In the autumn of 2008, medical device giant Medtronic was in a tailspin. Profits were sliding. The company was battling hundreds of lawsuits over a heart device that was unnecessarily shocking some patients and failing to work at all in others.
Authorities in the United States were pursuing allegations that Medtronic had bribed doctors across Europe to use its products. Only months before, the company had agreed to pay $75 million to settle allegations that a subsidiary defrauded a U.S. government health program.
On Sunday night, Oct. 12, 2008, Medtronic’s ethics officer shipped three folders of documents marked confidential to inspectors at the U.S. Department of Health and Human Services in Washington, D.C. The files, delivered to the government as part of one of the settlements, included a copy of Medtronic’s 10-page code of conduct. Among other things, it pledged, “no bribes, kickbacks, or other payments for illegal purposes shall be made.”
The documents included a copy of a letter from then chief executive William Hawkins to Medtronic employees. “We cannot allow anything — not making the numbers, competitive instincts or a direct order from a superior — to compromise our commitment to integrity,” he wrote.
Over the next decade, the tables turned. Medtronic soared to the top of the medical device world, more than doubling annual revenue to $30 billion. It launched hundreds of products and opened offices in more than 160 countries.
The company also violated its integrity pledge on a global scale, the International Consortium of Investigative Journalists found as part of a yearlong examination of the medical device industry called the Implant Files.
In the 10 years since the company pledged integrity, governments on four continents have accused Medtronic of promoting unauthorized uses of products, defrauding government health programs, fixing prices, paying doctors for favorable studies and engaging in anti-competitive conduct.
In the U.S., the Justice Department sued Medtronic over device safety problems. In India, regulators uncovered price-gouging. Chinese authorities fined it for monopolistic practices.
The Justice Department and the U.S. Securities and Exchange Commission investigated bribery allegations against Medtronic in Turkey, Malaysia, France, Germany, Greece and Poland, though they closed the probe after six years without taking action.
Medtronic denies all wrongdoing and says it strictly complies with anti-corruption laws.
The company’s history offers a window into some of the business practices of a $400 billion device industry that has developed lifesaving products but also has pushed against or broken legal and ethical boundaries. Medtronic rivals Johnson & Johnson, Abbott Laboratories and Boston Scientific — or their subsidiaries — have also faced allegations of fraud, bribery and other abuses.
All the companies said they conduct business with the highest ethical standards, adhere to all laws and have rigorous programs to prevent employee misconduct.
Medtronic is making devices that help control diabetes, manage chronic pain and alleviate Parkinson’s disease. It invented a wireless pacemaker the size of a vitamin pill. It expanded into new areas of medicine — managing operating rooms, arranging health care loans, monitoring patients.
Investigation spans 36 countries
Over the course of a year, more than 250 reporters and data specialists from 59 news organizations in 36 countries pursued the Implant Files investigation. This included interviewing or reviewing testimony from more than 50 Medtronic employees and speaking with dozens of government officials, patients, doctors and experts. Reporters examined tens of thousands of pages of court filings, company records, regulatory reports, government audits, lobbying records, transcripts of analyst calls, medical journal articles and other documents.r
Medtronic chief executive Omar Ishrak declined to comment for this story. In a written statement, spokesman Rob Clark said the company views patient safety as its top priority and upholds the “highest standards of ethical practice.”
The company did not answer questions about legal cases or specific allegations of wrongdoing recounted in this article. It said many were based on “unfounded claims of litigants and industry critics.”
“Allegations are not facts and should not be interpreted to suggest that Medtronic violated our legal, ethical or regulatory obligations in any way,” Clark said, adding that in the few instances employees or affiliates broke company rules, they were punished. “Our reputation is the result of our commitment to patient safety, transparency, compliance, and ethical business practices.”
In February, CEO Ishrak told investors that Medtronic’s therapies make life better for more than 70 million new patients a year — improving two people’s lives every second.
An ICIJ analysis of adverse event reports filed with U.S. regulators from 2008 to 2017 identified 9,300 deaths and 292,000 injuries potentially linked to products made by Medtronic or its subsidiaries.
In 2017, one in five of all medical device adverse event reports was tied to a Medtronic device — more than twice as many as any competitor. Reports filed with authorities in Japan, Norway and Australia also placed Medtronic among the manufacturers with most adverse event reports during the last five years.
The U.S. Food and Drug Administration noted that the largest device makers likely would have the most adverse events because they make the most devices. The agency also cautioned that reports of injuries and deaths filed with regulators might contain incomplete or unverified information and are only one source the agency uses to monitor devices’ safety.
In the company’s statement to ICIJ, spokesman Clark stressed Medtronic’s state-of-the-art safety systems and continuous monitoring of products both before and after regulators clear them for patient use. Still, he said, all medical products — no matter how well-designed and thoroughly tested—have risks.
