Announcement of OtisMed Settlement
Remarks as Prepared for U.S. Attorney
Paul J. Fishman December 8, 2014

Good afternoon, and thank you for
coming. I’m Paul Fishman, the U.S.
Attorney for the District of New
Jersey. With me are Jonathan Olin,
the Deputy Assistant Attorney
General for the Department’s Civil
Division in Washington; Tom
O’Donnell, Special Agent in Charge
of the New York Regional Office of
the Inspector General for the
Department of Health and Human
Services; and Brian Rudolph, the
Special Agent in Charge of the
Washington Field Office of the
FDA’s Office of Criminal
Investigations.
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 This morning, the OtisMed
Corporation – which is now a
division of Stryker – pleaded guilty
to violating the criminal provisions
of the Food, Drug, and Cosmetic
Act. That felony guilty plea was
the result of a lengthy investigation
and is part of a comprehensive
resolution that requires the
company to pay more than $80
million for illegally marketing a
surgical guide. In addition,
OtisMed’s former CEO, Charlie Chi,
admitted to related crimes.
This case – and the guilty pleas –
relate to the company’s marketing
of a surgical guide called the
OtisKnee. That device, which you
can see on the video that is an
exhibit to the papers filed in court
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 this morning, is inserted into the
knee of a patient needing a
replacement. It attaches to the
two bones – the fibula and the tibia
that meet at the knee and shows
the surgeon where to cut. Each
guide is different, and is custombuilt for the particular bone
structure of the patient.
The trouble began in 2006 when
OtisMed chose not to seek FDA
approval for the device. Over the
next three years, through the fall of
2009, OtisMed sold more than
18,000 OtisKnees without that
approval. In total, those sales
generated more than $27 million in
revenue.

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 In the fall of 2008, while those
sales were going on, OtisMed
actually finally did file an
application with the FDA. But on
September 2, 2009, the FDA sent a
letter denying that application.
And the FDA was crystal clear:
OtisMed had failed to demonstrate
that the OtisKnee was
appropriately safe and effective. In
the language of the FDA, the
OtisKnee was classified as a
“significant risk device system,”
meaning it presented a potential
for serious risk to the health, safety
or welfare of patients.
Without that approval, the
company was prohibited from
marketing or distributing the
device. Charlie Chi, who was the
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 president and CEO of OtisMed,
understood exactly what that
meant. And he was worried about
the reputation of the company and
its device if it stopped shipments to
doctors who were planning to use
the OtisKnee in upcoming knee
replacement procedures. He also
was worried about the company’s
future.
So what did he do? Against the
explicit advice of the Board of
Directors and the company’s
lawyers, Chi ordered his employees
to send a mass shipment of the
cutting guides to surgeons across
the United States. Just one week
after the FDA rejected the
application, the company shipped
218 guides. The company didn’t
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 tell the surgeons who received and
then used them about the FDA’s
decision. That kind of flagrant
disregard for the FDA – and for the
safety of patients – cannot be
ignored.
That explains the magnitude of
today’s settlement. The $80
million payment we are requiring of
OtisMed, which is made up of
criminal fines, forfeiture, and a civil
penalty, is nearly three times the
total revenue – not profit, but
revenue – that OtisMed received
from all the OtisKnees they ever
sold. We insisted on this resolution
to make the point that crimes of
this kind literally do not pay.

6

 In addition to the money, Stryker,
the corporation that acquired
OtisMed, will be required to adopt
serious, forward-looking
compliance measures to ensure
something like this doesn’t happen
again.
But this isn’t just about the
company and it’s not just about the
money. Our office is committed to
bringing criminal charges against
individuals, particularly high
ranking executives, whenever it’s
appropriate, even in – in fact,
especially in – the context of largescale corporate cases. And that’s
why Charlie Chi faces up to three
years in prison when he is
sentenced on March 18th on his
guilty plea to three counts of
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 introducing adulterated medical
devices into interstate commerce.
Working together, we in federal law
enforcement are ensuring there are
serious consequences for
companies and individuals who put
their profits ahead of the FDA’s
commitment to keep us safe.
Corporations don’t get to substitute
their judgment for that of the
experts.
I want to thank our partners in the
Justice Department’s Civil Division;
the FDA’s Office of Criminal
Investigations and Office of Chief
Counsel; and the Health and
Human Services Office of Inspector
General for their dedication to this
investigation and this area of
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 enforcement. I also want
acknowledge the two Assistant U.S.
Attorneys who led the investigation
for us – Jake Elberg, the Chief of my
Office’s Healthcare and
Government Fraud Unit, and
Charles Graybow, together with
Ross Goldstein of the Department’s
Civil Division.
*************
Now I’d like to introduce Jonathan
Olin, Deputy Assistant Attorney
General from the Department’s
Civil Division in Washington.
Tom O’Donnell
Brian Rudolph
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Before we open the floor, I just
want to add a couple of thoughts.
It is vital that products like the
OtisKnee are subjected to the
appropriate level of scrutiny.
Patients seeking medical care are
vulnerable; they are often afraid,
and in pain. They should be able to
trust their doctors. And they
should be entitled to trust that the
devices their doctors are using are
safe, effective, tested, and
approved. OtisMed and Charlie Chi
betrayed that trust.

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 This is the latest in a string of
significant corporate prosecutions
in this District. Corporations and
individuals have paid more than
$620 million in health care and
government fraud cases since I
became U.S. Attorney.
Corporations have pled guilty and
agreed to substantial internal
reforms. And we have convicted
more than 50 doctors, nurses and
physician assistants – as well as a
number of individuals who falsely
claimed to be medical
professionals. As long as there are
those who are willing to abuse our
health care system for illegal profit,
we will be there to protect patients
and their families who deserve
better.
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 We?re happy to take your
ques?ons.

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