for 20 years.

Stryker, which eventually acquired OtisMed, agreed to conduct a review and audit regarding whether other marketed devices have the appropriate FDA approvals and share the results of that audit with the government. Stryker also agreed to annual certifications from the president of Stryker’s orthopedics group and from Stryker’s board of directors regarding the effectiveness of the compliance program.

“Today’s sentencing of OtisMed’s CEO ought to send a clear message to others in positions of authority within the medical device and pharmaceutical industries: the Department of Justice will vigorously prosecute not only corporations, but also the individuals at their helm who are responsible for endangering public health and safety in pursuit of profit, ” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.