South Jordan-based Merit Medical Systems will pay $18 million and submit to five years of monitoring by federal authorities to resolve a whistleblower lawsuit alleging it paid kickbacks to doctors, under an agreement announced Wednesday.
The complaint, filed in 2016 by the medical devicemaker’s former chief compliance officer, physician Charles Wolf, claimed Merit used fraudulent advertising masked as “educational grants” and other cash to induce doctors and hospitals to use its specialty products, in violation of federal law.
Wolf’s lawsuit accused Merit of paying kickbacks to medical providers, including inflated speaking fees and paid travel excursions, at a rate of $2 million or more each year over six years, according to court documents. Much more than that was involved, he alleged, in resulting claims those doctors and other providers billed to Medicare, Medicaid, the U.S. Department of Veterans Affairs and other federal and state health care programs.
“Unlawful kickbacks like these distort the market for medical devices upon which our healthcare system depends,” U.S. Attorney Rachael A. Honig said in a strongly worded statement issued Wednesday by the Department of Justice.
Merit Medical ignored internal warnings “for years,” Honig added, “and refused to abide by the rules that apply to every other medical device company. With today’s settlement, they are paying the price for that refusal.”
In a brief statement published Tuesday on its website, the publicly traded company said it was settling the lawsuit “to avoid distraction from its core mission, and the cost of litigating the matter to success.”
“The settlement agreement does not constitute a finding of wrongdoing by Merit or its management, and it expressly recognizes that Merit denies the allegations,” its statement said. It made no mention of the monitoring agreement.
“Merit looks forward to continuing to focus each day on its mission: To be the most customer-focused company in healthcare,” the statement concluded.
The company’s share price fell by 3.2% in trading Wednesday.
Officials at Merit Medical, founded in 1987 by CEO Fred Lampropoulos, did not respond to requests for comment. But in past statements, Lampropoulos, a one-time Republican candidate for Utah governor and prominent political donor, denied all allegations.
Wolf, a non-practicing physician and 20-year health care compliance specialist, said in court documents that he initially brought his concerns to Merit managers “to no avail” before leaving the company and filing his complaint. Federal authorities investigated his claims for more than four years in secret until four months ago, when they unsealed the case and announced the tentative $18 million settlement.
Since then, according to lawyers involved, officials with Merit and the Office of Inspector General at the U.S. Department of Health and Human Services have also hammered out a rare “corporate integrity agreement” requiring the company to submit to ongoing compliance monitoring for five years.
The agreement, among other things, requires Merit to hire both a compliance expert and an independent firm to analyze its internal systems and transactions, an attorney for the Department of Health and Human Services said.
“They clearly want to keep a watchful eye on this company,” added Maryland-based attorney Jay Holland, with the law firm Joseph Greenwald & Laake, which represented Wolf in the case.
Twenty-eight U.S. states and the District of Columbia were included as parties in the lawsuit, documents indicate — though the state of Utah was not one of them.
Of the $18 million Merit Medical must pay, $15.2 million will go to federal coffers and $2.8 million will be returned to the states involved to cover claims related to the company’s medical devices submitted to their Medicaid programs, the DOJ said.
And under whistleblower provisions, Wolf will receive $2.65 million from the federal share of the settlement, government attorneys said.
Holland called his client “an incredibly honest, professional and trustworthy guy who’s trying to do his job” and who only filed the lawsuit after company managers refused to heed repeated warnings. His concern, the lawyer said, “was for patients and the public.”