Medical Device Maker In Western U.S. Settles Lawsuit

February 21, 2014

A medical-device manufacturer with offices in California and Washington has agreed to pay the federal government up to $5.25 million to resolve allegations that it encouraged doctors to over-charge federal health-care programs for a procedure using their device, the U.S. Justice Department said Wednesday.

The settlement with EndoGastric Solutions Inc., of San Mateo, Calif., and Redmond, Wash., resolves a whistleblower lawsuit filed in June 2012 in U.S. District Court in Montana by former employee Glenn Schmasow.

EndoGastric created the EsophyX as a less invasive way to treat gastric reflux. The government alleged the company told health-care providers to bill for the procedure using codes that applied to a more invasive, and more expensive,  procedure.

SettlementThe government also alleged the company paid kickbacks to physicians to induce them to use the device.

The whistleblower clause of the federal False Claims Act allows private parties to file a lawsuit on behalf of the government for false claims and to obtain a portion of the government’s recovery. Schmasow will receive up to $945,000.

As part of the settlement, EndoGastric Solutions agreed to enter into a corporate-integrity agreement with the Department of Public Health and Human Services’ Office of Inspector General that provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which led to the lawsuit.

EndoGastric Solutions does not admit any wrongdoing as part of the settlement.

“EGS cooperated fully with this investigation and was able to bring the matter to a quick resolution due to internal corrective actions and new policies that had been initiated long before we learned of the investigation,” said Michael Kleine, executive chairman of the board of directors. “We believe the full resolution of this matter and the elimination of related financial uncertainty is in the best interests of the company, its investors and, most importantly, patients who benefit every day from our products.”

The $5.25 million settlement, plus accrued interest, will be paid over five years. The settlement could be reduced if EndoGastric Solutions meets certain requirements.

One of Schmasow’s attorneys, Triel Culver of Billings, said his client did not wish to comment.

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