In an unusual move Tuesday, a federal judge rejected a $296 million settlement the government reached with Guidant Corp. over charges the company concealed crucial safety information about its heart devices from federal regulators.

With District Judge Donovan Frank rejecting the deal, the U.S. Department of Justice and Guidant, now part of Boston Scientific Corp., are back at square one.

They can re-craft the agreement, Guidant could plead guilty and take its chances in court, or the government may drop the deal and prosecute.

"Now the government and Guidant have to go back to the drawing board," said Charles Zimmerman, a Minneapolis attorney who represented some of the Guidant victims. "They need to come up with something that will serve the public better."

Approval of the plea would have ended a painful controversy that has rocked Minnesota's signature medical technology industry for the past five years. It began when two Minneapolis doctors went public in 2005 with their concerns about a heart defibrillator made by Guidant after it failed to revive their young patient, who had collapsed and died.

After a four-year investigation, the Justice Department announced in April that Guidant pleaded guilty to two federal criminal charges, including making false statements to the Food and Drug Administration (FDA) over modifications made to the design of the Ventak Prizm and Contak Renewal heart defibrillators. Those changes affected the device's safety and effectiveness.

Boston Scientific, which employs about 2,000 Minnesotans at the former Guidant operations in Arden Hills, also agreed to pay a $296 million fine -- a criminal penalty would have ranked as the largest ever in medical technology for violating federal laws. (Boston Scientific bought Guidant for $27 billion in 2006.)

Fine not enough

Implantable cardioverter defibrillators (ICDs) are stopwatch-sized devices that ward off sudden cardiac death by shocking an errantly beating heart back into rhythm. A small number of Guidant devices cited in the case short-circuited, and failed to provide a life-saving shock. At least seven people have died as a result.

But several groups opposed the plea agreement, including lawyers representing patients who say they were harmed by the faulty devices, as well as the two doctors who originally brought the safety issues to light.

Earlier this month, Minneapolis Heart Institute doctors Barry Maron and Robert Hauser wrote a letter to Frank, urging him to reject the deal "on behalf of the patients who died or suffered pain and mental anguish as the direct result of Guidant's illegal and unethical behavior." A fine "does not hold the guilty parties fully accountable and inevitably undermines patient safety," they wrote.

In his 37-page order, Frank wrote the plea is "not in the best interests of justice" and fails to serve the public's interest. He suggested that Guidant/Boston Scientific pay some type of restitution, perhaps to Medicare, the federal insurance plan for the elderly that paid to treat many of the Guidant victims, or that the company contribute to a charitable cause. In addition, he said putting the company on probation, perhaps involving community service, might be appropriate, as well.

"The court believes that probation would be appropriate in this case, and could be fashioned in a manner to serve the public's interest and address the accountability concerns raised by Drs. Hauser and Maron and likely shared by many others," Frank wrote.

Bad week for firm

Reached Tuesday, Dr. Hauser said he was "pleasantly surprised" by Frank's decision. Hauser, a former CEO of Guidant's predecessor company, believes individuals "who made the decision to not inform the public and not report to the FDA should be held accountable. I'm not advocating jail terms, I think our court system can sort through it and determine what restitution should be made. That would serve as a deterrent, it sends a message that this type of behavior will not be tolerated, and you can't hide behind the corporate curtain."

Likewise, patient advocate Lisa Salberg said "it would be refreshing to see individuals held accountable for their actions and not have stockholders take a hit for a choice that company leadership had the chance to act on over six years ago." Salberg also wrote a letter to Frank opposing the plea.

But Daniel Kleinberger, a professor of corporate law at William Mitchell in St. Paul, said it's difficult to prosecute individuals in corporate cases because "by the time the excrement meets the propeller blade, the people who made the decisions back then have inevitably moved on." Probation would be one way to monitor the company's behavior, Kleinberger added.

Justice Department spokesman Charles Miller said "we are currently reviewing the judge's order."

In a statement, Natick, Mass.-based Boston Scientific said it "plans to work with the [Department of Justice] in an effort to develop a modified plea agreement."

It's been a dire week for Boston Scientific. On Monday, the med-tech company reported a wider-than-expected first-quarter loss after writing off $1.8 billion in costs related to the monthlong recall of its defibrillators. The recall was initiated March 15 after the company failed to notify the FDA about manufacturing changes.

Janet Moore • 612-673-7752