California Spine Firm Pays $2.4M to Settle Kickback Allegations

A California spine company is maintaining its innocence in the wake of federal kickback allegations that prompted the firm to pay $2.39 million to the government.

Prosecutors claim DFine Inc. of San Jose allegedly paid doctors illegal kickbacks to use the company’s products. The firm’s flagship invention—the RF Targeted Vertebral Augmentation (RF-TVA) system—is used to stabilize spinal fractures, relieve pain and improve mobility. The system, DFine claims on its website, enables doctors to better treat spinal compression fractures by creating site- and size-specific cavities and repairing damaged bone with longer-lasting ultra high viscosity (bone) cement (which is distributed through a remote delivery system). Early last month, the U.S. Department of Veterans Affairs awarded the company a five-year contract to supply its vertebral augmentation system to 950 V.A. facilities nationwide.

“We appreciate the sacrifice our military personnel make,” CEO Kevin Mosher said in a news release, “and believe these individuals and their families should have access to RF-TVA.”

Several years ago, the company allegedly tried increasing patients’ access to the device by paying doctors up to $500 to participate in customer surveys (better known as user preference evaluations or UPEs, according to prosecutors). The survey required doctors to use a new DFine device in a patient, most of whom were Medicare beneficiaries. Prosecutors contend the company paid for travel expenses, entertainment and lavish dinners for doctors in both Chicago, Ill., and Little Rock Ark., and asked others to switch to DFine products from a competitor’s brand. The kickback scheme allegedly occurred between Jan. 1, 2007 and Dec. 31, 2009.

“Decisions about devices used to treat serious spinal conditions should be based on the best interests of the patient, not on whether the manufacturer is going to pay a kickback,” Tony West, Assistant Attorney General for the U.S. Justice Department’s Civil Division, said in prepared remarks. “These sorts of improper financial incentives not only undermine the integrity of medical decisions, they also waste taxpayer funds and are unfair to competitors who are trying to play by the rules.”

DFine executives, however, insist the company had the best interest of patients in mind when it conducted its customer surveys. In a three-paragraph statement released after the U.S. Department of Justice settlement was announced, the company claimed its UPEs were conducted during the early stages of product development and were intended solely to solicit feedback about design. The company denies the allegations, arguing the UPEs were “conducted in the early commercial phase of the company and were intended to solicit clinician feedback regarding the usability of its first revision technology. The UPEs were also performed under prospectively designed protocols, which required specific data collection to include procedure-related data and radiographic information.”

Nevertheless, prosecutors contend that DFine’s actions violated the Anti-Kickback Statute, which outlaws the offering of compensation to induce services covered by federally-funded programs such as Medicare. As part of the settlement (a difficult decision to reach, according to the company), DFine has agreed to work with the Office of Inspector General and the U.S. Department of Health and Human Services to draft procedures to avoid similar conduct in the future.

The case against DFine was triggered by a whistleblower lawsuit from Brian Eberhard. Though prosecutors did not discuss his affiliation with DFine, they said he will receive about $250,000 from the settlement.

DFine’s RF-TVA device allows doctors to treat painful and debilitating spine fractures, a common side effect of elderly people with osteoporosis. The company estimates about 750,000 vertebral compression fractures occur annually, with only one-third of that number diagnosed by physicians. About 130,000 patients with vertebral compression fractures are treated with minimally invasive surgery (vertebroplasty or kyphoplasty) annually in the United States.

Founded in 2004, DFine has raised about $15 million in equity this year. The private firm raised at least $36 million in 2010.