OtisMed Corp. agreed to pay more than $80 million to resolve civil and criminal investigations related to the OtisKnee, according to the Justice Department:
- $34.4 million fine;
- $5.16 million in criminal forfeiture; and
- $40 million, plus interest, to resolve its civil liability.
What Was the OtisKnee?
The OtisKnee device was a cutting guide designed for use in total knee arthroplasty (TKA), a knee replacement surgery that replaces the weight-bearing surfaces of the knee joint to relieve pain, usually from osteoarthritis.
During TKA, metal and plastic parts were used to cap the ends of the bones that form the knee joint. To do this, the orthopedic surgeon had to remove the ends of the bones and to reshape the remaining bone to fit the artificial knee prosthesis. These bone cuts had to be made with precision or the bone and/or the implant could fail.
The OtisKnee was a cutting guide. It was not implanted during the surgery, but used to help the surgeon make accurate bone cuts.
According to court documents, between May 2006 and September of 2009, about 75% of the OtisKnee cutting guides were sold in conjunction with sales of the Stryker Triathlon Total Knee Replacement System. Both OtisMed and Stryker Corporation marketed the OtisKnee. Other OtisKnee devices were sold in conjunction with sales of Vanguard Complete Knee System, made by Biomet Orthopedics, LLC.
Between May 2006 and September 2009, the company sold more than 18,000 OtisKnee devices, generating revenue of about $27 million. The Justice Department alleged that OtisMed never had FDA approval to market the OtisKnee.
In 2009, OtisMed Corporation was acquired by Stryker Corporation and became a wholly-owned subsidiary of Stryker.
How was the Law Broken?
On October 2, 2008, OtisMed submitted a 510(K) notification to the FDA seeking clearance to market the OtisKnee. On September 2, 2009, the FDA sent OtisMed a notice that its 501(k) submission had been denied. In that notice the FDA stated that it had determined that OtisMed had not demonstrated that the OtisKnee was as safe and effective as other legally marketed devices, noting several deficiencies in data provided by the company. The letter warned that any commercial distribution of the OticKnee prior to FDA approval would be a violation of the law and that the FDA viewed the device as part of a “significan risk device system.”
According to documents filed by the Justice Department, On September 9, against the advice of legal counsel and in direct violation of the law, CEO Charlie Chi directed an OtisMed employee to work with another employee to organize a mass shipment of all OtisKnee devices that had been manufactured but not yet shipped. He suggested they could hide the shipment from FDA regulators through a number of potential means.
According to court documents, Chi texted to one of the employees: “We are shipping everything out tomorrow. One Shot.” On September 10, 2009, 218 of the devices were allegedly shipped out to surgeons around the country.
The Guilty Pleas
OtisMed and its CEO, Charlie Chi pleaded guilty in Newark federal court. OtisMed pleaded guilty before U.S. District Judge Claire C. Cecchi to distributing, with the intent to defraud and mislead, adulterated medical devices into interstate commerce in violation of the Food, Drug, and Cosmetic Act (FDCA). Chi pleaded guilty before U.S. Magistrate Judge Mark Falk to three counts of introducing adulterated medical devices in interstate commerce. Chi will be sentenced for these crimes on March 18, 2015.
Patients put their trust in devices that were not approved by the FDA. Patients who had surgery using the OtisKnee devices can request a FREE case evaluation: Call 1-888-377-8900 or submit our free consultation form (click here now).
The Civil Settlement
The civil settlement resolved allegations arising from the marketing and distribution of the OtisKnee without receiving approval or clearance from the FDA for the device. The allegations are outlined below.
- In May 2006, OtisMed, through co-promotion activities with Stryker Corporation, began commercially distributing the OtisKnee without having received clearance or approval from the FDA for the device.
- OtisMed continued to distribute the device while its application was pending and even after the FDA informed OtisMed that the product could not be lawfully distributed until FDA approved the device.
- OtisMed encouraged health care providers to submit claims for MRIs that were not reimbursable because they were not performed for diagnostic use, but rather solely to provide data for the creation of the OtisKnee.
The claims settled by the civil settlement agreement are allegations only, and there has been no determination of liability as to those claims.
The $41.2 million civil settlement resolved OtisMed’s civil liability for submitting false claims to the Medicare, TRICARE, Federal Employees Health Benefits and Medicaid programs. Of that amount, approximately $41 million was to be paid to the federal government. Medicaid is funded jointly by the states and the federal government and participating Medicaid states will receive approximately $376,700 of the settlement amount. The employee who blew the whistle on the company (whistleblower) received approximately $7 million.