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Chan’s Sentence; Industry’s Lessons
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By Walter Eisner
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April 8, 2008
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Dr. Patrick Chan was sentenced on April 3 after admitting to demanding and receiving kickbacks for using specific spinal devices. What punishment did U.S. District Court Judge Susan Webber Wright dole out to the convicted felon in the 40-minute sentencing hearing? Go to Canada to get a visa, pay $59,000 in fines and restitution, and promise to be good for three years. Yeah, you read that right. At a time when the entire orthopedic medical device industry is under the brightest spotlight in its history from federal prosecutions, monitors, and congressional hearings, the one surgeon who has actually been convicted of taking bribes gets sent to Canada by the judge who dismissed Paula Jones' sexual harassment lawsuit against President Bill Clinton in 1998. Chan: “I’m Sorry” On the other hand, Chan didn't get off unscathed. He no longer has a license to practice medicine in Arkansas, he is estranged from his family, his career is over in the U.S., and he paid over $1.5 million when the qui tam (whistleblower) lawsuit against him was settled. He has spent the last 20 months in home incarceration and the feds are keeping $2 million of his bail in the bank to make sure he comes back from Canada to comply with the terms of his probation and cooperate in continuing lawsuits and federal investigations. Chan’s current situation and past three years under the national spotlight are sure to give any surgeon pause to wonder if the benefits of a little extra cash for using a specific device are worth the cost. Chan told the court, “I'm truly sorry for what I did, I've suffered significantly. I've lost my career.” Chan also said he hadn't seen his wife or children since his arrest in September 2006 and that there was a rift between himself and his wife. According to the indictment, Chan received his first payment of $3,000 in January 2004 and received as much as $8,000 a month in kickbacks until June 2006. Federal agents arrested Chan in September 2006, accusing him of defrauding Medicare and Medicaid through the scheme. He put up $4 million cash and a $290,000 property bond to be released to await trial under house arrest and while wearing an ankle bracelet monitor. Three civil suits were subsequently filed against Chan in White County, Arkansas, claiming he received $1 million in stock options. Chan reportedly said at the time of his arrest that he was worth $10 million. We don't know anything about Chan's personal finances, but after paying fines and putting up bail, that still leaves a fair chunk of change in Chan's pockets if he started with $10 million. A Light Sentence? The obvious question looming is: What did the feds get from Chan for the seemingly light sentence? That question was partially answered at the sentencing. Warren Watkins, Managing Editor of Chan's hometown newspaper, The Daily Citizen, attended the sentencing and reported that Assistant U.S. Attorney Karen Whatley told the judge, “On two occasions, Chan has had very lengthy debriefings with the FBI and office of Inspector General, and provided information to investigators.” Chan had faced up to five years in prison, but Judge Wright noted that Chan had cooperated with federal agents after his arrest. Chan also faces a number of civil lawsuits involving patients who claim he performed unnecessary surgeries or used devices based on his illegal kickback scheme. Michael Mitchell, who is one of whistleblower John Thomas' attorneys, told the court, "He has information for the other defendants in the kickback scheme. The case was settled for Dr. Chan, but is proceeding against Blackstone, the device manufacturer, who we contend was paying kickbacks to Chan.” Blackstone Medical, a division of Orthofix, has told OTW that the device salesperson involved in the kickback scheme, Kelly Yielding, was not acting on behalf of the company and it is defending itself vigorously. Deportation, Depositions, and Civil Suits Chan is a dual citizen of Malaysia and Canada and was in the United States on a work visa. Since he's not working, his visa has expired and he is subject to deportation. If he is deported, he cannot return to the United States and fulfill the conditions of his probation or be compelled to be deposed for the civil cases. To avoid that situation, the judge, reported Watkins, said, “I will permit Dr. Chan to go home to Canada, not because I want to be lenient but because I believe if I don't, he will be deported. I'm going to direct him to leave this country immediately.” The order for Chan to immediately leave the country made the civil case attorneys very nervous about getting his depositions. Brandon Clark, an attorney representing one of the couples involved in a civil suit against Chan and in attendance at the sentencing, told us that Judge Wright allowed one of the attorneys for the qui tam Relator, John Thomas, to state on the record that they had received no cooperation at all from Dr. Chan and that he continued to assert the 5th Amendment in response to questions from them and requests for documents. Clark said the same had been true in their civil action on behalf of Leslie Rollins and wife, Ashley, in which Chan has consistently invoked the 5th Amendment to avoid answering