In its third federal settlement in two months, Medtronic PLC has agreed to pay $4.4 million to settle allegations that it deliberately violated U.S. law requiring that devices sold to the military be manufactured in the United States or its international trading partners.
The False Claims Act lawsuit, handled by Minnesota U.S. Attorney Andrew Luger’s office, alleged among other things that the formerly Fridley-based med-tech company brought spinal surgery devices in from China and then relabeled them “Manufactured in Memphis, TN,” where its spinal division is based, before selling them to the government.
Medtronic spokeswoman Cindy Resman said that although the company has since improved its country-of-origin disclosures in government contracts, it “makes no admission that any of its activities were improper or unlawful.”
The settlement focused on “a limited number of accessories and surgical instruments used in spinal surgeries that were provided to Medtronic by third-party suppliers and were manufactured in China or Malaysia. The overwhelming majority of Medtronic’s products are manufactured in the United States or its trading partners, such as Mexico or Ireland,” she said in an e-mail.
Thursday’s settlement was the third federal lawsuit Medtronic has settled with the Justice Department out of court since legally moving its headquarters from Fridley to Dublin, Ireland, in late January.
On Feb. 5, Medtronic subsidiary ev3 Inc. agreed to pay $1.25 million to settle allegations that its corporate predecessor, Fox Hollow Technologies Inc., encouraged 12 hospitals to overbill Medicare for atherectomy procedures. On. Feb. 6, Medtronic agreed to pay $2.8 million to settle claims that it caused “dozens” of doctors to bill Medicare for investigational neurostimulation procedures that were not reimbursable.
Medtronic denied any wrongdoing in both of those cases.
The country-of-origin case settled Thursday was originally filed in 2012 and kept under seal until its resolution, as happens with many whistleblower cases under the False Claims Act. The case was filed by three whistleblowers, including one, Samuel Cox, who made similar allegations against London-based orthopedic device-maker Smith & Nephew. That case was resolved in September with an $11.3 million settlement; Smith & Nephew denied any wrongdoing.
A prosecutor in Minnesota declined to say whether similar country-of-origin cases against other companies were pending under seal.
Cox and the two other whistleblowers said in their Medtronic lawsuit that the company knew it was bringing in devices from China and elsewhere. Yet between 2007 and 2013 it falsely certified to the Defense Department and the Veterans Affairs Department that the devices met the requirements of the Buy American Act and the Trade Agreements Act.
“Congress has said that when you sell products to the government, that they must be made in the United States, or in a country that we have a free-trade agreement with,” Assistant U.S. Attorney Ann Bildtsen said. “And companies certify to that … and those certifications need to mean something. This case sends a message that they mean something to the government.”
Bildtsen said she wasn’t privy to whether Medtronic has changed its manufacturing or importing practices in response to the case, but said she would be surprised if the case wasn’t a “wake-up call” to the company.
When asked about changes, Resman said, “We have reviewed and improved our practices with regard to our country-of-origin disclosures in government contracts.”