In March 2016, two global life sciences companies agreed to pay hundreds millions of dollars in fines to resolve claims under the federal Anti-Kickback Statute (AKS)[i], the False Claims Act (FCA)[ii], and the Foreign Corrupt Practices Act (FCPA)[iii].  These high-profile enforcement actions are a reminder to life sciences companies to ensure that anti-fraud and anti-bribery policies and procedures are not only in place but also are robust and enforced – and most importantly that employees and agents “on the ground” are well-versed in the requirements of such policies and comply with them.

Olympus Corp. of the Americas, a medical device company that manufactures endoscopes and related equipment, was charged criminally with conspiracy to violate the AKS and entered into a deferred prosecution agreement to avoid conviction provided that it adheres to specified compliance and reform requirements under the oversight of an independent monitor.  Olympus also agreed to pay $623 Million to settle the AKS claims and related claims under the FCA and state false claims acts.  Olympus admitted that it gave kickbacks to doctors and hospitals to win business.  These kickbacks took the form of consulting payments, foreign travel, research and charitable grants, and free endoscopes and were brought to light by a whistleblower – Olympus’ former compliance officer.  Further, an Olympus subsidiary operating in Central and South America was charged with FCPA violations and agreed to pay a criminal penalty of almost $23 Million in connection with improper payments to health care providers at government-owned facilities.  The improper payments included cash, personal grants and travel, and free and discounted equipment.  Olympus and the federal government entered into a corporate integrity agreement setting forth the details of the compliance program Olympus must maintain, which may serve as a roadmap of recommendations for those looking to avoid similar compliance problems.

With similar conduct, Novartis agreed to pay $25 Million to settle charges by the Securities and Exchange Commission that it violated the FCPA when its subsidiaries in China provided items of value – such as gifts, travel, vacations and entertainment – to health care providers to increase sales of Novartis products and then concealed the nature of the improper payments by recording then as legitimate expenses.  Novartis also paid providers for collecting patient data of no medical or scientific value in “research studies” that were not approved internally as required by Novartis policies.

As noted by Principal Deputy Assistant Attorney General Benjamin Mizer of the DOJ’s Civil Division in connection with the Olympus settlement, “The Department of Justice has longstanding concerns about improper financial relationships between medical device manufacturers and the health care providers who prescribe or use their products…  [T]his settlement should send a clear message that we will not tolerate these types of abusive relationships, and the pernicious effects they can have on our health care system.”

In light of this message, pharma and device manufacturers should continue to improve their compliance policies and systems to ensure they incorporate applicable guidance and best practices, including those in industry codes of conduct such as the AdvaMed Code of Ethics on Interactions with Health Care Professionals and the PhRMA Code on Interactions with Healthcare Professionals.  And, as these settlements show, having policies and procedures is not enough – companies must ensure, through employee education and oversight, that their compliance systems are effective worldwide.  Grant programs, in particular, may pose compliance concerns – especially when the committees that choose grant recipients and funding amounts include sales and marketing staff who consider sales and relationships in awarding grants, as was the case at Olympus.  The grants need not be large to raise compliance concerns – the Olympus criminal complaint noted that it awarded a $5,000 research grant to facilitate a pending sale of $750,000 of equipment.  Unrestricted research grants also raise particular concerns regarding motivations for awarding the grants, especially when timed to be awarded just after closing a sale.  Finally, post-marketing data collection studies continue to raise questions as to whether they have scientific merit or are just a front for payments to healthcare providers aimed at winning or retaining their business.

Would your company’s compliance program stand up to scrutiny?  For assistance in identifying compliance risks, developing policies and procedures, implementing educational programs, and assessing compliance, contact Health Sciences Law Group.


[i] The Anti-Kickback Statute prohibits any person from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, in return for (1) referring an individual to a person for the furnishing or arranging for the furnishing of an item or service for which payment may be made under a federal health care program; or (2) purchasing, leasing, or ordering, or entering into an arrangement for purchasing, leasing, or ordering an item, good or service for which payment may be made under a federal health care program.  42 USC 1320a-7b(b); 42 CFR 1001.952.

[ii] The False Claims Act prohibits knowingly filing a false claim with the federal government or causing the filing of a false claim, creating a false record to get a claim paid, or concealing an obligation to repay monies owed to the federal government.  31 USC 3729 et seq.

[iii] The Foreign Corrupt Practices Act makes it a felony to offer or pay a bribe to a foreign official for the purpose of obtaining or keeping business of any sort.  The term “foreign official” means any officers or employee of a foreign government or any department, agency, or instrumentality thereof…or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality.  15 USC 78dd-1 et seq.  Health care in other countries is often provided through state-owned and state-controlled entities, so health care providers may be ‘foreign officials” under the FCPA.