It’s a successful business model that Medtronic follows, even if it damages patients.
– Dr. Charles Rosen
In the years since its ethics pledge, Medtronic has reported $3.2 billion in legal charges and said it reached agreements to settle about 20,000 patient claims and lawsuits. During the same period, the company posted net income totaling about $34 billion. Its market value grew to $125 billion from $28 billion a decade ago.
“It’s a successful business model that Medtronic follows, even if it damages patients,” said Dr. Charles Rosen, a California spine surgeon who co-founded the Association for Medical Ethics, a patient advocacy group. Rosen has reported on studies by industry-paid consultants and lobbied to have financial relationships between device companies and doctors made public. Costs to recall products or settle liability cases are “relatively minor” compared to profits, he said, and “are just the price of doing business.”
From moonlighters to whistleblowers
Medtronic was founded in a Minneapolis garage in 1949 by a moonlighting electrical engineer named Earl Bakken. Eight years later, Bakken created a battery-powered pacemaker, about the size of a smartphone, that could be taped to the chest, freeing bedridden heart patients.
Bakken, who died last month at 94, hired managers and sales personnel to cater to a lucrative and growing market of surgeons and cardiologists.
Medtronic founder Earl Bakken.
By 1977, Medtronic dominated the pacemaker market and had branched into respirators, vein erasers to cure varicose veins, and electrical stimulators to treat stomach muscle weakness. The company went public that year and was listed on the Fortune 500 in 1985.
In a bid for part of the huge market for treating back pain, Medtronic acquired industry leader Sofamor Danek in 1999. The Memphis-based company had developed Infuse, a bone graft to treat weakened spinal discs, the shock absorbers between the vertebrae. Infuse, known in Europe as InductOs, has two parts: a biologically engineered powder that stimulates bone growth, and an absorbable sponge to hold the powder. Infuse is used in combination with a metal cage placed between vertebrae, which are then fused together.
The FDA approved Infuse in 2002 for use in a small section of the lower back. Test results had revealed possible damaging side effects from other uses. From the start, surgeons implanted Infuse in ways the FDA hadn’t authorized — including to repair damaged neck vertebrae and skulls.
It is legal for a doctor to use a product in ways not approved by the FDA, but manufacturers are barred from promoting so-called off-label use. In its statement to ICIJ, Medtronic stressed that it markets products for approved uses only and denied that doctors are paid to use or promote its products in unauthorized ways.
Yet former employees alleged in litigation against the company that Medtronic sales representatives and consultants engaged in a promotion campaign to get doctors to use Infuse off-label for other spinal procedures.
Top sellers earned generous commissions, Bobbie Vaden, a former bookkeeper in the spinal division, said in an interview. “They were pushing to ‘sell more, sell more, sell more,’” she recalled.
Vaden’s friend, former senior travel manager Jacqueline Kay Poteet, said in a separate interview that her job was to arrange trips to posh resorts for doctors.
“I was their friend when I could get them first-class tickets,” Poteet said. “Then they weren’t my friend anymore.”
One physician she worked with was Dr. David Polly Jr., former head of orthopedics at what was then Walter Reed Army Medical Center in Washington. Poteet said she booked Polly’s coach class travel to speak about spinal procedures at conferences in the Caribbean and Europe. Medtronic also paid Polly nearly $600,000 from 2003 to 2005, according to a ledger provided to U.S. Senate investigators.
Polly, now a professor at the University of Minnesota, didn’t respond to requests for comment, but documents show that he consulted and taught courses for Medtronic. Polly previously told the New York Times that payments from Medtronic didn’t influence his medical decisions.
He also used Infuse off-label to treat soldiers wounded in Afghanistan and Iraq, according to a whistleblower lawsuit filed by Poteet and Vaden and other documents. In 2004, Polly and two other surgeons published a positive report on an absorbable cage used with Infuse in spinal surgeries on soldiers and other patients. The FDA had approved use of such cages but not in the spine on the ground that they couldn’t withstand heavy loads.
Although doctors may use FDA-approved devices off-label, in this case the surgeons did not seek permission for the research, Army officials found.
In 2008, another of the three surgeons, Dr. Timothy Kuklo, published a study on injured soldiers treated with Infuse at Walter Reed. The study was retracted after the Army notified the medical journal that Kuklo had listed several surgeons as co-authors without their knowledge. The study also overstated the benefits of Infuse, the New York Times reported, quoting Army investigators. Medtronic later disclosed that it had paid Kuklo almost $800,000 in consulting fees from 2001 to 2009.
Kuklo did not respond to requests for comment. His former lawyer, Henry Dane, said a review found insufficient evidence to conclude that any study results were fabricated. The Army also didn’t respond to requests for comment.
