WASHINGTON – DFine Inc. of San Jose, Calif., has agreed to pay the United States $2.39 million to resolve allegations under the False Claims Act (FCA) that the company paid kickbacks to induce physicians to use certain of the company’s devices that are used in treating spinal fractures, the Justice Department announced today.

The United States contends that DFine used customer surveys known as User Preference Evaluations (UPE) as vehicles to pay participating physicians illegal kickbacks to induce them to use the company’s vertebral augmentation devices. Although DFine ostensibly collected product information from participating physicians, each UPE survey required use of a new DFine device in a patient, the majority of whom were Medicare beneficiaries. In each case, DFine paid physicians up to $500 per patient to participate in the survey. The government alleges that DFine provided improper remuneration in the form of travel expenses, lavish dinners, entertainment and promotional speaker fees to doctors located in Chicago and Little Rock, Ark. The United States further alleges that DFine solicited physicians to convert their business from a competitor’s product and/or persuade the physicians to continue using DFine products.

According to the United States, DFine’s alleged conduct violated the Anti-Kickback Statute. Among other things, that law prohibits offering or paying remuneration to induce referrals of items or services covered by Medicare, Medicaid or other federally-funded programs.

“Decisions about devices used to treat serious spinal conditions should be based on the best interests of the patient, not on whether the manufacturer is going to pay a kickback,” said Tony West, Assistant Attorney General for the Justice Department’s Civil Division. “These sorts of improper financial incentives not only undermine the integrity of medical decisions, they also waste taxpayer funds and are unfair to competitors who are trying to play by the rules.”

“We will continue to vigorously pursue and prosecute any individual or company that commits health care fraud, particularly those who provide illegal financial incentives to doctors in order to gain business from federal health care programs,” said Edward L. Stanton III, U.S. Attorney for the Western District of Tennessee. “The Anti-Kickback Statute is a vital resource in eliminating health care fraud, which will in turn cut costs for patients and honest businesses as well as increase the quality of services for those who need care.”

This action was initiated by the filing of a qui tam, or whistleblower, action under the False Claims Act by Brian Eberhard. The act permits a whistleblower file a lawsuit on behalf of the United States and share in any recovery. In this case Mr. Eberhard will receive approximately $250,000.

Also as part of the settlement, DFine has agreed to enter into an expansive corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. That agreement provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which allegedly gave rise to this matter.

“The Office of Inspector General strongly supports the investigation and prosecution of device manufacturers who offer lucrative financial incentives to physicians in exchange for the use of their products,” said Derrick Jackson, the Special Agent in Charge at the U.S. Department of Health and Human Services. “Such arrangements interfere with medical decision making and encourage physicians to provide medically unnecessary services.”

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover more than $5.9 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 exceed $7.8 billion.

The settlement was the result of an investigation by the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Western District of Tennessee and the Office of Inspector General at the U.S. Department of Health and Human Services.