Olympus Settlement and Corporate Integrity Agreement – FCPA and Anti Kickback for $646 Million
The United States Department of Justice has announced a settlement with medical device maker Olympus, to the tune of $646 million ($623.2 million to resolve anti-kickback violations and $22.8 million to resolve criminal charges related to the Foreign Corrupt Practices Act). The settlement comes after two separate investigations by the federal government into Olympus and allegations that Olympus entered into a kickback scheme with physicians and hospitals and violated the United States Foreign Corrupt Practices Act.
Anti-Kickback Violations
Olympus Corporation of the Americas (OCA) was charged in a criminal complaint filed on Tuesday, March 1, 2016, with conspiracy to violate the Anti-Kickback Statute (AKS), which prohibits payments to induce purchases paid for by federal healthcare programs. OCA has opted to enter into a three-year deferred prosecution agreement (DPA) that will allow OCA to avoid conviction, provided it complies with the reform and compliance requirements outlined in the agreement.
According to United States Attorney Paul J. Fishman, “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. 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.”
The breakdown of the anti-kickback settlement is as follows: $312.4 million in a criminal penalty and an additional $310.8 million to settle civil claims under the federal False Claims Act, as well as various state False Claims Act. The settlement total amounts to the largest amount paid in United States history for violations involving the Anti-Kickback Statute by a medical device company.
United States Foreign Corrupt Practices Act Violations
Olympus Latin America (OLA), a subsidiary of OCA, will pay a $22.8 million criminal penalty for violations of the FCPA under a separate DPA. According to court documents, from 2006 through August 2011, OLA implemented a plan to increase medical equipment sales in Central and South America by providing payments to healthcare practitioners at government-owned healthcare facilities. These payments were in a variety of forms, including cash, money transfers, personal grants, personal travel, and free or heavily discounted equipment.
Who Was the Whistleblower?
The lawsuit was filed by John Slowik, the former chief compliance officer of Olympus. Slowik was employed by Olympus for nearly two decades, and filed his lawsuit in 2010, alleging widespread corruption, stemming in part from Olympus’ 2008 acquisition of Gyrus. Slowik is expected to receive $44,102,573 million from the federal fines and $7 million from the state share of the civil settlement amount.
Slowik alleged that Olympus has a culture of going to great lengths to keep customers happy, including allowing sales representatives to spend extravagantly on meals and outings to entertain physicians. Slowik claimed that during his tenure as compliance officer, he was instructed not to enforce Olympus’ $100 limit on meals to entertain doctors, who were sometimes given all-expense paid luxury vacations to exotic locations.
As a compliance officer, Slowik participated in meetings of Olympus’ grant committee, which was actually composed entirely of sales, marketing, and customer relations personnel, who based the grant approval process entirely on the amount of sales that would be generated by the customer receiving the grant.
Next Steps for Compliance
Olympus did not create the position of compliance officer until 2009, and did not actually hire an experienced compliance professional until August 2010, according to the Department of Justice. Therefore, the criminal complaint against Olympus alleges that the improper payments happened while Olympus lacked training and compliance programs.
The DPA requires OCA to adopt several new compliance measures, in an attempt to remedy its problems, including:
- Enhance its compliance training and maintain an effective compliance program;
- Maintain a confidential hotline and website for OCA employees and customers to report wrongdoing;
- An annual certification by CEO and Board of Directors, certifying that the program is effective; and
- Adopt an executive financial recoupment program that requires executives who engage in misconduct or fail to promote compliance to forfeit up to three years performance pay.
In addition to the aforementioned resolutions, Olympus executed a corporate integrity agreement (CIA), which details the compliance program that OCA must maintain, including:
- Compliance responsibilities for OCA management and the Board of Directors;
- A healthcare compliance code of conduct;
- Training and education (with 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.
It is important for compliance officers at small pharma and device companies to ensure that marketing has no functions that should be handled by medical affairs such as research grants, or the educational aspect of the company. Marketing must be separated from other departments, as their motivations are different.
Links to Documents
Olympus Corporation of the Americas Criminal Complaint
Olympus Corporation of the Americas Deferred Prosecution Agreement
Olympus Latin America Criminal Complaint
Olympus Latin America Deferred Prosecution Agreement
Olympus Corporation of the Americas Second Amended Civil Complaint