Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Friday, September 13, 2019

Manufacturer Admits to Selling Uncleared Devices, Agrees to Pay $9.5 Million

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and Mark S. McCormack, Special Agent in Charge of the U.S. Food and Drug Administration’s Office of Criminal Investigations Metro Washington Field Office (“FDA”), announced today that the United States has simultaneously filed and settled a civil fraud lawsuit under the False Claims Act against AVALIGN TECHNOLOGIES, INC. (“Avalign”), and its subsidiary INSTRUMED INTERNATIONAL, INC. (“Instrumed,” and together with Avalign, “Defendants”), for manufacturing and selling medical devices that were not cleared by the FDA. These uncleared devices were used by medical providers in spinal surgeries, circumcisions, and other medical procedures. The providers submitted claims for reimbursement to Medicare and Medicaid for those procedures. As part of the settlement, approved in Manhattan federal court by U.S. District Judge Edgardo Ramos, Defendants agreed to pay the Government $9,500,000 and admitted to conduct alleged in the United States’ complaint.

Manhattan U.S. Attorney Geoffrey S. Berman said: “It is critical that the devices used in some of the most consequential medical procedures have the required FDA approval or clearance. Unapproved or uncleared devices used in medical procedures present a significant public health and safety risk, and this Office will continue to hold manufacturers of medical devices accountable for profiting from sales of uncleared devices.”   
Special Agent in Charge Mark S. McCormack said: “U.S. patients rely on FDA oversight to ensure that medical devices are safe and effective. When companies fail to follow FDA rules, they put patients’ health at risk. We will continue to investigate and bring to justice companies that attempt to evade FDA requirements and jeopardize the public health.”

As alleged in the complaint filed with the settlement agreement, since 1976, many different kinds of medical devices must, depending on the degree of patient risk, be approved or cleared by the FDA before they can be marketed for use on patients. There is a grandfather exception for medical devices that were legally in commerce prior to 1976, which are known as “pre-amendment” devices. To qualify for pre-amendment status, the device’s owner (typically the manufacturer) must, among other things, have marketed the device prior to May 28, 1976. From 2007 through 2014, Instrumed sold medical devices for which Instrumed had not obtained the required clearances from the FDA and for which Instrumed could not demonstrate that the pre-amendment exception applied.

As part of the settlement, Defendants admitted, among other things, that:

• In February 2009, Instrumed’s then-head of Quality and Regulatory Affairs acknowledged in an email in response to an inquiry about an Instrumed device, that “we cannot claim pre-amendment because Instrumed was not selling/marketing this device before May 28, 1976.”
• By no later than April 2009, representatives of Instrumed and CareFusion Corporation (“CareFusion”), a customer of Instrumed pre-amendment devices and distributor of those devices, began exchanging correspondence regarding whether Instrumed and CareFusion could legitimately rely on Instrumed’s invocation of the pre-amendment status exemption to market its devices.
• CareFusion repeatedly informed Instrumed that the evidence Instrumed was relying on to justify its claim that certain devices qualified for the pre-amendment status exemption – evidence consisting of excerpts from a catalogue issued by the devices’ original manufacturer, not Instrumed, and an affidavit from an Instrumed employee – was insufficient.  Instrumed never provided CareFusion a satisfactory affidavit to justify its claim that the devices qualified for the pre-amendment status exemption.
• In March 2014, the FDA issued a warning letter indicating that it had determined that Instrumed’s devices “are not pre-amendment devices that were legally on the market in the United States prior to May 28, 1976.”
• Instrumed ultimately decided t discontinue sale of these products and conducted a recall of these products.  Throughout the period 2007 to 2014, however, Instrumed continued to sell the devices listed in the settlement agreement.  Some of the devices were then sold by Instrumed’s customers to hospitals and other medical providers, and used in procedures for which providers submitted claims for reimbursement to federal health care programs.

Of the $9.5 million that Defendants agreed to pay under the settlement, $8,128,440.60 will go to the United States and $1,371,559.40 will go to states impacted by Defendants’ conduct through separate settlements with those states.

In connection with this settlement, the United States joined a private whistleblower lawsuit that had previously been filed under seal pursuant to the False Claims Act. The United States had previously reached a settlement with CareFusion, which was entered by the Court on May 7, 2019. As part of that settlement, CareFusion agreed to pay a total of $3.3 million to the United States and certain states, and admitted to selling devices that Instrumed wrongly claimed qualified for the pre-amendment exception.

Mr. Berman thanked the FDA, the Department of Health and Human Services Office of Inspector General, and the Centers for Medicare and Medicaid Services for their invaluable assistance in this matter.

The case is being handled by the Office’s Civil Frauds Unit.  Assistant United States Attorneys Sharanya Mohan and Mónica P. Folch are in charge of the case.

Attachment(s):
 Download avalign_14cv4958_stip_and_order_settlement_and_partial_dismissal.pdf

Component(s):
USAO - New York, Southern

Press Release Number:
19-293