MiMedx: Relabeled Product, PODs, and Indicted Distributors

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Since last year, we have focused on uncovering the pervasive fraud that we believe is taking place at MiMedx.  Extensive evidence has emerged of channel stuffing, Medicare and coding fraud, anti-kickback violations, undisclosed related party transactions, and the systematic harassment of whistleblowers. This report specifically exposes how MiMedx relabels product as a means to provide kickbacks and induce sales at the expense of patients.

Our last report examined the undisclosed manufacturing problems uncovered by FDA investigators involving Amniofix Injectable.  Although this product is not FDA approved and has no legal basis to be sold, it is being falsely marketed to unsuspecting patients as a Stem Cell therapy (the product contains no stem cells).

We subsequently learned that MiMedx is secretly relabeling Amniofix injectable as “Amniovo” for distributors and agents to sell (below).

Invoices demonstrate that a Texas distributor named L2 Surgical has been selling relabeled Amniovo to Hospitals (above). According to a whistleblower, L2 has sold a substantial amount of MiMedx product. Two individuals behind L2 Surgical were indicted by the DOJ as part of a “massive conspiracy” at Forest Park Medical Center.  Also last year, United Healthcare accused the pair’s NextHealth group of companies of engaging in a fraudulent billing scheme and is seeking $100 million in damages.

Note: You should assume that all individuals/entities mentioned in this report deny the allegations and have not been found guilty of any crimes.  Above 1: DOJ Indictment Above 2: Qui Tam Suit filed against L2.   

The fundamental question is why MiMedx is relabeling product for distributors such as L2 to sell? MiMedx has invested a considerable amount of time and money to try and build name recognition for its products, so what possible advantage could distributors gain by selling MiMedx under obscure brand names?

Whistleblowers we spoke with revealed that MiMedx relabels product as a means to provide kickbacks to doctors through Physician Owned Distributors (“PODs”), entities that the HHS OIG has declared as “inherently suspect” in a special fraud alert.  The PODs purchase the relabeled MiMedx product at deep discounts and then sell it to their hospitals/patients at multiples of the current MiMedx list prices.  These illicit profits are then split between the doctors, distributors and, the whistleblowers suspect, the MiMedx sales executives who coordinate these activities.

For example, invoices show that L2 charges $3,366 for one unit of Amniovo 0.5ml injectable, a price that is more than 6 times the equivalent MiMedx list price for Amniofix 0.5ml injectable (below). The relabeling enables the PODs to overcharge because it obscures the true identity of the product from hospital administrators who would otherwise recognize the discrepancy. The whistleblowers explain that biologic products are especially well-suited for this type of scheme because there are so many different products and applications that it is very difficult for administrators to keep track of.

We have reviewed whistleblower documents which allege a variation of this scheme involving a different ring of MiMedx agents:

This instance of fraud begins with the delivery of MiMedx’s AmnioFix 40mg injectable product (the “AmnioFix Injectable”) to a [Hospital] operating room.  An Independent Distributor working for a POD makes this delivery, and the physician in the operating room who is about to use the AmnioFix Injectable (the “Surgeon”) is an investor in the POD… After the Independent Distributor falsifies this Tissue Form – and after the Surgeon implants the tissue in question – a representative of [Hospital’s[ Materials Management department signs off on the Form and authorizes payment to the POD.    As a result of this single transaction, the POD – which employs the Independent Distributor, and in which the Surgeon is an investor – therefore received $2,700 in excess payment.  Moreover, because [Hospital] subsequently billed Medicare or Medicaid in this (and almost every other) instance, Medicare or Medicaid ultimately made this excess payment.  This is textbook Medicare/Medicaid fraud.

Details of how PODS are created emerged in suits filed against L2 by Qui Tam relators and a surgeon that L2 allegedly created a POD for. According to the suits, L2 was able to entice doctors into creating these entities by demonstrating the profitability of owning a POD. Afterwards, doctors would instruct hospitals to purchase products and L2 would “shuffle the billing between PODs” and then split the profits.

Our research leads us to conclude that MiMedx utilizes PODs as means to catalyze sales and induce usage.  The problem for patients is that they are being injected with unapproved MiMedx products principally because their doctor can make a lot of money from them.  We learned that MiMedx products are also being relabeled under a variety of other names including “AmbioChoice”. In fact, MiMedx sued after we first profiled AmbioChoice in a September report that highlighted the product’s ties to Fuse Medical, a POD owned by prominent podiatrists. Bill Cochrane, a former MiMedx National Sales Director who now works with MiMedx distributors including Fuse, told us last summer that AmbioChoice is “my private label” and is used to “defend our price points”.  MiMedx denied the existence of this relabeling agreement in court documents even though the company’s own FDA Tissue Bank filings report storing it (and we’ve publicly posted photos of the product).

MiMedx has also denied having any involvement with PODs and is now attempting to distance itself from the activities of its agents and distributors. But whistleblowers tell us that company executives are so defensive because they have orchestrated these activities themselves, also explaining why former MiMedx sales executives were placed in control of key distributors and sales agencies.

At minimum, a lengthy series of emails makes clear that senior MiMedx executives (including Bill Taylor) play an active role in day to day affairs of distributors and agents. It is therefore inconceivable that senior management is not aware of these activities or that this is simply a matter of “rogue employees” or agents.  For example, Jerry Morrison, a then-current MiMedx Sales Director who now manages SLR Medical (a large MiMedx distributor) states that “we have trained 7 reps from Delano Medical”. Corporate records indicate that Delano has PODs, which is problematic because it supports allegations that MiMedx trains agents how to create them. The email goes on to discuss how the agents were allegedly kicked out of a hospital after being caught smuggling MiMedx product in a backpack. Bill Taylor states that “I know the sub-distributor did things he/she shouldn’t have” before encouraging the team to do “the right thing” and continue to work the distributor.