NuVasive Reaches Tentative Settlement with Justice Department

Xconomy San Diego — 

When San Diego-based NuVasive (NASDAQ: NUVA) disclosed the sudden departure of chairman and CEO Alex Lukianov about four weeks ago, a NuVasive spokeswoman said it was unrelated to a two-year investigation of NuVasive by the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services.

So it is apparently just a coincidence that NuVasive said Friday it would pay $13.8 million as part of a tentative agreement reached with the U.S. Department of Justice to resolve the investigation, which began in mid-2013 with a subpoena from the OIG at Health and Human Services.

In financial results released at that time, Nuvasive said it had received a subpoena from the OIG “in connection with an investigation into possible false or otherwise improper claims submitted to Medicare and Medicaid.” The subpoena sought internal documents from NuVasive covering a period of more than five years, from January 2007 through April 2013.

The OIG did not disclose the nature of its investigation.

However, as Xconomy reported last month, the subpoena followed a special fraud alert issued by the same OIG that renewed longstanding concerns about financial incentives offered to some physician-owned groups for using certain implantable medical products for their patients.

The OIG did not identify any implant makers or physician-owned groups in the alert.

But former CEO Lukianov referred to “audits and investigations” of physician-owned groups in a second-quarter conference call in 2013. “We have an exceptionally strong internal compliance team who have built, managed, and overseen all of our compliance programs,” Lukianov told analysts and investors two years ago. “We expect to work through this process over the coming quarters.”

When Xconomy asked NuVasive in an e-mail last month if the violations of corporate expense reimbursement and personnel policies the company cited in its statement about Lukianov’s resignation came to light as a result of the OIG investigation, the answer was only, “No.”

In any case, some additional information about the nature of the OIG inquiry might come out today.

NuVasive is scheduled to release financial results today for the first quarter that ended March 31. An afternoon conference call is also scheduled, and former Life Technologies CEO Greg Lucier, a NuVasive board member who replaced Lukianov as interim CEO last month, is expected to take questions from NuVasive investors and analysts for the first time.

In its short statement Friday, NuVasive said its deal is subject to completion of a definitive written settlement agreement with OIG that could take months to work out.

NuVasive said it currently does not anticipate it will be required to enter into a “corporate integrity agreement” as part of the settlement. According to the OIG’s website, such agreements may arise under a variety of investigations under civil false claims statutes. A typical integrity agreement lasts five years, and imposes obligations that are intended to ensure future compliance, such as requiring a company to hire a compliance officer, implementing a comprehensive employee training program, and restricting the employment of ineligible persons.

In exchange, the OIG agrees not to seek to exclude the company from participating in Medicare, Medicaid, or other federal healthcare reimbursement programs.