The Department of Justice announced yesterday the resolution of multiple investigations of Olympus Corp. of the Americas (“OCA”), the U.S. arm of the Japanese camera and medical device manufacturer.  OCA, the largest distributor of endoscopes and related equipment in the United States will pay $623.2 million to resolve criminal and civil False Claims Act violations relating to a scheme to pay kickbacks to doctors and hospitals.  This is the largest total amount paid in U.S. history for violations involving the Anti-Kickback Statute (“AKS”) by a medical device company.  In a separate investigation, subsidiary Olympus Latin America Inc., agreed to pay $22.8 million to resolve criminal charges relating the Foreign Corrupt Practices Act (“FCPA”) in Latin America.  Additionally, the company will enter into a Corporate Integrity Agreement with the Department of Health and Human Services.

Anti-Kickback Statute Violations

Yesterday, OCA was charged in a criminal complaint (click here to view criminal complaint) filed in federal court in Newark, New Jersey, with conspiracy to violate the AKS.  OCA acknowledges the charges are true and further acknowledges that the company 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 according to the press release issued by the Justice Department.  Examples of the kickback schemes include:

  • 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 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 Mizer.  “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.”

The investigation was originally brought under a whistleblower suit filed by John Slowik, OCA’s former chief compliance officer, who will receive $44.1 million from the federal settlement and $7 million from the states’ share of the settlement.  The investigation revealed that OCA did not have a properly implemented compliance program and was severely lacking in important components including training and audits.  The multinational company did not create the position of compliance officer until 2009 and waited until August of 2010 to hire an experienced compliance professional.  

OCA posted more than $600 million in sales and realized gross profits of more than $230 million as a result of the AKS schemes.  The company has agreed to pay $312.4 million in a criminal penalty and $310.8 million to settle civil claims (click here to view civil settlement agreement) for various state False Claims Act violations that include kickbacks and false claims submitted to Medicare, Medicaid and TRICARE.  The company not only violated AKS but also the federal and various state False Claims Acts.

OCA has also entered into a three-year Deferred Prosecution Agreement (“DPA”) (click here to view DPA) that will allow the company to avoid conviction if it applies and implements all the compliance requirements outlined in the agreement.  The DPA requires the company to engage an independent monitor selected by the Justice Department.  Larry Mackey, a former federal prosecutor, was selected as the independent monitor.  The DPA requires OCA to adopt a robust compliance program that will include, among other measures:

  • 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.

If OCA violates any terms of the DPA, the agreement and the independent monitor can be extended for an additional two years. 

FCPA Violations

Olympus Latin America, Inc. (“OLA”) was charged in a separate criminal compliant (click here to view OLA complaint) yesterday in Newark federal court.  The Miami based OLA was charged with FCPA violations in connection with improper payments to health officials in Central and South America.  From 2006 to 2011, OLA implemented a sales plan that included providing improper payments to health care practitioners at government-owned facilities.  These payments included:

  • Cash and money transfers
  • Personal grants
  • Personal travel
  • Free or deeply discounted equipment

The primary method for delivery of these bribes were through “training centers,” which were set up to train physicians however, OLA pre-selected those physicians based upon their willingness to participate in the scheme.  The company has admitted to bribing publicly employed health care providers and hospital officials in order to win their business.  OLA paid nearly $3 million to practitioners and recognized more than $7.5 million in profits as a result of the bribery.  The company entered into a separate three-year term DPA (click here to view DPA) with the Criminal Division’s Fraud Section of the Department of Justice.  OLA has agreed to pay a criminal penalty of $22.8 million and will retain the same independent monitor as OCA, Mr. Mackey. 

 “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 whether the illegal bribes occur in the U.S. or abroad,” said Principal Deputy Assistant Attorney General David Bitkower.

Corporate Integrity Agreement

As part of the overall resolution of the multiple investigations, Olympus executed a corporate integrity agreement (“CIA”) (click here to view 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.

FisherBroyles assists clients to review, design and implement compliance programs that improve their ability to conduct business ethically and in compliance with legal requirements. We work with our client to implement programs that are strong on education and reinforcement through training, certifications and compliance auditing.  In today’s heavily regulated business environment, a robust and effective compliance program is a necessity. Regulatory oversight of companies has become increasingly complex and failing to adopt preventative measures can result in costly civil or criminal enforcement actions.