Disregard Compliance at Your Peril: Compliance Officer Paid As Whistleblower

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A medical device manufacturer learned what might seem an obvious lesson when it paid $18 million to settle a False Claims Act lawsuit brought by its former Compliance Officer: don’t ignore your compliance officer. The federal government received $15.21 million; state governments received $2.79 million; and the whistleblower received $2.65 million of the federal share. The company, Merit Medical Systems, Inc. (MMS), also must pay attorneys’ fees due to the whistleblower’s counsel and enter into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG).

Operation of the Kickbacks

The press release from the Department of Justice alleged MMS’s “Local Advertising Program” was a front for illegal kickbacks to healthcare providers. The program offered millions of dollars in purported educational grants and other kinds of support designed to encourage purchase and use of the company’s products. Although the program supposedly operated to increase awareness of its products, MMS allegedly paid selected providers “to reward past sales, induce future sales, and steer business” away from competitors.

Disregarding the Compliance Officer

In his amended complaint, the whistleblower/Compliance Officer describes how MMS disregarded his concerns despite his certification as a Compliance and Ethics Professional, his expertise teaching and working in compliance for more than a decade, and his medical degree. When he reported the issues about potential kickbacks and off-label sales to management, his advice was “nearly always given only token respect.” An anonymous tip of fraud eventually prompted MMS’s Board of Directors to investigate off-label promotion, but an ensuing policy change was ignored by sales and marketing. The Compliance Officer considered the culture so hostile that he resigned. He also alleged that another officer had been “run out” of MMS for making similar complaints.

Takeaway

Of course, concerns expressed by a Compliance Officer may not always be correct. On the other hand, a company’s Board of Directors should not need to rely upon an anonymous complaint in order for the concerns of a trained Compliance Officer to reach its attention. Further, instituting a policy change alone is not sufficient to change corporate culture. A company’s Board of Directors must ensure change comes from the top down and establish the compliance procedures to ensure that it is implemented.

In his comment on this case, HHS-OIG Chief Counsel Gregory Demske summed up the lesson to be learned. “No health care company’s compliance program can be effective without commitment and support from the company’s leaders. . . . 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.”

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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