The lawsuit filed by Poteet and Vaden was dismissed. But their information and documents about Infuse helped prompt a Senate inquiry.
By the spring of 2008, authorities were closing in on Medtronic on several fronts. In May, Medtronic agreed to pay $75 million to resolve allegations that another spine-treatment subsidiary defrauded Medicare, the U.S. health insurance program for senior citizens and some younger people with disabilities. The company signed a five-year corporate integrity agreement with the inspector general’s office at the Department of Health and Human Services, promising to tighten oversight, scrutinize transactions with doctors and abide by the law. That’s the pledge Medtronic detailed in the documents shipped to Washington later in the year.
As of the spring of 2008, Infuse had been “used successfully” to treat more than 500,000 patients, the company announced. Market analyses cited in an internal investigation estimated that Infuse had been used off-label from 60 percent to 85 percent of the time.
On July 1, 2008, the FDA issued a warning to doctors. The agency reported that it had received 38 reports of “life-threatening complications” from the use of Infuse in patients’ necks. Patients reported swelling in the neck and throat that caused trouble swallowing, speaking and even breathing. Some required emergency tracheostomies.
Terrible and tragic timing
Shirley Nisbet never got the warning.
On Thursday, Aug. 21, 2008, before dawn, Nisbet’s husband, Walter, drove her to a hospital in Baldwin Park, Calif., for neck surgery. Nisbet was in constant pain. Her orthopedic surgeon, Dr. Johannes Bernbeck, had said tissue pressing on her spinal cord needed to be removed.
A Medtronic representative was in the operating room — a common practice in the implant industry for procedures with complicated devices. In the middle of the surgery, according to a lawsuit filed by her family, Medtronic’s representative encouraged Bernbeck to treat Nisbet’s cervical spine, the portion of the spinal column in the neck, with Infuse.
Shirley Nisbet died days after her neck surgery in 2008.
After the operation, Nisbet suffered every complication mentioned in the warning. Her neck swelled. She had trouble swallowing. Her breathing became labored. On the morning of Aug. 26, the 74-year-old mother of three went into a coma. She died four days later.
Bernbeck, who was not named as a defendant in the lawsuit, referred questions to the hospital. The hospital declined to comment, citing patient privacy. At the time, Medtronic denied wrongdoing and said its representative did not recommend off-label use of Infuse for Nisbet.
The case was dismissed.
Four years after Nisbet’s death, the U.S. Senate Finance Committee issued a blistering 2,300-page report based on 5,000 pages of company records covering events from 1996 to 2011.
The report accused Medtronic of concealing $210 million in consulting and royalty fees to doctors who wrote 13 pro-Infuse studies. Those studies didn’t mention serious risks identified by independent researchers, such as cancer and male infertility.
The company said that, in the wake of the Senate inquiry, it strengthened policies on payments to researchers and took other steps to increase transparency. In early 2012, Medtronic hired James Kirwin, an industry veteran, to improve clinical product development in the spinal division. About a year later, Kirwin said in an interview, one of his teammates found a study on a shelf. It documented reports of more than 1,000 injuries and deaths from Infuse that hadn’t been provided to the FDA.
Kirwin became concerned that Medtronic had violated the law by not reporting the adverse events in 2008, when the study was discontinued. Medtronic eventually reported those events to regulators and blamed the delay on improperly archived information. The company makes every effort to notify regulators promptly about all adverse events, spokesman Clark said.
Kirwin said he never fully understood the reason for the reporting delay. “I could never figure out if they were incompetent or evil,’’ he said.
Healthy heart for all
The 2008 ethics pledge failed to end Medtronic’s problems with the U.S. government. Two years later, as the Senate focused on Medtronic’s payments to doctors, CEO Hawkins announced his retirement at age 56. Omar Ishrak, a Bangladesh-born engineer from General Electric Co.’s health care unit, succeeded him.
Ishrak began by announcing a renewed commitment to ethics. The company’s mission, he said, “calls on us to be the unsurpassed standard of comparison and to be recognized as a company of dedication, honesty, integrity and service.”
In his first conference call with investors, Ishrak said the company would focus on delivering better, less expensive patient care, creating new business models and accelerating international sales, especially in developing countries.
Medtronic viewed India, with its 1.2 billion potential customers, as a prime target. Ishrak, in an interview at the time, described it as the company’s “biggest hole.”
One challenge the company faced was the cost of its products. Most Indians didn’t have health insurance, and the median per capita annual income was about $1,500.
At the end of 2010, Medtronic’s India unit launched Healthy Heart for All. Its stated goal was to sell pacemakers and coronary-artery stents to low-income patients by reducing the cost of devices and, in a twist, arranging loans for patients to buy them.
The company found partners in privately owned Indian hospitals.
