Endoscope Maker Olympus Agrees To $646 Million Settlement Over Kickbacks

Medical device maker Olympus Corp., already under federal investigation for its role in superbug outbreaks, has agreed to pay $646 million to resolve criminal and civil probes into illegal kickbacks and bribes to doctors and hospitals.

Federal prosecutors said Tuesday that the company's settlement is the largest ever for violations of the U.S. Anti-Kickback Statute. A portion of the company's payout, $22.8 million, will resolve similar bribery allegations in Latin America.

U.S. investigators said the Tokyo-based company's "greed-fueled kickback scheme" from 2006 to 2011 used research grants, consulting deals, luxury trips, gifts of hot-air ballooning and spa treatments and free equipment to induce influential doctors to order more Olympus devices at prominent hospitals and help the company keep out competitors. The devices included gastrointestinal scopes, which have been tied to deadly outbreaks of drug-resistant bacteria.

In one case, according to the federal criminal complaint, senior Olympus executives agreed to pay for three doctors to spend a week in Japan "as a quid pro quo" for a prominent California institution to switch from a competitor's products to Olympus.

After the trip, one of the doctors thanked Olympus for "providing so much extra entertainment that we did not expect," according to the government's complaint.

Prosecutors declined to name any medical centers or doctors in their complaint.

In other instance, Olympus gave a doctor $400,000 worth of free endoscopes and other supplies for his private practice from 2006 to 2010, prosecutors said. Olympus believed this doctor could persuade a "leading New York medical center" to spend millions of dollars on devices, according to the government complaint.

This strategy appeared to pay off for Olympus. Prosecutors alleged that after a key doctor for a Midwest hospital system took a week-long trip to Japan and received a company grant, an Olympus vice president wrote an internal email in 2006 that said, "We have received all of the orders expected and have kept [a competitor] completely out of the [hospital] system. Hooray!"

As part of the settlement, Olympus agreed to a corporate-integrity agreement and the appointment of an independent monitor, Larry Mackey, a former prosecutor in the Oklahoma City bombing cases.

"Olympus leadership acknowledges the company's responsibility for the past conduct, which does not represent the values of Olympus or its employees," Nacho Abia, chief executive of the Olympus Corp. of the Americas unit in Center Valley, Pa., said in a statement. "Olympus is committed to complying with all laws and regulations and to adhering to our own rigorous code of conduct."

As a result of the kickbacks, Olympus generated more than $600 million in sales and reaped gross profits of $230 million, officials said. Olympus is the leading manufacturer of gastrointestinal scopes worldwide, and it boasts an 85 percent share of the U.S. market.

"Kickbacks are illegal because they taint buying decisions," said Paul Fishman, U.S. Attorney for the District of New Jersey, which spearheaded the investigation. "Doctors and hospitals should decide to purchase medical devices based solely on legitimate considerations, like quality and price. They shouldn't be tempted and swayed by free trips, free equipment, consulting agreements or research grant money."

Prosecutors credited the help of the former chief compliance officer at Olympus, John Slowik, who filed a whistleblower case against the company under seal in 2010.

In his whistleblower complaint, unsealed Tuesday after the government's announcement, he said he was fired by Olympus for trying to end improper practices. Slowik now stands to receive about $50 million from the settlement, in accordance with federal whistleblower law, prosecutors said.

Patrick Burns, acting president of the Taxpayers Against Fraud Education Fund, praised Slowik, saying he exposed illegal actions that wasted money and threatened patient safety.

"This is exactly why we need whistleblowers — because companies cannot be relied upon to put patients before profits," Burns said. Olympus was "funding a massive kickback scheme that channeled millions of dollars in payola to doctors and hospitals."

Well before Tuesday's announcement, Olympus was under fire for failing to alert U.S. regulators and hospitals sooner about the risks of infection from its duodenoscopes, a gastrointestinal scope that has proven difficult to clean of dangerous bacteria because of its intricate design.

A Senate investigation released in January identified 19 scope-related outbreaks at U.S. medical centers from 2012 to 2015 that sickened nearly 200 patients with drug-resistant infections. Thirteen of those outbreaks were associated with Olympus scopes.

Olympus announced in January it would recall its duodenoscopes nationwide and make repairs to better protect patients. Last year, the company disclosed it had received a subpoena from federal prosecutors seeking "information relating to duodenoscopes."

In the kickback case, federal officials said Olympus used a grants committee staffed by sales and marketing executives to dole out millions of dollars to key hospital and physician customers.

In 2007, Fishman said an Olympus vice president recommended a research grant of $100,000 to a hospital's foundation. "Why? Because that hospital was their '#1 account in the US' and they had, and I'm quoting, 'no intention of losing it' to a competitor," Fishman said Tuesday.

Although prosecutors didn't identify institutions, the whistleblower's complaint did mention some physicians and hospitals by name.

For instance, it recounted an October 2009 meeting between top Olympus executives and a prominent doctor at the University of Southern California's Keck School of Medicine, about the possibility of a company grant.

After the meeting, an Olympus executive in Japan emailed a counterpart in the U.S. about his opinion on the USC grant in light of "future business expansion (any future sales potential?)," according to the whistleblower's complaint.

A spokeswoman for USC said she couldn't immediately comment late Tuesday.

Olympus reported a general payment of $64,013 to USC's Keck Hospital in 2014 for "in-kind items and services," according to federal data on industry contributions to doctors and teaching hospitals.

Overall, for 2014, Olympus issued $5.25 million in general and research-related payments to physicians and hospitals, the federal database shows.

Slowik, the whistleblower, said the company ran a "sham physician consultant program" that paid some doctors more than $100,000 annually.

Prosecutors said Olympus paid one doctor $112,300 for consulting from 2006 to 2011 in order to influence the purchasing decisions of a "leading Southeastern medical institution."

The company also used "permanent loans" or "medical loaner scopes" to improperly give hospitals free equipment, inducing them to buy more products, according to federal investigators.

"This practice enabled Olympus America to acquire monopoly power in certain segments of the medical business, ultimately resulting in customers paying inflated prices," according to Slowik's amended complaint.

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.