Medical device maker projects $18M to settle FCA violations alleged by former CCO

Merit Medical Systems announced July 15 it had reached the agreement in principle with the DOJ, without admitting guilt. More details will be released when the settlement is reached, the company said.

“Given the mounting costs and time demands associated with the investigation, we believe this resolution is in the best interests of the business. Merit will continue to focus on our core mission: to be the most customer-focused company in healthcare,” said Fred Lampropoulos, Merit’s chairman and CEO, in the announcement.

Dr. Charles Wolf, who was Merit’s chief compliance officer from August 2011 to October 2015, sued the company 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 (FCA).

On July 10, a federal judge placed a 60-day extension on all activity associated with Wolf’s lawsuit against Merit while the company and DOJ negotiate a settlement. As part of the settlement, the DOJ will determine whether Wolf should receive compensation for providing evidence of Merit’s wrongdoing.

In the lawsuit, Wolf said Merit paid for advertising costs for doctors and institutions that used their medical devices; paid consulting fees to doctors in the form of speaker’s fees and “educational fees” for “little or no work”; and paid for expensive dinners, exotic trips, and other inducements to convince doctors to use Merit products at inflated prices. Wolf estimated that the kickbacks totaled $2 million per year from 2010 until he left the company in 2015.

Once the Merit medical devices were used in a procedure, doctors and institutions would then submit the cost of the inflated products for reimbursement to federal programs like Medicare and Medicaid, which constituted violations of the FCA, the lawsuit said. The company’s practices also violated the federal Anti-Kickback Statute, the Foreign Corrupt Practices Act, and various laws in 28 states and the District of Columbia, according to the lawsuit.

Wolf said he brought his concerns about the schemes to the attention of management repeatedly during his tenure, but his concerns were downplayed, ignored, and brushed aside.

“Management often openly joked about compliance; coming up with a numeric system to discuss internally how risky, from a compliance standpoint, certain proposals would be,” Wolf wrote in his whistleblower complaint. “They assessed risk and rated proposed actions on a ‘chili pepper’ scale of 1-3, in terms of how much ‘heartburn’ a particular action would give the company in terms of compliance and ethics concerns.”

Merit, which manufacturers “disposable devices used in interventional, diagnostic and therapeutic procedures, particularly in cardiology, radiology, oncology, critical care, and endoscopy,” inherited the kickback scheme from BioSphere, a company it purchased in 2010, the lawsuit alleged. While the scheme primarily boosted sales of its EmboSphere and QuadraSphere products, once Merit’s kickbacks helped it make inroads with certain doctors and institutions, the company was able to encourage purchases of other Merit products, the lawsuit alleged.