St. Jude Medical Inc. and two hospitals have to pay up almost $4 million after a whistleblower alert to an alleged kickback scheme.

The St. Paul, Minn.-based pacemaker manufacturer and two hospitals paid the United States $3,898,300 after settling allegations the company gave the hospitals kickbacks so they would buy their equipment, the Department of Justice said today.

The DOJ accused the medical device company of giving "rebates" to the hospitals based on prior purchases of their equipment, as well as helping to pay for competitors' equipment to encourage the hospitals to buy theirs in the future.

St. Jude had to cough up around $3.7 million, while Parma Community General Hospital in Parma, Ohio shelled out $40,000, and Norton Healthcare in Louisville, Ky. paid $133,300.

"Hospitals should base their purchasing decisions on what is in the best interests of their patients," Tony West, assistant attorney general for the civil division at the DOJ, said in a statement. "We will act aggressively to ensure that choices about health care are not tainted by illegal kickbacks."

Under a contract with Parma, St. Jude Medical allegedly offered discounts based on the percentage of heart-device products the hospital purchased from the company, according to settlement documents obtained by DOTmed News.

The Ohio hospital would earn rebates or discounts on St. Jude products "if it gave SJM 90 percent of its annual usage of mechanical heart valves, 80 percent of its annual usage of conventional pacemakers, and 50 percent of its annual usage of conventional implantable cardiac defibrillators (ICDs)," read the documents.

While awaiting U.S. Food and Drug Administration approval on two heart-device products, St. Jude Medical also allegedly offered rebates for a competitor's products, provided the hospital met purchasing targets for the company, according to the documents.

St. Jude entered into a similar contract with the Kentucky hospital, allegedly paying rebates to reward "market share targets," according to the documents.

The suit was brought by whistleblower Jerry Hudson, who under the False Claims Act stands to pocket $640,050 of the settlement. Hudson was an employee of St. Jude Medical, a spokesman for the DOJ told DOTmed News. According to the settlement, Hudson was St. Jude's regional sales manager for northeast Ohio from February 2004 through September 2005. He brought the case to the DOJ in 2006, the agency said.

In a statement sent to DOTMed, St. Jude said in the settlement the company did not admit to any liability or wrongdoing.

"The allegations centered on small, isolated product rebates that the company paid more than five years ago," St. Jude said. "The company entered into a settlement agreement in order to avoid the potential costs and risks associated with litigation."

Thanks to enforcing the anti-fraud act, the DOJ says it has recovered nearly $3 billion since January 2009.

St. Jude's stocks dipped 3.16 percent to reach $36.79 in recent trading Friday.

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