The first was Mission Hospital, a new 360-bed facility in Durgapur, a steel town 100 miles from Kolkata. The hospital sought to provide affordable care for all Indians, but its idealistic goal quickly ran into reality. “Initially our motto was health care to all,’” the hospital’s chairman, Dr. Satyajit Bose, said in an interview. “But no lunch comes for free.”
Medtronic’s executives in India offered to help the hospital attract new patients with a consumer financing program, backed by American-style marketing campaigns. Working with a consulting firm hired by Medtronic, the hospital published ads in local newspapers promoting Healthy Heart and organized promotional events in downtown Durgapur.
The Mission Hospital in Durgapur, India.
The first patient was a single mother from Durgapur. Her smiling face was plastered on billboards around the city. “Pacemaker surgery now at affordable prices for those below the poverty line,” one said.
The hospital set up free heart screenings in rural schools and temples. Hundreds of patients lined up for tests to diagnose heart problems. About one in 10 was referred to the hospital for additional tests or for a Medtronic pacemaker, coronary stent or defibrillator, according to Dr. Bose and company reports.
At the hospital, patients could apply for loans that paid for up to 85 percent of the cost of a device, at an interest rate of up to 8.25 percent, marketing documents show. The loans were made by Matrika Foundation, a small nonprofit based in a ramshackle apartment building north of Mumbai. Kiran More, then a trustee of the foundation, told ICIJ that Medtronic provided funds for the loans. The company did not comment on the foundation’s role. But it said the program included financial assistance to patients who otherwise would have been forced to use “alternate unorganized money lenders for funding the procedure at extremely high interest rates.”
By late 2012, Medtronic said, the campaign had screened 20,000 patients, with 2,000 receiving its heart devices. A year later, the number of cities with hospitals adopting the program jumped to 20 from four.
At the time, Dr. Sanjay Tarlekar, director of Shushrusha Hospital’s Heart Care Center, a Medtronic partner in a suburb of Mumbai, praised Healthy Heart for All, calling it “a relief for patients and hospitals alike.”
But the program drew criticism from some doctors concerned about rising debt among the poor. They also worried that consumer financing of medical devices could push doctors to recommend surgeries to patients who might not need them.
“Pushing people who are already poor into debt is not sensible,” said Dr. Ajit Mullasari, director of cardiology at Madras Medical Mission.
In 2014, patient advocates began to question Medtronic’s business practices in India. A Mumbai-based consumer advocacy group filed a complaint with the Food and Drug Administration of Maharashtra state. It accused Medtronic’s subsidiary in India and six distributors of selling products at “exorbitant” prices and paying kickbacks to doctors.
Although the Indian agency didn’t find evidence of corruption, it said in a report that patients paid “exaggerated” prices for a Medtronic stent — up to 12 times what the company paid to import them. Regulators also reported that Medtronic’s Indian unit generated “massive profit” at the expense of “poor victims,” the patients.
Both Mission Hospital, in Durgapur, and Shushrusha Heart Care, in suburban Mumbai, severed ties to the Healthy Heart for All program after the price-gouging allegations, their directors said in interviews. Four other hospitals that ICIJ identified as participating in the program did not respond to requests for comment. Medtronic said it phased out the program last year “due to changing dynamics of the healthcare sector and low visibility.”
Today, Tarlekar, Shushrusha Heart Care’s director, says Medtronic didn’t keep its promise to help doctors treat needy patients with low-cost devices. “They cheated us,” he said.
Sales and safety
Nowhere was Medtronic’s push for growth more intense than at its diabetes unit based in Northridge, California. The unit makes glucose monitors, sensors and pumps that deliver insulin in controlled doses, eliminating the need for constant finger pricks and multiple daily injections.
The global market for diabetes, for both drug and device manufacturers, is enormous. Governments around the world spent $1.3 trillion on diabetes treatment in 2015, with costs poised to rise. An insulin pump can cost $6,000 and supplies between $3,000 and $6,000 a year. Patients who switch from multiple insulin injections to pumps can reduce their insulin expenses by about $650 a year.
Medtronic pumps long dominated the market for treatment of Type 1 diabetes, often the most serious form of the disease. It usually develops in children and young adults and represents 5 percent to 10 percent of all diabetes cases.
In recent years, rivals have begun to close in on the broader diabetes market with new customer-friendly devices, eroding Medtronic’s long-held technological advantages. Pressure within the Northridge unit for sales growth rose, former employees later alleged in lawsuits.
According to a whistleblower lawsuit filed by Adam Witkin, a former sales territory manager in Oregon, the company sought to expand its customer base to patients with Type 2 diabetes, which is often associated with obesity and old age. The lawsuit is pending.
Witkin said the company encouraged doctors to promote insulin pumps and other diabetes-management products by offering incentives such as speaking gigs, free services, research funding, trips and lavish dinners.
