Surgical Funding Firm Accused of Inflating Claims

By and | September 29, 2015

A unit of Johnson & Johnson that makes artificial hips has accused a surgical funding company of seeking excessive profits from financing surgery for patients suing over the devices.

The claim by DePuy Orthopaedics marks the first time that a device maker in the multibillion-dollar litigation over faulty hip replacements has publicly raised concerns about the controversial business of surgical funding, which has increasingly become a part of mass litigation over medical devices.

Surgical funders essentially invest in operations on injured plaintiffs. If a litigant can’t afford surgery to correct problems allegedly caused by medical devices, the funders will step in to purchase medical bills at a deep discount from physicians, hospitals and others who have provided care to the patient. When the patient’s lawsuit settles, the funder reaps a profit by placing a lien on the settlement for the full amount of the patient’s surgical bill.

Following a Reuters report about the role of Texas-based medical funder Medstar in pelvic mesh litigation, DePuy Orthopaedics has raised new questions about Medstar in litigation over its all-metal ASR hip implants.

In an Aug. 31 filing in federal court in Toledo, Ohio, the defendant asked the court to compel MedStar to turn over more information about the liens, so it can investigate whether the funder schemed to “artificially inflate damages claims.”

According to DePuy, MedStar submitted claims for nearly $1.5 million for 11 surgeries that should have cost no more than $336,000. DePuy contends MedStar is attempting to collect twice as much as it paid to acquire the medical bills and four times what DePuy considers a reasonable cost for the patients’ care.

DePuy’s filing cites the Reuters report on MedStar’s actions in the mesh litigation.

Because of an unusual feature of DePuy’s settlement, MedStar is seeking payment directly from DePuy, rather than from the 11 patients whose hip-replacement surgery it funded. DePuy says it needs access to the funder’s records before it will pay. If the claims are ultimately determined to be improper, DePuy might refuse to pay, possibly leaving plaintiffs on the hook for the full cost of their medical care.

MedStar founder Dan Christensen said his claims in the DePuy hip implant litigation are “usual, customary and reasonable.” According to Christensen, a medical pricing expert retained by MedStar deemed the bills it submitted to DePuy to be within four percent of typical hip replacement charges. He also said medical providers, and not MedStar, determine such charges.

Pelvic Mesh Cases

Last month Reuters reported that in cases involving pelvic mesh, another medical device that is the target of mass litigation, funders’ liens on patients’ settlements sometimes spiraled to as much as 10 times what private insurers or government programs like Medicaid would pay for the same procedures

In such cases, patients wind up recovering much less from settlements than they might have if funders weren’t involved. Patients who rely on medical funders tend to be uninsured or unable to afford cash deductibles or out-of-network fees charged by their doctors.

In the pelvic mesh litigation, manufacturers American Medical Systems, Johnson & Johnson’s Ethicon subsidiary, Boston Scientific and C.R. Bard obtained records and deposition testimony on the Texas-based surgical funder MedStar after learning a MedStar representative was soliciting physicians to perform mesh removal surgery.

DePuy agreed in 2013 to pay about $2.5 billion to settle approximately 8,000 personal injury suits over ASR hip implants. The company had previously recalled the metal-on-metal devices in 2010, after patients alleged they caused pain and joint dislocation and could even damage the central nervous system, thyroid and heart. The average base payment per case was about $250,000.

DePuy also agreed to pay health insurers’ liens for hip implant revision surgery directly so the costs would not come out of plaintiffs’ recoveries. That provision explains why MedStar submitted its liens to the defendant.

Texas attorney Tom Rhodes, whose law firm represents seven of the hip patients whose surgery was funded by MedStar, said his clients turned to MedStar because their preferred surgeons would not accept their insurance and would not operate at the reimbursement rate DePuy offered. All of the MedStar-funded plaintiffs received treatment from the same San Antonio medical providers.

The surgeon, Dennis Gutzman, did not respond to a request for comment faxed to his office. The other four plaintiffs who used MedStar funding are represented by Watts Guerra. That firm did not respond to multiple requests for comment.

Christensen said that if DePuy does not pay MedStar’s liens, he will have “no other choice” but to demand payment from the patients whose surgery his company funded, an outcome he described as “extremely unfair.” A spokesman for DePuy’s parent company, Johnson & Johnson, declined to comment.

(Reporting By Alison Frankel and Jessica Dye; Editing by Amy Stevens and Sue Horton)


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