Medical Device Imports and the False Claims Act: Transfer Pricing, Assists, and the Classification Thicket

The United States imports more than $60 billion in medical devices annually, a figure that has grown rapidly as multinational device companies have shifted manufacturing operations to Ireland, Germany, Costa Rica, and other countries. Massachusetts alone imports nearly $5 billion a year in optical, medical, and surgical instruments—driven by the enormous life sciences cluster anchored in Greater Boston. Much of this trade is between related parties: a U.S. parent company importing from its own foreign subsidiary, or a foreign parent importing through its U.S. affiliate. That related-party structure, combined with the genuine complexity of classifying medical devices across multiple HTSUS headings and the obligation to declare the value of assists like engineering and tooling, creates a distinctive set of customs fraud risks.

Chapter 90: A Sprawling Classification Landscape

Medical devices are classified primarily in Chapter 90 of the HTSUS, which covers optical, photographic, measuring, and medical or surgical instruments. The chapter spans headings 9018 through 9022, each covering a distinct product type: heading 9018 for medical, surgical, dental, and veterinary instruments (including syringes, endoscopes, and electro-medical apparatus); heading 9019 for mechano-therapy and massage apparatus; heading 9021 for orthopedic appliances, artificial joints, hearing aids, pacemakers, and prosthetic devices; and heading 9022 for X-ray, CT, MRI, and radiation therapy equipment.

Many of these subheadings carry duty rates of zero percent or very low rates. This might suggest that medical device imports present little customs fraud risk. But that assumption is wrong for several reasons. First, not all medical devices are duty-free; duty rates in Chapter 90 range from zero to approximately 8 percent depending on the subheading, and the difference between a dutiable and duty-free classification can be significant at the volumes imported by major device companies. Second, and more important, the primary fraud risk in medical device imports is not classification gaming to avoid ad valorem duties—it is transfer pricing manipulation and the failure to declare assists. These are valuation frauds, and they generate FCA liability regardless of whether the applicable duty rate is 2 percent or 20 percent.

The Related-Party Problem: Ireland and the $1.9 Billion Question

Ireland is the single largest source of medical device imports into the United States. In 2024, Massachusetts alone imported approximately $1.9 billion in optical and medical instruments from Ireland—a figure that dwarfs every other product-country combination in the state’s import profile. Nationally, Ireland’s medical device exports to the United States run into the tens of billions of dollars annually.

This concentration reflects a well-known structural feature of the global medical device industry. Companies like Medtronic, Stryker, Boston Scientific, Johnson & Johnson, and Abbott have established major manufacturing operations in Ireland, drawn by favorable corporate tax rates and an established regulatory infrastructure. When Medtronic’s Irish subsidiary ships artificial joints to Medtronic’s U.S. distribution arm, the transaction price is a “transfer price”—a price set between related parties that may or may not reflect an arm’s-length market value.

Under 19 U.S.C. § 1401a, imported merchandise must be appraised at its “transaction value”—the price actually paid or payable for the goods when sold for exportation to the United States—but the transaction value method may only be used if the relationship between the buyer and seller did not influence the price. When CBP examines a related-party transaction, it applies the “circumstances of the sale” test to determine whether the transfer price is acceptable. If the relationship influenced the price—that is, if the goods were sold at an artificially low transfer price to minimize U.S. customs duties—the transaction value is rejected, and CBP must appraise the goods using an alternative method.

The incentive to understate transfer prices on medical device imports is real. Even at a low duty rate, a company importing hundreds of millions of dollars in devices can save millions by shading the declared value downward. And because the transfer price simultaneously affects both customs duties (where a lower price reduces duties) and income taxes (where a lower import price increases U.S. taxable income), the incentive structure can create internal tension within a multinational: the tax department may want a higher transfer price to shift profits offshore, while the customs department may want a lower transfer price to reduce duties. The result is sometimes an inconsistency—a company that tells the IRS one thing about the value of its intercompany transactions and tells CBP something different.

Undeclared Assists: Engineering, Tooling, and Design

The second major valuation risk in medical device imports is the failure to declare assists. Under 19 U.S.C. § 1401a(h), an “assist” includes engineering, development, artwork, design work, plans, and sketches undertaken in the United States and necessary for the production of imported merchandise, as well as tools, dies, molds, and similar items furnished by the buyer for use in producing the imported goods. The value of assists must be added to the transaction value and declared on the customs entry.

