Shortly after a 2016 qui tam lawsuit was made public in June 2020, Utah based Merit Medical Systems, Inc. announced it will pay $18 million in settlement to the Department of Justice over allegations of illegal kickbacks to doctors and other healthcare providers in 28 states. Merit Medical produces a wide array of disposable devices for radiology, oncology, cardiology, and critical care procedures. Included in the complaint were allegations that Merit paid physicians and other healthcare providers financial incentives in the form of luxurious trips and meals, excessive speaker fees, and inflated consultant retainers in return for product loyalty, referrals, and promotion of off-label use of Merit products (p 4).
The whistleblower in the case, Dr. Charles Wolf, had served for 4 years as chief compliance officer for Merit. A non-practicing physician with 20 years of compliance experience, Dr. Wolf claimed he made numerous attempts over time to spur company leadership to corrective action, to no avail. Instead of reforming policies for the better, Merit management allegedly implemented a new rating system to estimate risk-levels of existing and proposed marketing strategies. Despite Dr. Wolf’s protest, Merit officials opted not to discontinue, but to expand the use of the tactics questioned by Dr. Wolf, enhanced by their ongoing in-house risk analysis. According to the complaint, frustrated and aggravated, Dr. Wolf submitted his resignation in 2016 and contacted the DOJ (p12).
The DOJ suit outlines the alleged violations of the False Claims Act, the Stark Law, and the Anti-Kickback Statute. As stated in the suit, “Merit knew or should have known that its conduct, representations and omissions were contrary to federal and state laws, were without FDA approval, were off-label, and were creating a dangerous medical situation for unsuspecting patients (p 9).”
Specific problem areas discussed in the complaint included (pp 26-49):
· Coding physician payments as advertising expenditures in a “Local Advertising Program” (LAP)
· Inducing existing clients to increase product loyalty and frequency of use
· Classifying payments as training, consulting fees, advertising, and retainers
· Dispersing large sums to healthcare providers possessing influence and potential for exorbitant ROI through referrals
· Relying on hand-written and loosely structured consulting agreements
· Scant filing of invoices for time worked
· Overpaying above the amount due for time worked on filed invoices
According to the complaint, since 2010 Merit paid an estimated minimum of $2 million per year in kickbacks to providers, with an annual budget of $750,000 for the LAP (p 26). In addition to extravagant meals, travel, and lodging, over-the-top retainers were paid to physician “consultants”, both within the US and abroad, with limited submission of invoices detailing work or professional time. On the rare occasion of invoicing, additional payments were made over and above the retainer fees (pp 30-53).
Questionable fees paid out in 2014-2015 include:
· £10,000 per year to a physician, United Kingdom
· €10,000 per year to a physician, France
· $2,000 per month to two different US physicians
Also among the payouts listed in the suit were speaker fees and royalties:
· $5,000 “research” payment for podium time at a conference in Ohio
· $600 for a dinner to “expand product use for local oncologists” with a physician in CA (p.30)
· $7000 in “royalties” and $4000 paid in 2014 for consulting to an Interventional Radiologist, for no reported measurable work time
What Can We Learn?
The settlement has not yet been finalized, and in the case of settlement, not all information is made public. However, it does reinforce the importance of ensuring that any remuneration to physicians is commercially reasonable for time worked, well documented, and entirely free from any expectation of referral quid pro quo.
Companies in the life sciences industry should only pay fair market value and commercially reasonable consulting rates or speaker fees to physicians for their time and expertise. The complaint shows that to protect all parties involved, these important elements should be minded when establishing speaker fees and/or consultant payments.
Helpful Tips to Remember:
· Avoid advance payments
· Implement a “pay-as-you-go” system to curtail miscalculation and prevent over-payment
· Utilize a transparent invoice system by which physicians document professional time spent
· Maintain records of all documentation for consulting work and presentations provided by the physician together with related payments
· Avoid vague retainer relationships