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$18M FCA settlement offers companies a lesson: Don’t ignore your Chief Compliance Officer

A recent $18 million False Claims Act (FCA) settlement demonstrates the risks companies take when they ignore their Chief Compliance Officer’s (CCO) concerns about unlawful practices. While spearheading compliance for Utah-based medical device maker Merit Medical Systems Inc. (Merit), Charles J. Wolf, M.D. repeatedly warned top management that some of its practices constituted fraud under the Anti-Kickback Statute of the FCA, and that they should be corrected. When nothing changed, Dr. Wolf resigned and sued his former employer under the qui tam provision of the FCA, which allows whistleblowers to file lawsuits on behalf of the government and share in any recovery. The Department of Justice (DOJ) joined the suit earlier this year and announced the settlement, in which Dr. Wolf was awarded a $2.65 million share.

The Case Against Merit

The settlement in United States ex rel. Wolf v. Merit Medical Systems Inc. resolved allegations that Merit caused false claims to be submitted to the government’s Medicare, Medicaid, and TRICARE programs for over six years by paying kickbacks to doctors and hospitals. Merit allegedly gave select health care providers millions of dollars in free advertising assistance, speaking and consulting fees, lavish dinners, unrestricted grants, and trips to places like Paris and Hawaii to induce them to purchase and exclusively use the company’s embolization products, which include EmboSphere and QuadraSphere devices.

“The purpose of…wining and dining physicians, paying for physician trips to extravagant locations, paying physicians exorbitant speaker fees, paying for physician advertising and referrals, and paying consulting fees and honoraria for little-to-no work was to gain market share at inflated prices, as well as to induce hospitals and physicians to purchase additional equipment, supplies and/or products from Merit,” the DOJ alleged. “As Merit knew would happen, the physicians or hospitals in turn submitted claims to Medicare and Medicaid for procedures performed with Merit medical equipment.”

The Anti-Kickback Statute

Such actions violate the Anti-Kickback Statute, which prohibits offering or paying anything of value to induce the purchase of items or services covered by federal health care programs. The purpose of the statute is to ensure improper financial incentives do not cloud medical providers’ judgments.

“Paying kickbacks to doctors in exchange for referrals undermines the integrity of federal health care programs,” the Acting Assistant Attorney General Jeffrey Bossert Clark of the DOJ’s Civil Division said in a statement announcing the settlement. “When medical devices are used in surgical procedures, patients deserve to know that their device was selected based on quality of care considerations and not because of improper payments from manufacturers.”

A violation of the Anti-Kickback Statute is also a violation of the FCA, which imposes liability on those who knowingly submit fraudulent claims or cause the submission of fraudulent claims to U.S. government programs, such as Medicaid or Medicare.

The Compliance Chief’s Concerns

Dr. Wolf originally filed a lawsuit in April 2016, shortly after resigning as CCO of Merit, where he had worked from 2011 to 2015. Dr. Wolf is a non-practicing medical doctor and a Certified Compliance & Ethics Professional (CCEP). While at Merit, his role included reviewing company programs for compliance with various federal and state laws and making recommendations.

Dr. Wolf’s complaint recounted that he repeatedly reported his concerns about alleged fraud to company management, including the CEO and the Merit board, but that his advice was “nearly always given only token respect” and that another officer was “run out” of the company for speaking up about similar concerns. Unable to change the organization and its culture, Dr. Wolf resigned in October 2015 and later filed his lawsuit.

“[Dr. Wolf], and others, informed [Merit] of the various compliance problems alleged herein, including to the CEO, and at times, the board of directors as well, but Merit never took the required and appropriate steps to cease the fraudulent conduct, satisfy the obligation owed to the United States, refund or return such overpayments, and to inform Medicare of the overbilling, and it instead continued to retain the same without proper notice and reimbursement to the government as of at least October 2015 when [Dr. Wolf] quit his employment,” the DOJ alleged.

The Lesson

When a company is warned by its Chief Compliance Officer that its practices are illegal, it should listen. Not only does failure to heed such warnings from a knowledgeable expert leave the company vulnerable to liability, but it is akin to handing weapons to the prosecution. With the compliance professional’s informed testimony, prosecutors have a much easier time proving intent to defraud the government.

“As happened here, ignoring your compliance officer’s concerns about payments to referral sources is a great way to become a defendant in a kickback case,” Department of Health and Human Services Office of the Inspector-General Chief Counsel Gregory Demske said in the settlement statement.

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