Medical device manufacturing is extraordinarily engineering-intensive. A U.S. device company that designs an implant in its Boston R&D lab, develops the manufacturing specifications, creates the CAD models, tests prototypes, and then sends the production package to its contract manufacturer in Ireland or Costa Rica has provided assists whose value may be substantial. If the cost of that U.S.-origin engineering and design work is not apportioned to the customs value of the imported devices, the declared value understates the true dutiable value—and every understated entry is a potential false claim.

The Linde case illustrates how this theory works in practice, albeit in a different industry. Linde GmbH, a German industrial engineering company, paid $22.2 million to settle FCA allegations that it misrepresented the nature, classification, and valuation of imported materials used in building natural gas and chemical plants. Among the allegations: Linde failed to report raw materials and components—“assists”—that it provided to overseas manufacturers. Linde shipped raw materials to foreign vendors, who manufactured and assembled the products for importation into the United States, but Linde did not include the cost of those materials in the customs entry forms. The whistleblower, a former purchasing and logistics manager, received approximately $3.7 million.

The Linde fact pattern translates directly to the medical device context. A device company that provides polymer resins, titanium alloys, or specialized coatings to its contract manufacturer overseas—or that furnishes proprietary molds, jigs, and production tooling—must declare those items as assists. A company that provides CAD files and engineering specifications developed at significant expense in the United States must apportion the cost of that development work to its imported goods. The failure to do so is not merely a technical violation; it is an undervaluation of the imported merchandise that reduces the duties owed to the United States.

Classification Across Chapter Boundaries

While transfer pricing and assists are the primary fraud risks, classification issues also arise in medical device imports. The boundaries between Chapter 90 headings can be ambiguous: Is an electro-mechanical surgical tool a “medical instrument” under heading 9018, or a “machine” under Chapter 84? Is a disposable catheter tip an article of plastics under Chapter 39, a part of a medical instrument under heading 9018, or a component of an orthopedic system under heading 9021? The classification determines not only the duty rate but also whether the product qualifies for preferential treatment under a free trade agreement.

The HTSUS notes to Chapter 90 address some of these boundary questions—for example, articles specially designed for use exclusively in implants are classified in heading 9021 regardless of their constituent material—but the notes do not resolve every case. A company that systematically classifies borderline products in the lower-duty heading, without obtaining CBP ruling letters or performing the required GRI analysis, generates the kind of pattern that can support an FCA misclassification claim.

What Employees Should Watch For

The medical device import chain involves R&D engineers, supply chain managers, regulatory affairs professionals, customs brokers, and finance and tax personnel. Employees at any point in this chain may observe indicators of customs fraud:

Inconsistencies between transfer prices and market prices. If a device that sells for $5,000 in the U.S. market is imported from an affiliated manufacturer at a declared value of $500, the transfer price may be artificially depressed to reduce customs duties. Regulatory filings, internal pricing studies, and arm’s-length comparables may document the discrepancy.

Engineering and design costs that never appear on customs entries. If the U.S. parent’s R&D team spent millions developing a device and sent the production specifications to an overseas contract manufacturer, but the customs entries reflect only the contract manufacturer’s invoice price, the assists have not been declared.

Tooling and molds shipped overseas without corresponding customs adjustments. Production molds for injection-molded device components, CNC tooling for machined implants, and test fixtures provided to overseas manufacturers are all assists whose value must be included in the customs value.

Conflicting valuations between tax and customs filings. A company that reports high transfer prices to the IRS (to shift income offshore) but low declared values to CBP (to reduce duties) has a fundamental inconsistency that cannot be reconciled—and that, if knowing, satisfies the FCA’s scienter standard.

The medical device industry’s combination of high import volumes, related-party structures, engineering-intensive production, and global manufacturing makes it a sector where valuation fraud can accumulate to very large sums even at modest duty rates. If you have information about potential customs fraud involving medical device imports—including transfer pricing manipulation, undeclared assists, or systematic misclassification—an experienced customs fraud and False Claims Act attorney can evaluate your information in a confidential consultation.