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The latest fraud in MedTech

The latest fraud in MedTech

Digging into the mechanisms behind the fraud of StimWave

Federica Montrone
June 26, 2024

As you may remember from the story of Theranos that was reported in a previous issue, a couple of years ago Elisabeth Holmes was sentenced to more than 11 years of prison for defrauding the company’s investors

Apparently, the message conveyed through that sentence was not strong enough to prevent another fraud in the medical industry from happening again.

A new case comes from the (now defunct) company StimWave, a medical device company for neuromodulation formerly based in Florida. StimWave was active from 2010 to 2022 when the company declared bankruptcy.

The former CEO of Stimwave Technologies was recently found guilty of committing healthcare fraud for her role in creating and marketing an implantable neurostimulation device that contained a non-functioning component.

In 2017 the company commercialised StimQ, a neuromodulation system used as an alternative to opioids to treat chronic pain. The device consisted of a lead, an external charger and an implanted receiver. After it became known that the receiver had problems during implantation in some patients, the fraud story began.

To continue the commercialisation of the product, a dummy alternative to the receiver was manufactured.

The only difference? It fit the physician’s request but it was not functional.

How on earth did this happen again?

Let's dig into 3 key aspects that drove and facilitated another fraud crippling the MedTech industry.

User need (recklessly) lost in translation

Creating a medical product eventually means selling it. To do so a medical manufacturer has to consider the point of view of the final user, whether it is a patient, a physician or another stakeholder. In this case, the physician's need was to fit the receiver into smaller anatomical spaces otherwise the device would have not been implanted for those patients and hence not sold.

This is a great example of how NOT to implement user needs. User needs shall be implemented to the benefit of the patient’s health. Failing to satisfy them means failing a crucial part of the development. In this case, what could have been a key input for a new development was turned into a chance to recklessly sell non-functioning products. Eventually, many patients were undergoing useless surgery to get dummies implanted without gaining any benefit or treatment for their chronic pain.

Reimbursement code

To sell the product in the US market a company has to deal with the complex American healthcare system and think about a reimbursement strategy very early on, almost from the conception of the device. If no reimbursement strategy is viable the device is practically not worth being developed or it will be extremely difficult to sell, because physicians will be less likely to choose it.

The chosen reimbursement code also drives commercial strategy and the StimWave case is a bad example where the company forced the "development" of the dummy device so as not to lose the financial opportunity to sell the device with the most lucrative reimbursement code.

In this case, the receiver was key to the fraud because it allowed the device to get the highest reimbursement as compared to the lead CPT code.

FDA gaps

While Theranos was able to exploit some FDA loopholes to commercialise their product, this was not the case for StimWave. The company had already obtained FDA clearance in 2017 for the StimQ system, which was commercialised and regularly implemented. When prompted by the physician about the difficulty of inserting the receiver into some patients, the company produced an alternative dummy which was never submitted to FDA. This dummy was similar to its former twin, except it was not functional. In addition to that, the company circumvented its SOPs for engineering change requests, hence commercialising the product, without any internal review and additional verification and validation being conducted.

All in all, this is yet another sad story of a CEO putting their financial interest above the patients’ health.

This is not just bad news for StimWave investors, employees and patients but for the entire field as it endangers the fundamental trust required to bring innovation to life. The only silver lining is that it has become much harder to get away with it, with sentences reinforcing the message that fraud in general, but especially in healthcare, cannot be tolerated for any reason.

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