Olympus to fork over $646M to DOJ over bribery scandal in largest-ever medical device settlement

The largest distributor of endoscopes in the U.S., Olympus, has settled with the U.S. Department of Justice (DOJ) for $646 million over a series of criminal and civil charges that state it rewarded and won business by making illegal payments to doctors and hospitals. In addition, the company has an ongoing compliance burden to demonstrate that it is not continuing such activities. The DOJ sees this as a systemic problem that it must continue to address within the medical device industry.

The settlement is the largest amount ever paid by a medical device company, according to a statement from the law firm that represented the whistleblower in the case, who was Olympus' former corporate compliance officer. Ironically, he was the first to hold that position at the company and he was fired due to his objections to the company's practices. No mention was made of the company's years-long difficulties with contaminated duodenoscopes and how it might relate to these bribery and kickback charges, although the DOJ is also conducting a separate investigation into that.

It includes $623.2 million for claims related to kickbacks to doctors and hospitals in the U.S.; roughly half of that is considered a criminal penalty, while the other half goes to address civil charges. In addition, its subsidiary will pay an additional $22.8 million for charges related to Latin America.

Benjamin Mizer

"The Department of Justice has longstanding concerns about improper financial relationships between medical device manufacturers and the health care providers who prescribe or use their products," said Principal Deputy Assistant Attorney General Benjamin Mizer in a statement. "Such relationships can improperly influence a provider's judgment about a patient's health care needs, result in the use of inferior or overpriced equipment, and drive up health care costs for everybody. In addition to yielding a substantial recovery for taxpayers, this settlement should send a clear message that we will not tolerate these types of abusive arrangements, and the pernicious effects they can have on our health care system."

Under a joint agreement that dates back to May 2009, the U.S. Attorney General and the Secretary of Health and Human Services work jointly via the Health Care Fraud Prevention and Enforcement Action Team (HEAT) to reduce and prevent Medicare and Medicaid financial fraud. The Justice Department has collected $17.4 billion over the last 7 years due to fraud in federal healthcare programs under the False Claims Act. The Olympus settlement is the largest yet to result from the enforcement of that act.

The criminal complaint, which Olympus has agreed is true, charges that Olympus "won new business and rewarded sales by giving doctors and hospitals kickbacks, including consulting payments, foreign travel, lavish meals, millions of dollars in grants and free endoscopes."

Examples of this activity include a $5,000 grant to a hospital to facilitate a $750,000 sale; the stalling of an additional $50,000 hospital research grant until it signed an Olympus deal; free trips for doctors to Japan in return for switching their hospital from an Olympus competitor; and free equipment to a doctor who played a major role in his hospitals' purchasing decisions with Olympus.

"For years, Olympus Corporation of the Americas and Olympus Latin America dropped the compliance ball and failed to have in place policies and practices that would have prevented the substantial kickbacks and bribes they paid," said U.S. Attorney Paul Fishman. "It is appropriate that they be punished for that. At the same time, the deferred prosecution agreement takes into account the companies' cooperation and commitment to fully functional corporate compliance."

Under a three-year deferred prosecution agreement, Olympus has agreed to compliance measures including enhanced compliance training and an effective compliance program; a confidential hotline for employees and customers to report wrongdoing; annual certification from the CEO and board that the compliance program is effective; and an executive financial recoupment program that requires executives with misconduct to forfeit up to three years of performance pay.

All of this is for activity that occurred from 2006 to 2011, so obviously the company is eager to put its legal woes behind it. "Olympus leadership acknowledges the Company's responsibility for the past conduct, which does not represent the values of Olympus or its employees," said Olympus Corporation of the Americas President and CEO Nacho Abia. "Olympus is committed to complying with all laws and regulations, and to adhering to our own rigorous code of conduct which guides our business processes, decisions and behavior. The company has implemented and will continue to enhance its robust compliance program."

- here are statements from the DOJ, Olympus and the whistleblower's law firm

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