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The U.S. Department of Justice signaled its continued focus on enforcement of the federal Physician Payment Sunshine Act, when it announced the second major settlement involving Sunshine Act allegations in just over six months. Under the settlement, which also resolves claims asserted in a qui tam lawsuit,

Medicrea International, a French medical device manufacturer, and its American affiliate, Medicrea USA Inc.agreed to pay $1 million to resolve allegations that it failed to fully report certain payments and transfers of value under the Sunshine Act as well as $1 million to resolve alleged violations of the federal Anti-Kickback Statute and federal False Claims Act.

The California Attorney General also announced that California will receive nearly $93,000 from this settlement.

The settlement agreement arise from allegations that during an ex-U.S. medical professional society meeting in 2013 in Lyon, France, Medicrea provided meals, alcoholic beverages, entertainment, and coverage of travel expenses to U.S.-based physicians to induce these physicians to purchase or order Medicrea’s spinal devices, resulting in the submission of false claims to the government, and failed to fully report such payments and transfers of value to the Centers for Medicare & Medicaid Services as required under the Sunshine Act.

The Sunshine Act requires manufacturers of certain products that are reimbursed by Medicare, Medicaid, or the Children’s Health Insurance Program to track and annually report all payments and other transfers of value made to certain healthcare providers and U.S. teaching hospitals, collectively referred to as “covered recipients,” unless an exception applies. See 42 U.S.C. § 1320a-7h; see also 42 C.F.R. § 403.904.

In 2020, the U.S. DOJ announced a settlement with medical device manufacturer Medtronic USA Inc.for $9.2 million to resolve allegations that: the company paid kickbacks to induce a neurosurgeon to use its products; and failed to accurately report payments to this neurosurgeon in violation of the Physician Payments Sunshine Act.

This settlement arises from an investigation into certain financial arrangements between Medtronic and South Dakota-based neurosurgeon Wilson Asfora. The government alleged that Medtronic, at Dr. Asfora’s request and contrary to the company’s compliance policies, agreed to pay for events at Carnaval Brazilian Grill, a local restaurant owned by Dr. Asfora and his wife. Allegations in the settlement agreement claim that  Medtronic held over 130 events at Carnaval for which it paid over $87,000 to Dr. Asfora’s restaurant.

Medtronic’s sales personnel allegedly stated in internal expense reports that the events were held to discuss educational content or business information. However, the government alleged that these events were social events that included the provision of lavish meals and alcohol to social acquaintances, business partners, favored colleagues, and referral sources selected by Dr. Asfora, with little or no discussion of Medtronic products.

Immediately after the 2020 settlement, Medtronic announced that it has completed its friendly tender offer for Medicrea International. As a result of completion of the tender offer, Medtronic currently owns in excess of 90% of Medicrea’s share capital and voting rights and was expected to request the implementation of a squeeze-out procedure under French law, which will result in Medicrea becoming a wholly-owned subsidiary of Medtronic.

Less than a year later, its acquisition target was accused of a similar Sunshine Act violation.

Until these recent settlements, there had been no public enforcement actions involving Sunshine Act violations. However, following Congress’s expansion of the Sunshine Act in October 2018 to include five new categories of “covered recipients” subject to reporting requirements, the Senate Finance Committee requested that CMS review the Open Payments database for potential Sunshine Act violations.