Compliance Defects Fuel Record Record $646M Antikickback Penalty

Tardiness in implementation of a meaningful compliance program is a key reason why the United States’ largest distributor of endoscopes and related equipment, Olympus Corp. of the Americas (OCA), will be required to pay a record $623.2 million in criminal and civil penalties and implement other reforms to resolve criminal charges under the Antikickback Statute and related civil claims brought by a whistleblower under the False Claims Act (FCA) for paying kickbacks to doctors and hospitals in the United States and Latin America under the three-year deferred prosecution agreement (DPA) the Justice Department announced March 1, 2016. The combined criminal and civil penalties will be the largest total amount paid in U.S. history for violations involving the AKS by a medical device company.

In addition to the resolution of the AKS criminal charges and FCA civil lawsuit against OCA, an OCA subsidiary, Olympus Latin America (OLA), also agreed to pay $22.8 million to resolve criminal charges relating to the Foreign Corrupt Practices Act (FCPA) in Latin America.

OCA Anti-Kickback Violation Charges & Settlement

OCA agreed to the March 1, 2016 DPA imposing the record $623.2 million in criminal and civil penalties and requiring OCA to implement other reforms resolve criminal charges filed March 1, 2016 against OCA in the Newark, New Jersey District Court charging OCA with conspiracy to violate the Anti-Kickback Statute (AKS) prohibition against health care organizations making payments to induce purchases paid for by federal health care programs.

The criminal complaint against OCA, which OCA agrees in the DPA is true, charges that OCA won more than $600 million in new sales and realized gross profits of more than $230 million by improperly by giving doctors and hospitals kickbacks, including consulting payments, foreign travel, lavish meals, millions of dollars in grants and free endoscopes.  For example, the Justice Department says:

  • OCA gave a hospital a $5,000 grant to facilitate a $750,000 sale;
  • OCA held up a $50,000 research grant until a second hospital signed a deal to purchase Olympus equipment;
  • OCA paid for a trip for three doctors to travel to Japan in 2007 as a quid pro quo for their hospital’s decision to switch from a competitor to Olympus; and
  • A doctor with a major role in a New York medical center’s buying decisions received free use of $400,000 in equipment for his private practice.

The criminal complaint alleges that the improper payments happened while Olympus lacked training and compliance programs.  Unlike other medical and surgical products companies, Olympus did not create the position of compliance officer until 2009 and did not hire an experienced compliance professional until August 2010.

To resolve the AKS criminal charges, the Justice Department reports that OCA agreed to enter into a three-year DPA that will allow OCA to avoid conviction under the complaint if it complies with the reform and compliance requirements outlined in the agreement.   To meet the conditions of the DPA, OCA must pay a $312.4 million criminal penalty and an additional $310.8 million to settle civil claims under the federal and various state False Claims Acts, as well as remedy its compliance problems by adopting several compliance measures. The required compliance measures include:

  • OCA must enhance its compliance training and maintain an effective compliance program;
  • OCA must maintain a confidential hotline and website for OCA employees and customers to report wrongdoing;
  • OCA’s chief executive officer and board of directors must certify annually that the program is effective; and
  • OCA must adopt an executive financial recoupment program requiring executives who engage in misconduct or fail to promote compliance to forfeit up to three years of performance pay.

Larry Mackey, a former federal prosecutor best known for trying the Oklahoma City bombing cases, is the independent monitor selected by the Justice Department to evaluate and oversee Olympus’ compliance with the DPA.  The DPA and monitor will remain in place for three years and can be extended for another two years if Olympus violates the DPA.

Related OCA FCA Whistleblower Suit Settlement

In addition to resolving the criminal charges brought by the Justice Department, OCA and the Justice Department also entered into a related civil settlement that resolves a whistleblower lawsuit originally filed by John Slowik, the former chief compliance officer of OCA, in the District of New Jersey, under the federal and various state False Claims Acts.  Under the civil settlement, Olympus agrees to pay $310.8 million to the federal government and the states to resolve claims that OCA’s payment of kickbacks caused false claims to be submitted to federal health care programs Medicare, Medicaid and TRICARE, and thus violated not only the AKS but also the federal and various state False Claims Acts.  The federal share of the civil settlement is $267,288,323, and Olympus will pay $43,512,053 million to participating states that contributed to the falsely claimed Medicaid payments at issue.   Since the FCA allows whistleblowers to file suit for false claims against the government entities and to share in any recovery, Mr. Slowik will receive $44,102, 573 million from the federal share and $7 million from the state share of the civil settlement amount.

OLA FCPA Violations & Settlement

Separately, OCA’s Miami-based subsidiary, OLA, entered into a separate three-year DPA with the Justice Department to resolve a separate criminal complaint also filed today in Newark federal court that charged OLA with FCPA violations in connection with improper payments to health officials in Central and South America.  According to court documents, from 2006 until August 2011, OLA implemented a plan to increase medical equipment sales in Central and South America by providing payments to health care practitioners at government-owned health care facilities.  These payments included cash, money transfers, personal grants, personal travel and free or heavily discounted equipment.  The primary method to deliver these illicit benefits was through “training centers,” nominally set up to educate and train doctors, but which OLA used to provide benefits to pre-selected practitioners.  OLA and its conspirators paid nearly $3 million to practitioners to induce the purchase of Olympus products and recognized more than $7.5 million in profits as a result.