One company memo, filed as evidence in the lawsuit, encouraged sales representatives to develop a rapport with doctors’ office staff and described the ease of accessing confidential patient information at an endocrinologist’s office in Las Vegas. “You should have free reign in his office, and they will allow you to pull charts,” the memo said. “Once upon a time I went through all his patients and flagged potential pump patients. Time to do it again.”
As a way of driving pump sales, Witkin said in the lawsuit, he and other Medtronic sales representatives sometimes inserted monitoring sensors into patients, a medical procedure for which some were not licensed.
“I have no known legal business or certification to be doing or being part of any diagnostic procedure,” Witkin wrote in a February 2011 letter to Medtronic’s legal department.
Witkin said he was fired for complaining to the FDA and others about company practices. Medtronic disputed his allegations, saying in court filings that Witkin was terminated based on performance and behavior. The diabetes division had the highest ethical standards, the company said. Witkin and all employees received training in anti-kickback rules, and they were repeatedly informed that only doctors or licensed staff could perform medical procedures. And physicians were never allowed to bill for services that they didn’t render, the company said.
In a separate lawsuit, another former diabetes division employee, David Zuzick, said he warned supervisors on four occasions between 2009 and 2013 that a new glucose monitoring device, Sentrino, was not ready for patient use. Or at least, it wasn’t ready without “substantial warnings” to its users about its limits. The device had been brought to market in Europe without adequate safety tests, according to a wrongful discharge lawsuit Zuzick filed in a California state court.
Zuzick, a former director of product planning, also said in the lawsuit that Medtronic managers told him to suppress clinical data “that did not support the safety and performance of Sentrino.”
Medtronic denied all the allegations in court filings before striking a confidential settlement with Zuzick last year. In its statement to ICIJ, the company denied it suppressed clinical data about any product.
Zuzick said in the lawsuit that his concerns about quality and development problems were validated in September 2013, when the FDA sent a warning letter to Medtronic. It cited flaws similar to those Zuzick said he had been reporting to management for nearly two years.
Sales of Medtronic’s diabetes products increased as countries like Germany, Australia and Chile approved new government subsidies or insurance coverage for insulin pumps. In the U.S., Medtronic won exclusive deals for its pumps with insurer UnitedHealthcare and the U.S. Department of Veterans Affairs.
Over the decade starting in 2008, Medtronic insulin pumps and their parts were subject to 20 recalls and about 100 lawsuits alleging malfunctions.
In the 2013 warning letter, the FDA admonished the firm for failing to investigate or respond promptly to consumer complaints or reports about deaths. In one case of delayed reporting, the agency said, a possible pump malfunction may have led to an over-delivery of insulin that caused a patient to lapse into a diabetic coma.
The warning letter also cited violations of U.S. product quality rules, including pump leakage, manufacturing problems, untested design changes, software glitches and inadequate employee training.
An analysis of FDA data by ICIJ and the Associated Press found that insulin pumps and their components are responsible for the highest number of medical device adverse events reported to U.S. regulators. And since 2008, insulin pumps and their parts made by Medtronic potentially accounted for more than 2,600 deaths and 150,000 injuries.
Medtronic said adverse event reports can be misleading or based on incomplete or inaccurate information, so it’s impossible to draw conclusions about whether the medical device is at fault. Medical and technical experts attribute many of the mishaps to user error. Its insulin pumps have helped hundreds of thousands of patients manage their diabetes and a recall of a device does not mean it’s defective or dangerous, according to the company. When a recall is necessary, spokesman Clark said, Medtronic communicates it to doctors and patients.
In interviews with ICIJ and its media partners, patients and families in Finland, Germany, Canada, India and the U.S. said Medtronic was slow to respond to complaints about insulin pumps and failed to inform them of risks.
In August 2017, in the town of Alahärmä in western Finland, 12-year-old Roope Kauppi woke up one night with dangerously low blood sugar. He screamed. While waiting for an ambulance, he collapsed in his dad’s arms and blacked out. The boy recovered, but his parents said they suspect his Medtronic insulin pump delivered too much insulin.
In an interview with ICIJ’s Finnish partner Yle, Roope’s parents said they blamed the company for not notifying them about possible safety problems. The Kauppis said they sent the pump to Medtronic for testing and are awaiting results.
“It’s a fine device when it works,” said Roope’s father, Tapani. “But it can be dangerous when it doesn’t work. Anything can happen.”
Roope Kauppi was taken to hospital in an ambulance in the middle of the night.
At a Goldman Sachs conference in Rancho Palos Verdes, California, in June 2014, Medtronic CEO Ishrak faced a crowd of investors and industry insiders. They wanted to know about the product pipeline and which innovation would next propel the company’s stock.
As one questioner put it: “Show me the money.”
