Stryker Corporation subsidiary OtisMed will pay more than $80 million to the U.S. government to settle criminal and civil charges that allege the company sold knee replacement devices without the approval of the Food and Drug Administration.
The chief executive officer of OtisMed, Charlie Chi, and the company itself pleaded guilty in December in federal court in New Jersey. The company will pay a fine of $34.4 million, a forfeiture of $5.16 million in a criminal case and a civil settlement of $41.2 million. Chi’s sentencing is scheduled for March; he could get up to three years in prison.
OtisMed sold the knee replacement devices illegally before Stryker bought the company in November of 2009. From 2006 to 2009, OtisMed sold 18,000 custom-built cutting guides, which surgeons use to accurately cut bones before implanting prosthetic knees.
It was not until October of 2008 that the company applied for FDA approval. About a year later, the FDA denied OtisMed’s application because the agency said the devices weren’t shown to be safe and effective. Despite that, Chi went against the board and his advisers and shipped more than 200 of the devices to surgeons. Chi was reportedly heard on a conference call in September of 2009 telling employees about ways to hide the shipments from the FDA.
U.S. Attorney Paul Fishman said the company did not tell surgeons who received and used the devices about the FDA’s decision. This case came about after Fishman’s office investigated a whistleblower complaint filed under the False Claims Act by former Stryker sales executive Richard Adrian. Adrian will receive $7 million for filing a successful claim.
OtisMed has been barred from all federal health care programs, including Medicare and Medicaid, for 20 years. Stryker has not been barred; the company said it only learned about the illegal shipments after it acquired OtisMed.