The former chief compliance officer for medical device manufacturer Merit Medical Systems will be paid $2.65 million for his role in uncovering a six-year kickback scheme that paid hospitals and doctors to purchase company products.

The Department of Justice (DOJ) announced Wednesday an $18 million settlement with Merit to settle allegations that the company paid millions worth of kickbacks over a six-year period.

Dr. Charles Wolf, Merit’s chief compliance officer from August 2011 to October 2015, sued his former employer in 2016 in the U.S. District Court for the District of New Jersey under the whistleblower (qui tam) provision of the False Claims Act. In the lawsuit, Wolf said he repeatedly alerted the company’s management that it was paying illegal kickbacks worth up to $2 million per year to doctors and institutions who purchased their medical devices. He says his warnings were repeatedly ignored by Merit’s upper management.

The government alleged Merit “disregarded numerous warnings that its conduct may violate the Anti-Kickback Statute,” including warnings from Wolf, during the course of the kickback scheme.

The scenario should be used as fair warning to other companies that ignore or marginalize the concerns of compliance officers about illegal conduct, according to one federal official involved with the case.

“No health care company’s compliance program can be effective without commitment and support from the company’s leaders,” said Department of Health and Human Services Office of Inspector General (HHS-OIG) Chief Counsel Gregory Demske in the DOJ press release. “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.”

In July, Merit announced it had set aside $18 million to pay the settlement, with Chairman and CEO Fred Lampropoulos saying at the time that settling the case “is in the best interests of the business.”

The day before the DOJ announced the settlement, Merit issued its own statement, saying it agreed to pay the fine but that the “settlement agreement does not constitute a finding of wrongdoing by Merit or its management, and it expressly recognizes that Merit denies the allegations.”

According to the DOJ, Merit used an internal program to pay “millions of dollars in free advertising assistance, practice development, practice support, and purported unrestricted ‘educational’ grants to induce the healthcare providers to purchase and use a wide variety” of Merit products. The scheme defrauded federal and state medical insurance programs, including Medicare, Medicaid, and TRICARE, the DOJ said.

In addition to the fine, Merit will also enter into a five-year corporate integrity agreement (CIA) with the HHS-OIG. The CIA requires Merit to hire a compliance expert and an independent review organization to analyze its systems and transactions.

Of the $18 million to be paid by Merit, $15.21 million will be returned to the federal government, and a total of $2.79 million will be returned to individual states, which jointly funded claims involving Merit devices that were submitted to state Medicaid programs. Wolf’s $2.65 million share will be paid out of the federal government’s portion of the settlement, the DOJ said.

Founded in 1987, Merit is a publicly traded company that manufactures “disposable devices used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology, oncology, critical care and endoscopy,” according to the firm’s website.

Aaron Nicodemus covers regulatory policy and compliance trends for Compliance Week. He previously worked as a reporter for Bloomberg Law and as business editor at the Telegram & Gazette in Worcester, Mass.

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