Less than a week later, Medtronic announced one of the biggest deals in medtech history: the $42.9 billion acquisition of a competitor, Dublin-based Covidien PLC. Medtronic would maintain its headquarters in Minneapolis and incorporate in Ireland, on a single floor of a modest Dublin office building. The maneuver meant that Medtronic would pay taxes at the Irish rate of 12.5 percent instead of a U.S. rate as high as 35 percent. It could also hold $14 billion abroad without paying U.S. taxes.
Wall Street applauded. Yet such arrangements, at the time an increasingly common tax-avoidance maneuver among U.S.-based transnational corporations, were also drawing political fire. Then-U.S. President Barack Obama called the arrangements, known as tax inversions, a way of “gaming the system.” His party proposed a bill to impose a moratorium.
Medtronic already had formidable lobbying and legal teams, whose high-profile victories included a landmark 2008 U.S. Supreme Court case that dramatically reduced patients’ ability to sue over defective devices. When one in four members of Congress co-sponsored legislation to restore those litigation rights, Medtronic and other device companies successfully lobbied to kill it. In 2012, the company spent nearly $2 million to curb the FDA’s regulatory power.
After coming under fire for its proposed move to Ireland for tax purposes, Medtronic retained the law firm of former U.S. senators Trent Lott, a former Republican Senate majority leader, and John Breaux, a Democrat from Louisiana. It paid the firm $200,000, nearly 4 percent of its $5,310,000 in lobbying fees in 2014 — the most Medtronic ever spent in a year — to oppose the inversion moratorium. The bill, which many big U.S. firms opposed, died in committee. And Medtronic’s inversion was on its way to completion.
Clark, the Medtronic spokesman, said the company’s lobbying efforts are consistent with its mission to get life-saving therapies to patients. To accomplish that goal, he said, Medtronic “must maintain a healthy dialogue with government officials who have a significant impact on health care policy.”
On another front, Medtronic paid $862 million from 2014 to 2017 to doctors and research institutions for studies, training and consulting work, according to data from the U.S. Centers for Medicare and Medicaid Services. And over those same years, Medtronic also donated millions to trade and patient advocacy groups to promote its products. Among the donations: $5 million to the Cardiovascular Research Foundation, a nonprofit research group that plastered Medtronic’s logo on programs, booths, and sponsored discussions at the foundation’s widely attended conferences.
Ethics pledge proves elusive
As it moved to the front ranks of the global healthcare industry, Medtronic continued to face allegations it violated its pledge to comply with the law.
In early 2015, the company paid $7.2 million to settle two whistleblower cases with the U.S. Justice Department. One alleged that Medtronic paid kickbacks to doctors to use spine stimulators off-label. The other alleged that the company imported spinal devices from China, then relabeled them “Manufactured in Memphis.” Medtronic didn’t admit wrongdoing in either case.
The company also contended with questions about one of its blockbuster products, a pain-management pump called SynchroMed II. In April 2015, after 22 recalls dating to 2004 and findings that Medtronic had failed to correct violations, Ishrak signed a 27-page agreement with the Justice Department to sharply curtail sales of the pump. Flaws sometimes caused it to deliver too much or too little medicine, subjecting patients to overdoses or agonizing withdrawal.
A Medtronic Synchromed II pump.
An FDA inspection report the next year found that Medtronic still hadn’t fixed all the problems.
Over the decade starting in 2008, adverse event reports filed with the FDA have linked SynchroMed pain pumps potentially to more than 800 deaths and 35,000 injuries.
Medtronic said it worked with the FDA to correct problems and today is producing and marketing a safe SynchroMed system.
Overseas, problems mounted. In May 2015, Indian regulators found that Medtronic and some of its competitors had overcharged for devices, leading the government to cap the price of stents. The company announced that it had severed ties with some distributors.
In November that year, Medtronic’s Brazilian unit provided information to Brazil’s antitrust agency detailing how the company participated in a decade-long bid-rigging scheme along with three rivals. Medtronic allegedly acknowledged that the companies conspired to fix the price of heart devices, secretly dividing the market among themselves and freezing out rivals.
The investigation is ongoing, and Medtronic didn’t comment about it. In a 119-page report, Brazil’s Administrative Council for Economic Defense said Medtronic “confessed” to “alleged collusion” as part of a deal to reduce any possible penalty.
And in December 2016, Chinese regulators fined Medtronic’s unit in Shanghai $17 million for price fixing. They found that from 2014 to 2016, the company imposed minimum resale prices on its Chinese retailers and distributors. Such practices, the National Development and Reform Commission said, stifled competition and, by keeping prices high, hurt patients.
Owning the disease
As 2016 dawned, Ishrak was charting a new course for his company. Medtronic wasn’t just selling medical devices anymore. It had begun to manage hospital cardiac catheterization labs and diabetes clinics, overseeing their equipment and supply chains, helping maximize hospitals’ reimbursement payments, providing consulting services and more.
