December 11, 2014 — The FDA has announced that the former CEO of OtisMed Corp. has been convicted of criminal charges involving the distribution of unapproved orthopedic cutting guides for knee replacements in 2009.
The FDA rejected OtisMed’s 510(k) application for the device, which allows makers of new devices to avoid conducting safety tests, but only if the device is “substantially equivalent” to an existing device. The FDA refused to agree that OtisMed’s device was equivalent.
The CEO of OtisMed, Charlie Chi, had a conference call with executives on September 9, 2009. According to Bloomberg, he suggested several ways of distributing their remaining stock of the implants — taking them to an off-site location, using his personal FedEx account, and backdating shipments.
A shipment of 218 unapproved OtisMed devices were sold in September 2009 to surgeons throughout the United States. That year, OtisMed was acquired by Stryker Corp., which was not aware of the fraud.
The investigation began after Richard Adrian, an executive at Stryker, filed a lawsuit against OtisMed under the False Claims Act, which allows citizens to sue corporations on behalf of the federal government.
Chi ultimately pled guilty to three misdemeanor charges. OtisMed also pled guilty to one felony count of selling a misbranded medical device. On top of the $40 million in criminal fines and forfeitures, OtisMed must pay $41.2 million in civil liability for defrauding Medicare and insurers. Adrian will receive $7 million of the payout.
The Stryker ShapeMatch Cutting Guides were the subject of regulatory action in August 2013, in which health officials warned:
“[Use of the cutting guides] can lead to patients experiencing a range of problems, including joint instability, loss of mobility, and loss of motion or osteolysis. If these occur, the patient may require revision surgery.”
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