Why it matters: In a unique settlement combining domestic and foreign and criminal and civil corruption and false claims statutes, the DOJ announced on March 1, 2016 that medical equipment company Olympus Corp. of the Americas and its subsidiary Olympus Latin America, Inc. agreed to pay an aggregate of $646 million to resolve criminal charges under both the Anti-Kickback Statute and the Foreign Corrupt Practices Act, and civil claims under the False Claims Act, relating to the payment of kickbacks to doctors and hospitals in the U.S. and Latin America. The $312.4 million portion of the criminal penalty attributable to violations of the Anti-Kickback Statute by the company was described as "the largest total amount paid in U.S. history" for a medical device company.

Detailed discussion: On March 1, 2016, the DOJ announced that Olympus Corp. of the Americas (OCA), described as the "largest distributor of endoscopes and related equipment" in the U.S., agreed to pay $312.4 million to resolve criminal charges under the Anti-Kickback Statute (AKS) and $310.8 million to resolve civil claims under the federal and various state False Claims Acts (FCA)—aggregating $623.2 million—relating to "a scheme to pay kickbacks to doctors and hospitals" in the U.S. OCA also agreed to enter into a three-year deferred prosecution agreement (DPA) with the DOJ as well as a corporate integrity agreement with the Department of Health and Human Services-Office of Inspector General (HHS-OIG). In addition, OCA's Miami-based subsidiary Olympus Latin America, Inc. (OLA), agreed to pay an additional fine of $22.8 million for criminal violations of the Foreign Corrupt Practices Act (FCPA) and enter into a separate three-year DPA in connection with improper payments to health officials in Central and South America.

We turn first to the AKS component of the case, pursuant to which OCA is paying $312.4 million—described as "the largest total amount paid in U.S. history for violations involving the AKS by a medical device company." On March 1, 2016, the DOJ filed a criminal complaint against OCA in the District of New Jersey for conspiracy to violate the AKS, which makes it a criminal offense to pay kickbacks (including monetary bribes, costly gifts or other forms of remuneration) to doctors and/or medical facilities in order to induce purchases paid for by federal health care programs. OCA admitted to the facts set forth in the complaint, which are briefly summarized as follows: OCA "won new business and rewarded sales" by giving kickbacks to numerous doctors and hospitals in the U.S., including "consulting payments, foreign travel, lavish meals, millions of dollars in grants and free endoscopes," which "helped OCA obtain more than $600 million in sales and realize gross profits of more than $230 million." Some of the specific instances of kickbacks enumerated in the complaint included OCA (a) giving a hospital a $5,000 grant to facilitate a $750,000 sale; (b) holding up a $50,000 research grant until a second hospital signed a deal to purchase Olympus equipment; (c) paying for a trip for three doctors to travel to Japan in 2007 as a reward for their hospital's decision to switch from a competitor to Olympus; and (d) giving a doctor who had authority over a New York medical center's purchasing decisions free use of $400,000 in equipment for his private practice.

OCA's lack of employee training and compliance expertise was cited in the complaint as a root cause of the improper kickbacks, as the facts showed that OCA did not create the position of compliance officer until 2009 and did not hire an experienced compliance professional until mid-2010—the same compliance officer turned out to be the qui tamwhistleblower for the FCA component of the case (discussed below). The three-year DPA (which can be extended for two additional years if OCA violates any of its provisions) addressed this problem by requiring, among other things, OCA to hire an independent monitor to ensure that OCA puts in place and maintains an effective compliance program, including annual certification as to the effectiveness of the program by the CEO and board and a confidential employee "hot line" and website through which employees can report wrongdoing. Similarly, the corporate integrity agreement that OCA entered into with HHS-OIG required OCA to adopt, among other things, a strict compliance program, including a compliance "code of conduct" and training and education programs for employees as well as compliance responsibilities for management and the board.

OCA also agreed to pay an aggregate $310.8 million in civil penalties (broken down $267.3 million to the federal government and $43.5 million to participating states) because the kickbacks paid by OCA allegedly caused false claims to be submitted to federal health care programs such as Medicare and Medicaid in violation of the FCA and equivalent state statutes. OCA's former chief compliance officer, who filed a qui tamcomplaint in the District of New Jersey against OCA, will receive a whopping $51 million reward, comprised of $44 million from the federal recovery and $7 million from the participating states.

Finally, OCA's Miami-based subsidiary OLA, admitting to facts constituting a violation of the FCPA, agreed to pay a criminal penalty of $22.8 million and enter into a separate three-year DPA in connection with improper payments to health officials in Central and South America. According to Principal Deputy Assistant Attorney General David Bitkower, "OLA's illegal tactics in Central and South America mirrored Olympus's conduct in the United States. The FCPA resolution announced today demonstrates the department's commitment to ensuring the integrity of the health-care equipment market, regardless of whether the illegal bribes occur in the U.S. or abroad." According to the admitted facts set forth in the separate criminal complaint filed in the District of New Jersey on March 1, 2016 against OLA, OLA implemented a plan from 2006 through mid-2011 to increase medical equipment sales in Central and South America by providing payments to pre-selected health care practitioners at government-owned health care facilities, which payments included "cash, money transfers, personal grants, personal travel and free or heavily discounted equipment." The facts show that OLA paid or caused to be paid nearly $3 million to the health care practitioners to induce the purchase of OCA products and recognized more than $7.5 million in profits as a result. In addition to the $22.8 million criminal penalty, the three-year DPA that OLA entered into with the government requires OLA to retain the same independent monitor retained by OCA and implement basically the same compliance measures. The DOJ said that it reached its resolution with OLA "based on a number of factors, including that OLA did not voluntarily disclose the misconduct in a timely manner." The DOJ pointed out, however, that OLA nonetheless "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."

U.S. Attorney for the District of New Jersey, Paul J. Fishman, summed up this complex and unique settlement by saying, "[f]or 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 …[i]t is appropriate that they be punished for that. At the same time, [each] deferred prosecution agreement takes into account the companies' cooperation and commitment to fully functional corporate compliance." Added HHS-OIG Special Agent in Charge Scott J. Lampert, "Olympus Corp. of the Americas' and its subsidiaries' greed-fueled kickback scheme threatened the impartiality of medical decision-making and the financial integrity of Medicare and Medicaid … Working with our law enforcement partners, we remain vigilant and committed to protecting beneficiaries and taxpayers from those seeking to unlawfully enrich themselves."

See here to read the DOJ's 3/1/16 press release entitled "Medical Equipment Company Will Pay $646 Million for Making Illegal Payments to Doctors and Hospitals in United States and Latin America."