A whistleblower lawsuit against Medtronic Inc. that highlighted perks allegedly paid to doctors was filed by one of the company's lawyers, according to a report today in the Wall Street Journal. The legal action was ultimately settled in 2006 for $40 million.

The 2002 suit, filed by former senior legal counsel Ami P. Kelley, claimed the Fridley-based medical technology giant lavished spine surgeons with a variety of incentives to use its products, including regular entertainment at a Memphis strip club, trips to Alaska and patent royalties on inventions they played no part in.

The allegations involve the relationship between Medtronic's spine business and doctors. Sen. Charles Grassley, the ranking member of the Senate Finance Committee, is investigating these relationships, which have also been the focus of at least two other whistleblower lawsuits filed by former employees.

Grassley has been looking into whether perks offered by Medtronic to doctors induce them to use the company's spine products in "off-label" ways not approved by the Food and Drug Administration (FDA). The FDA has warned that surgeons' off-label use of a Medtronic bone graft called Infuse has led to potentially life-threatening side effects in dozens of patients.

Medtronic said in a statement Thursday that the relationship between the medical device industry and physicians is fundamental to device therapy innovation. In addition, doctors provide valuable training and education on new devices, which benefits patients, the company said.

"Because Medtronic understands there is a potential physician conflict of interest, these relationships must be appropriately managed and publicly transparent," according to the statement.

Kelley's lawsuit, filed in U.S. District Court in Memphis against the company and 10 doctors, remains sealed, except for a heavily redacted copy of the original complaint, which contains none of the doctors' names, according to the Journal. Federal law prohibits companies from giving doctors inducements to use products covered by Medicare or Medicaid.

Medtronic declined to comment on the lawsuit's allegations because the suit remains sealed. But in its statement, the company said it took the investigation "extremely seriously and cooperated fully with the Department of Justice. Behaviors like those described in the [Wall Street Journal] article are inconsistent with Medtronic's ethical standards.''

Medtronic said it has "put more rigorous systems and processes in place'' top make sure these ethical standards are followed. Further, "employees must follow rigorous compliance processes in connection with all arrangements with physicians, including consulting and service agreements and appropriate travel and entertainment." Medtronic's policies prohibit inducements with an explicit or implicit requirement to use or purchase the company's products, the statement said.

Kelley's lawsuit claims that kickbacks were a "pervasive" way of doing business at the company's Memphis-based spine business, which last year reported $3 billion in revenue. Sales reps routinely picked up the tab for doctors who visited a Memphis strip club called Platinum Plus, which has since closed after its owner pleaded guilty in 2007 to charges that dancers were engaging in prostitution, the Journal said.

Kelley's lawsuit and a separate complaint filed by the spine unit's former travel manager were the basis for a $40 million settlement deal between Medtronic and the government in 2006, according to the settlement document.

Part of the deal involved the government moving to dismiss the two lawsuits, but the second plaintiff, Jacqueline Kay Poteet, appealed the dismissal of her suit, claiming the settlement was too small. Under federal whistleblower laws, whistleblowers retain 15 percent to 25 percent of the settlement amount. Poteet's case is pending in federal appeals court,

Kelley alleged in her lawsuit that she was dismissed by Medtronic after challenging improper payments. She now works for another company, and did not return phone calls to the Journal.

The Journal said that no finding of wrongdoing has been made against the doctors.

One doctor, Jeffrey Wang, who is currently at the University of California at Los Angeles, "liked to be taken" to Platinum Plus, and emailed a Medtronic sales rep that he was "looking forward to be taken" to the club with him. A UCLA spokeswoman said Dr. Wang, who isn't named as a defendant in the suit, "denies ever being entertained by Medtronic at the Platinum club" and doesn't recall sending any such email. If he did send it, she said, "it would have been done so in jest."

Kelley also alleged in her lawsuit that Medtronic paid patent royalties to doctors even though the offered little or no advice to improve the company's products. The company also created Web sites to promote the Medtronic devices, and hired business consultants to help doctors boost profits in their medical practices.

Medtronic allegedly held two annual seminars in Orlando and Las Vegas where doctors and hospital administrators received free management advice, and supplied them with office staff.

Dr. Hallett Mathews, of Richmond, Va., allegedly was paid $450,000 a year by Medtronic in a consulting agreement, which involved counting surgeries as "consulting" work, according to the Journal. The lawsuit also alleges Medtronic provided Dr. Mathews with a credit card.

Dr. Mathews was hired last year as Medtronic's vice president of medical and clinical affairs. A spokeswoman for the company said he couldn't comment on the allegations.

Medtronic also sent doctors on lavish trips that were supposed to be medical conferences, the Kelley complaint alleges, including a five-day, all-expenses-paid trip to Alaska in 2001. This trip was called a "think tank" where doctors were supposed to present case studies from their clinical practice. But, according to the complaint, one doctor told the group that "he was sorry, but he had not prepared anything," and "drinking then commenced in place of discussion."

The suit contends that Medtronic paid for fishing guides and clothing for the doctors, and that "women were also provided for the doctors." (The suit did not elaborate.)

Medtronic also arranged a helicopter skiing trip for Dr. Patrick Johnson, a neurosurgeon who was in line for a promotion at a Los Angeles hospital, according to the lawsuit. Dr. Johnson was accompanied on the trip with Medtronic's former chief operating officer and spine-unit president Michael DeMane and former regulatory chief Jon Serbousek, the lawsuit said. Dr. Johnson, now director of education at the Cedars-Sinai Institute for Spinal Disorders, wasn't named as a defendant in the suit and couldn't be reached for comment. Serbousek couldn't be reached either. DeMane said Medtronic did not pay for the trip.

In addition, the suit alleged that at a Medtronic-sponsored "discussion group" in New Orleans, the company paid $20,000 to $25,000 to gain access for doctors to a Mardi Gras parade float and spent $15,000 to supply doctors with Mardi Gras beads, according to the Journal.

Medtronic said in Thursday's statement, that the allegations in the lawsuits "occurred years ago," but since then, the company has put more rigorous systems in place to monitor doctor-company relationships, such a confidential ethics hotline program. Employees must also adhere to the company's code of conduct, or risk termination.

The spine business has established an electronic database to track and manage relationships with customers, the company said. The transactions are subject to internal controls and review processes by Medtronic senior management, its chief compliance officer and an outside review organization.

Star Tribune staff writer Janet Moore contributed to this story.

Janet Moore, jmmoore@startribune.com • 612-673-7752