A lawsuit brought by a former Medtronic lawyer alleges the device maker gave surgeons all sorts of interesting goodies to use its spinal implants, including regular entertainment at a Memphis strip club, trips to Alaska and patent royalties on inventions they played no part in, The Wall Street Journal reports.

The previously undisclosed allegations involve Medtronic’s spinal-devices unit, which has $3 billion in annual revenue, and its dealings with docs who use its implants are being investigated by the Senate Finance Committee over off-label use, the paper writes. The relationships also generated whistleblower lawsuits brought by former Medtronic employees, some of whom also filed complaints against docs (see this back story).

The former Medtronic lawyer’s allegations are contained in a 2002 suit filed in US District Court in Memphis against the device maker and 10 docs, although the lawsuit and other filings remain sealed, except for a heavily redacted copy of the complaint, which contains none of the doctors’ names nor specifics of the allegations, according to the Journal. Here it is.

Medtronic has refused repeated requests from the Senate Finance Committee for an unredacted version, the paper writes, adding that the identity of the plaintiff has been withheld. But an unredacted copy reviewed by the paper indicates she is Ami P. Kelley, a former senior legal counsel for the spine unit. Medtronic declined to comment on the allegations, but says many business practices were changed since the suit was filed and is “committed to reform and transparency in the industry.”

Kelley’s lawsuit says kickbacks were “pervasive” and “the culture and way of doing business” at Medtronic, the paper writes. Sales staff “routinely took physicians” visiting the spine unit’s Memphis headquarters to the Platinum Plus strip club, and picked up the tab for the dancers’ services during “VIP visits.” In 2007, Platinum Plus’s owner pleaded guilty to charges related to dancers engaging in acts of prostitution, and the club has closed.

Kelley’s lawsuit sought to recoup damages for the federal government, which prohibits companies from giving doctors inducements to use products covered by Medicare or Medicaid. Her lawsuit and a separate one that also accused the spine unit of paying illegal kickbacks to doctors were the basis for a $40 million settlement deal between Medtronic and the government in 2006, according to the settlement document.

As part of its deal with the company, the government successfully moved to have the federal court dismiss the two lawsuits. But the other plaintiff, Jacqueline Kay Poteet, who formerly managed travel services for the Medtronic unit, has appealed the dismissal of her suit, arguing the settlement was too small. Under federal law, whistleblowers who recover money for the government can receive a share of that money. Her appeal puts the settlement deal at risk. Either Medtronic or the government could pull out of the settlement if the appeals court reverses the dismissal order.

It isn’t clear what would happen to the Kelley lawsuit if the settlement agreement were voided. Neither the government, Kelley’s attorneys nor Medtronic would comment. Nor is it clear why the lawsuit remains under seal. Typically, such suits are unsealed when the government either declines to get involved in the matter or agrees to a settlement of the case. Kelley, who now works at another company, alleges she was dismissed by Medtronic after challenging improper payments. She didn’t return phone calls.

The Kelley lawsuit names several top spinal surgeons among the 10 doctor defendants and lists several others as receiving inducements. No finding of wrongdoing has been made against any of the doctors, and Medtronic denies that it engaged in any improper behavior.

The suit says surgeon Jeffrey Wang, now director of the University of California at Los Angeles’s Comprehensive Spine Center, “liked to be taken” to Platinum Plus and e-mailed Medtronic sales official Brad Hancock saying he was “looking forward to going” to the club with him. A UCLA spokeswoman tells the paper Wang, who isn’t named as a defendant in the suit, “denies ever being entertained by Medtronic at the Platinum club” and doesn’t recall sending the e-mail. If he did send it, she said, “it would have been done so in jest.” Hancock no longer works at Medtronic and couldn’t be reached.

Kelley’s suit said Medtronic had consulting agreements with more than 100 surgeons that were “nothing more than a vehicle to pay the surgeons” to use Medtronic devices, instead of rival products. How so? Kelley alleged Medtronic paid patent royalties to docs who didn’t contribute novel ideas to products, created Web sites for them to market their practices, hired business consultants that helped doctors boost profits. She also clamied Medtronic offered twice-a-year seminars in Orlando and Las Vegas where docs and hospital administrators received free management advice, and supplied physicians with office staff.

Among the surgeons named in the suit is Hallett Mathews, of Richmond, Virginia, who Kelley claimed was paid $450,000 a year under a consulting agreement. In quarterly reports filed with Medtronic, she alleged, Mathews would count his surgeries as time spent doing consulting work for Medtronic. The lawsuit also alleges Medtronic provided Mathews with a Medtronic credit card. Last year, Mathews went to work for Medtronic, where he is vp of medical and clinical affairs. A Medtronic spokesman declined to comment on the allegations because the suit was sealed.

Medtronic says it overhauled its code of conduct in 2004 to include tougher guidelines on relations with physicians.

Kelley alleges Medtronic sent physicians on lavish trips under the guise of medical conferences, but where little work was done. Her complaint claims that on a five-day, all-expenses-paid trip to Alaska in 2001, which was billed as a “think tank,” doctors were supposed to present case studies. But, according to the complaint, little discussion of the case studies took place. One doctor scheduled to give a talk stood before the group, “said he was sorry, but he had not prepared anything,” and “drinking then commenced in place of discussion,” Kelley claimed in the suit.

There are more examples, so here is the complete story…