In short, Medtronic was transforming itself into what it called a “one-stop shop” for the medical community, a sprawling enterprise unlike any in the device business. As enthusiastic analysts at PricewaterhouseCoopers put it, in the treatment of cardiac problems and diabetes, Medtronic would “own the disease.”
Ishrak spent that year touring industry events around the world, mingling with government officials and painting a bleak picture of the global health care system as inefficient, costly and in need of reorganization.
At a speech in Cleveland that fall, Ishrak said the medical device industry, and all of health care, had to change. “We’ve seen the cost of health care escalate,” he said. “There’s massive inefficiency in the system, and we feel that, unless that is addressed, the core innovation will start to suffer.”
Medtronic CEO Omar Ishrak.
Courting investors, Medtronic executives argued that the company’s Integrated Health Solutions model a single provider for a range of products and services — would help hospitals tamp down costs and improve healthcare delivery. It also would guarantee good prices on devices and transform Medtronic into a health care titan.
Medtronic agents fanned out to lobby government officials and hospital administrators, pitching an array of proposals to attract patients, improve care and boost income for operating rooms. Lavish gifts for doctors were replaced by other incentives to entice prospective clients: Implant devices, medical equipment and staff would all be provided for free under contracts that hospitals signed with the company. Medtronic would receive a percentage of increased hospital revenue generated as a result of more efficient management.
In 2017 in Toulouse, France, a renowned cardiac center, Pasteur Clinic, signed on. According to confidential documents obtained by ICIJ’s French partner, Radio France, Medtronic would provide the hospital with a state-of-the-art operating room and services such as consulting on patient management and helping to recruit patients from overseas. In exchange, the hospital would pay Medtronic a fee for each medical procedure the hospital completed, according to Radio France. If the hospital sold more than $5 million worth of Medtronic heart valves and other devices, it would receive free or discounted products.
Medtronic, the document says, expected to become the hospital’s primary source of replacement heart valves and to generate $21 million in sales for those devices over three years.
In response to Radio France, Pasteur Clinic confirmed the volume of Medtronic valves it purchased but declined to comment on the financial value of the contract, citing confidentiality.
Ishrak calls such arrangements a win-win for both sides, and some hospital administrators have praised Medtronic for delivering cutting-edge health care while reducing costs and saving money.
One of the first deals was struck in 2013 between Medtronic and the financially strapped Imperial College Healthcare NHS Trust in London. “We’d agree to buy some of [Medtronic products] at negotiated prices, and the more devices we buy, the cheaper they get,” Dr. Kevin Fox, a cardiologist who helped forge the partnership, told the British Medical Journal, ICIJ’s U.K. partner. “We do use a fair amount of Medtronic equipment, but not exclusively,” Fox said.
Five years into the seven-year contract, there’s no real way to measure if the deal has improved care or if the London hospital has saved money, Fox said. He also told the journal he had received speaking fees from Medtronic but declined to say how much money the company paid him.
Some experts say the arrangements create conflicts of interests by tying free staff and better pricing to hospital revenue growth. As a result they can encourage use — or overuse — of Medtronic devices, even when other brands might be better for the patient.
“The profit motive will turn these healthcare systems into cash cows rather than service professions,” said Dr. Nortin Hadler, emeritus professor of medicine at the University of North Carolina at Chapel Hill and author of seven books about health care policy. “I can envision a marketing slogan for my hospital along the lines of ‘What’s good for Medtronic, is good for the patient.’”
Former employees allege similar partnerships already have created incentives for doctors to use more Medtronic cardiac devices and insulin pumps.
In a pending whistleblower lawsuit in federal court in Pennsylvania, Cathleen Forney, a former Medtronic Pennsylvania district manager, said the Medtronic program provided “remuneration in the form of millions of dollars of staffing services to those who made purchasing decisions about Medtronic products.’’
Her lawsuit named doctors in 21 states who she said had illegally billed Medicare for procedures performed by Medtronic staff, including checking and programming patient devices. The system was a form of kickback, Forney claimed, because it allowed doctors to avoid hiring their own staff.
Medtronic said in a court filing that Forney’s lawsuit should be dismissed because giving product support services to doctors and hospitals is not an illegal kickback.
In its statement to ICIJ, the company denied its new model is intended to promote overtreatment or off-label use of its products. Medtronic said it is working closely with regulators and legislators to develop “a responsible and ethical framework” for the partnerships.
So far, Medtronic has sealed about 120 deals valued at $2.6 billion with hospitals in Europe, Canada, Latin America, the Mideast, Africa and the U.S. Customers include University Hospitals in Cleveland, Lehigh Valley Health Network in Pennsylvania and Gbagada Cardiac and Renal Centre in Lagos, Nigeria.