According to the Justice Department, OLA entered into a separate DPA with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the District of New Jersey to settle these FCPA charges.  The DPA requires OLA to pay a criminal penalty of $22.8 million, retain the same compliance monitor as for OLA (Mr. Mackey) for a period of three years and implement a number of compliance measures.   The Justice Department’s announcement of the charges and settlement indicates that the amount of the required criminal penalty was influenced by a number of factors, including that OLA did not voluntarily disclose the misconduct in a timely manner, but OLA did receive credit of a 20 percent reduction on its penalty for its cooperation, including its extensive internal investigation, translation of numerous foreign language documents and collecting, analyzing and organizing voluminous evidence.

Corporate Integrity Agreement

In addition to the criminal and civil resolutions, OCA executed a corporate integrity agreement (CIA) with the Department of Health and Human Services-Office of Inspector General (HHS-OIG).  The CIA details the compliance program OCA must maintain, which must include:

  • compliance responsibilities for OCA management and the board of directors;
  • a health care compliance code of conduct that includes certain standards;
  • training and education that includes specified standards;
  • requirements for consulting arrangements, grants and charitable contributions, management of field assets and review of travel expenses;
  • risk assessment and mitigation process; and
  • review procedures for testing the compliance program.

Penalties Send Message: Implement Meaningful Compliance Programs

Comments of U.S. Attorney Paul J. Fishman of the District of New Jersey in the Justice Department’s announcement of the OCA DPA send a clear warning to health care providers and suppliers about the their own risks of failing to maintain and the potential benefits of maintaining demonstrably meaningful compliance programs to both prevent violations and to position their organization to resolve or mitigate their liability in the event a violation occurs despite their administration of a robust AKS, FCA or other violation of federal or state health care fraud or other law.

“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 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.”

Attorney Fishman’s warning comes amid ever growing success by the Justice Department, the OIG and other federal and state law enforcement and health care regulators in their efforts to uncover and prosecute violations of federal and state health care fraud and other laws through the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  Since January 2009, the Justice Department has recovered a total of more than $27.4 billion through False Claims Act cases, with more than $17.4 billion of that amount recovered in cases involving fraud against federal health care programs. In response to this rigorous enforcement, health care providers and suppliers should remain ever diligent in their efforts to prevent AKS, FCA and other violations of federal and state health care laws.

About The Author

Recognized as “LEGAL LEADER™ Texas Top Rated Lawyer” in both Health Care Law and Labor and Employment Law, a “Texas Top Lawyer,” an “AV-Preeminent” and “Top Rated Lawyer” by Martindale-Hubble; as among the “Best Lawyers In Dallas 2015 by D Magazine; and a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, the author of this update, attorney Cynthia Marcotte Stamer, more than 28 years of extensive experience representing and advising health industry clients and others on these and other regulatory, risk management, public policy and operations matters.

Vice President of the North Texas Health Care Compliance Professionals Association, Past Chair of the ABA Health Law Section Managed Care & Insurance Section, Board Certified in Labor & Employment Law, and the former Board Compliance Chair of the National Kidney Foundation of North Texas, Ms. Stamer’s experience includes advising hospitals, nursing home, home health, rehabilitation and other health care providers and health industry clients to establish and administer compliance and risk management policies; prevent, conduct and investigate, and respond to peer review and other quality concerns; and to respond to Board of Medicine, Department of Aging & Disability, Drug Enforcement Agency, OCR Privacy and Civil Rights, Department of Labor, IRS, HHS, DOD and other health care industry investigation, enforcement and other compliance, public policy, regulatory, staffing, and other operations and risk management concerns. The scribe for the American Bar Association (ABA) Joint Committee on Employee Benefits annual agency meeting with the Department of Health & Human Services Office of Civil Rights, Ms. Stamer has worked extensively with health care providers, health plans, health care clearinghouses, their business associates, employers, banks and other financial institutions, and others on risk management and compliance with HIPAA and other information privacy and data security rules, investigating and responding to known or suspected breaches, defending investigations or other actions by plaintiffs, OCR and other federal or state agencies, reporting known or suspected violations, business associate and other contracting, commenting or obtaining other clarification of guidance, training and enforcement, and a host of other related concerns. Her clients include public and private health care providers, health insurers, health plans, technology and other vendors, and others. In addition to representing and advising these organizations, she also has conducted training on Privacy & The Pandemic for the Association of State & Territorial Health Plans, as well as HIPAA, FACTA, PCI, medical confidentiality, insurance confidentiality and other privacy and data security compliance and risk management for Los Angeles County Health Department, ISSA, HIMMS, the ABA, SHRM, schools, medical societies, government and private health care and health plan organizations, their business associates, trade associations and others.

A popular lecturer and widely published author on health industry concerns, Ms. Stamer continuously advises health industry clients about compliance and internal controls, workforce and medical staff performance, quality, governance, reimbursement, and other risk management and operational matters. Ms. Stamer also publishes and speaks extensively on health and managed care industry regulatory, staffing and human resources, compensation and benefits, technology, public policy, reimbursement and other operations and risk management concerns. Her insights on these and other related matters appear in the Health Care Compliance Association, Atlantic Information Service, Bureau of National Affairs, The Wall Street Journal, Business Insurance, the Dallas Morning News, Modern Health Care, Managed Healthcare, Health Leaders, and a many other national and local publications. You can get more information about her health industry experience here. If you need assistance responding to concerns about the matters discussed in this publication or other health care concerns, wish to obtain information about arranging for training or presentations by Ms. Stamer, wish to suggest a topic for a future program or update, or wish to request other information or materials, please contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.

About Solutions Law Press

Solutions Law Press, Inc.™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns.

Other Helpful Resources & Other Information

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©2016 Cynthia Marcotte Stamer, P.C. Non-exclusive license to republish granted to Solutions Law Press, Inc. All other rights reserved.

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