any questions about his relationship with Blackstone Medical. David Ivers, another qui tam attorney for Thomas, informed OTW that his firm had filed a motion on April 2 for court approval to amend their complaint. "The complaint," wrote Ivers, "if approved, will remove Synthes as a defendant and will provide more details about specific surgeries that were tainted by [alleged] kickbacks paid by Blackstone and their agents." After that motion was filed, Ivers said the judge entered an order that allows the qui tam attorneys to depose Dr. Chan. They had previously requested permission from the judge to depose Dr. Chan now, without waiting on a discovery scheduling order, because of their concern that he would flee the country once he is sentenced. Dr. Chan was served with the subpoena for his deposition at his sentencing hearing. Clark told us, "The Court's reason for not allowing the private victims of Chan's misconduct to be heard in connection with his sentencing was that the civil actions require a finding that Chan committed medical malpractice in performing unnecessary surgeries, a finding not required in the criminal proceedings where the ‘victims’ are Medicare and Medicaid, and the medical malpractice victims have not yet established through adjudication that they were in fact victims”. “Judge Wright was clearly very attuned to the fact that there are numerous civil actions pending against Chan in state court, and that he should be required as a condition of the disposition of his criminal case to cooperate fully in returning to the United States in order to allow those various state court proceedings to go forward and be resolved," Clark concluded. In fact, the judge noted explicit requirements of Chan’s sentencing that he:
Finally, the official order noted that, “to ensure cooperation in ongoing proceedings and his appearances in the U.S. for purposes of the litigations and to meet with a probation officer, the Court will not release the $2 million on deposit with the Registry of the Court or release the lien on defendant's home and imaging machine.” Clark said, "The Court did an admirable job of attempting to balance the competing interests of the parties to the proceeding, as well as taking account of the interests of those who were not direct parties but who would be directly affected by the terms of her decision, i.e., the civil litigants with cases against the former neurosurgeon." Dr. Chan's civil attorneys, said Clark, have indicated that Chan “has been asked by authorities in Massachusetts investigating Blackstone Medical to testify before a grand jury in that state.” As of April 2, however, a subpoena had not been issued to require that appearance. Clark believes that there apparently is ongoing discussion between Chan's lawyers and prosecuting authorities in Massachusetts regarding possible immunity from prosecution for Chan if he testifies. Synthes Out – Blackstone Remains With the possibility of Synthes being removed from the whistleblower suit, that leaves Orthofix's Blackstone as the biggest name to be allegedly linked to Chan. Clark said that according to information provided by Blackstone, “Chan received $1,080,000 in stock less the purchase price of $225,000 for his alleged consulting services. He also paid an additional $50,000 for another 10,000 shares of stock in September of 2006, thus netting him another $40,000 in profit. All of the stock value was in addition to cash payments, royalties, honoraria, expense reimbursements and at least one study grant, creating a very handsome compensation package for Dr. Chan of well in excess of $1 million.” Clark continued, “While continuing to deny that Dr. Chan's compensation was connected with sales of Blackstone products, [Blackstone] admitted that over the period from 2002 to 2006 while Dr. Chan was ‘consulting’ for the company, he generated sales of Blackstone spine products used in his surgeries in the total amount of $2,895,737.25. Thus, a jury will ultimately be asked in our case to determine whether at least one purpose of paying Dr. Chan over $1 million was to secure the sale of $3 million in Blackstone products.” Industry’s Lesson The continuing Chan saga is a long way from over if the whistleblower suit continues against Blackstone, among others, and the three civil cases in Arkansas find that Chan committed medical malpractice by performing needless surgeries and taking kickbacks to implant devices not necessarily in the best interest of his patients. The evidence gathered from Chan’s cooperation with federal agencies, which continue to investigate Blackstone, and depositions yet to come from the civil cases will no doubt feel like Chinese water torture to the defendants in the ongoing lawsuits. Most importantly, the bright light shining on Chan, distributors, and device companies from this case may usher in a new era of compliance and monitoring of the relationships between spine surgeons and manufacturers in the same way we’ve seen a monitoring program impact the hip and knee market. In an industry that allows a small start-up spine company to survive with only a few surgeon customers, the temptation for securing business in any way possible is powerful. Chan didn’t go to jail or pay a huge fine. But he has become a useful tool and example to put the spine industry on notice to find ways to assure that their relationships with spine surgeons can stand the light of day.
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