Olympus Corporation of the Americas (OCA), a distributor of endoscopes and related equipment and a wholly-owned subsidiary of Japan-based Olympus, will pay $623.2 million to the government to resolve criminal charges and civil claims relating to a scheme to pay kickbacks to doctors and hospitals—the largest total amount paid in U.S. history for violations involving the Anti-Kickback Statute by a medical device company.
OCA was charged in a criminal complaint filed today in federal court in New Jersey with conspiracy to violate the Anti-Kickback Statute (AKS), which prohibits payments to induce purchases paid for by federal health care programs. OCA will pay a $312.4 million criminal penalty and an additional $310.8 million to the federal government the states to settle civil claims under the federal and various state False Claims Acts.
The civil settlement resolves a lawsuit filed by John Slowik, OCA’s former chief compliance officer, under the federal and various state False Claims Acts. The acts permit whistleblowers to file a lawsuit for false claims against the government entities and to share in any recovery. Slowik will receive $44.1 million from the federal share and $7 million from the state share of the civil settlement amount.
The criminal complaint charges OCA with winning 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. These and other kickbacks helped OCA obtain more than $600 million in sales and realize gross profits of more than $230 million.
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.
OCA also has entered into a three-year deferred prosecution agreement that will allow it to avoid conviction if it complies with the reform and compliance requirements outlined in the agreement.
The DPA requires OCA to adopt several compliance measures to remedy its problems:
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, has been selected as an independent monitor to evaluate and oversee Olympus’ compliance with the DPA. He was selected by Fishman under department guidelines and approved by the Deputy Attorney General. The DPA and monitor will remain in place for three years and can be extended for another two years if Olympus violates the DPA.
The DPA contains many features that are not customarily included in corporate settlements, says Matthew L. Schwartz, a partner in the global investigations and white-collar defense practice at law firm Boies, Schiller & Flexner. For example, the DPA with OCA requires the creation of a chief compliance officer position that does not answer to the general counsel or legal department, and that reports directly to the board, he says.
The same agreement requires OCA’s chief executive officer to personally certify that the company’s compliance program was ‘effective in preventing, detecting, and/or remediating’ violations of the FCPA and health care laws. The agreement also requires the board to conduct its own annual independent review of the company’s compliance program and to submit a similar board resolution certifying to the program’s effectiveness.
OCA is also required to recoup up to three years’ worth of performance pay from certain executives, among other things. “These requirements and others like them are more consistent with a settlement with a company’s primary regulator, and demonstrate that the Department of Justice will continue to involve itself in the inner workings of companies with which it settles,” says Schwartz.
In a separate criminal complaint, Olympus Latin America (OLA), a subsidiary of OCA, was charged with violations of the Foreign Corrupt Practices Act in connection with improper payments to health officials in Central and South America. OLA entered into a separate three-year DPA with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the District of New Jersey.
“Olympus leadership acknowledges the company's responsibility for the past conduct, which does not represent the values of Olympus or its employees,” OCA CEO Nacho Abia said in a statement in response to the agreements. “The company has implemented and will continue to enhance its robust compliance program.”
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.
Under OLA’s DPA, the agreement requires OLA to pay a criminal penalty of $22.8 million, retain the same compliance monitor as OCA for a period of three years and implement a number of compliance measures. The Department said it reached this resolution based on 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.”
“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.”
Corporate integrity agreement
In addition to the criminal and civil resolutions, Olympus executed a corporate integrity agreement 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; and training and education that includes specified standards.
OCA must also implement requirements for consulting arrangements, grants and charitable contributions, management of field assets and review of travel expenses; a risk assessment and mitigation process; and review procedures for testing the compliance program.