In Italy, some doctors and Medtronic rivals complained to Italian lawmakers that the new business model curbed competition and favored purchases of Medtronic devices. They said that Medtronic’s Italian subsidiary, NGC Medical S.p.A., provided only Medtronic products in some catheterization labs it managed.
In early 2017, Sen. Luigi Gaetti, a pathologist from Mantova, and other lawmakers called Medtronic’s behavior “anti-competitive” and asked government ministers to review the allegations. The Italian antitrust agency is now examining the matter, according to records obtained by Report, an Italian television news program and ICIJ partner.
ICIJ and reporters in Switzerland, the U.K., Italy, Mexico, Canada and the U.S. requested information about the deals from Medtronic’s hospital partners. The hospitals provided only limited information. The Lausanne University Hospital, the New Brunswick Heart Centre and University Hospitals Cleveland Medical Center cited confidentiality clauses in the contracts.
Lehigh Valley spokesperson Brian Downs said that the partnership was too new to share details, but that Medtronic employees weren’t performing patient care.
Medtronic also declined to provide contract details, but it denied that the partnerships stifle competition or hurt consumers. “We do not control or direct health care professionals’ decision-making when it comes to patient care, the indications for procedures, the use of technology in patient care or the selection of specific medical devices,” spokesman Clark said.
People vs. Goliath
On a warm spring day last year, a thick envelope arrived at Joe Gartrell’s house in Orlando, Florida. He brought it inside and told his wife, Mildred: “This must be it.”
They opened it in their bedroom. “It” was an itemized closing statement showing his award, less certain deductions, from his settlement for a Medtronic Infuse operation to correct degenerative disc disease.
Gartrell’s heart sank. His wife’s face looked like “a deer in headlights,” he recalled in an interview. It wasn’t what they were expecting.
Medtronic has moved to resolve the final disputes over off-label use of Infuse. In the decade after the FDA warned about the bone-growth stimulator, reports filed with the agency have linked it potentially to 20 deaths and 10,000 injuries.
I was robbed of the earliest years to hold my children in my arms, help them with their first steps
– Jerome Lew
Last year, the company reached a confidential settlement in a civil racketeering lawsuit brought by U.S. insurer Humana, accusing Medtronic of skewing studies on Infuse. Medtronic also resolved deceptive marketing lawsuits brought by five state attorneys general in the U.S. for $12 million. And it paid $43 million in July to end an investors’ lawsuit alleging that company-manipulated Infuse studies had artificially inflated the stock price.
Medtronic denied wrongdoing in each case. In its statement to ICIJ, the company said it continues to seek new uses for Infuse, calling the product safe, extensively studied and an option for patients requiring certain types of spinal and trauma procedures.
After a hit-and-run accident, in May 2009 Hollywood screenwriter Jerome Lew had Infuse placed in his neck, off-label, along with a cage that also was not approved for use in the neck. The operation, performed by a doctor at the University of California, Los Angeles, with financial ties to Medtronic, left Lew with nerve pain, problems swallowing and hands and arms limp, he said. “I was robbed of the earliest years to hold my children in my arms, help them with their first steps,” he said. Lew, now 55, won an undisclosed sum from the company and $4.2 million from UCLA.
The family of six-month-old Hailey Starr Reuter received a $650,000 settlement from the Cincinnati Children’s Hospital Medical Center for the actions of doctors who operated on the baby. She underwent a cranial procedure with Infuse, which was not authorized for pediatric patients, without her parents’ consent. Infuse caused Hailey’s head circumference to stop growing, her family said, because it caused an area of her skull to fuse prematurely. It led to three additional cranial and facial procedures.
“Her scars now run from one ear to the other ear,” her mom, Tricia, said in an interview.
Gartrell, the 55-year-old former PepsiCo account executive who had received the settlement statement, now walks with a cane. He feels numbness in his legs and can no longer spear-fish or scuba dive.
He was used as a “guinea pig” in the operating room in May 2006, he said, and no amount of money would compensate for what happened to him — but it would help.
Last year, Medtronic reported it had reached agreements to settle most of the 6,000 injury claims relating to Infuse.
Gartrell glanced at the final settlement — $105,000. Then he read through the deductions.
All he really wanted was a big enough check to pay his medical bill. That, he said, and an apology.
After legal fees, expert costs, copying expenses and a litigation loan, he got nothing.
Not even the apology.
Contributors: Cat Ferguson, Emilia Diaz-Struck, Rigoberto Carvajal, Petra Blum, Christian Baars, Paolo Biondani, Laetitia Cherel, Allan de Abreu, Minna Knus-Galan, Caroline Kubzansky, Jeanne Lenzer, Boyoung Lim, Jesse McLean, Marie Parvex, Kaunain Sheriff, Colm Keena, Giulio Valesini, Christoph Giesen, Holbrook Mohr and Elena Kuch.