Tag: fraud

Today we conclude our series on a Federal Anti-Kickback enforcement action which was announced last week, involving the Oregon based medical device manufacturer Biotronik Inc. (Biotronik). Today, I want to consider the corruption schemes and the lessons learned for the compliance professional. As stated in the Settlement Agreement, Biotronik “knowingly caused the submission of false claims for payment to federal healthcare programs by providing remuneration to physicians to induce them to use Biotronik’s CRM devices in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b).”

I. The Bribery Schemes

 a. Abuse of Training Programs

The Settlement Agreement alleges “Biotronik knowingly paid excessive payments to physicians with a purpose of inducing and rewarding their use of Biotronik’s pacemakers, defibrillators, and other cardiac devices. One of ways the company did so was through “its new employee training program (“Training Program”) by knowingly paying some of its physician customers (“Training Physicians”) to provide excessive employee trainings.” Under this scheme, the Training Physicians were to be paid a fixed fee of approximately $400.00 each time a Biotronik employee trainee received training during one of the Training Physician’s CRM implant procedures. For instance, under the Training Program implant procedure, the “Training Physician was supposed to educate the employee trainee on Biotronik’s devices and teach how to assist a physician during an implant procedure.”

However, it was the sales team which set up these training programs. Biotronik’s compliance and training functions warned that “Biotronik’s salespeople had too much influence in the selection of Training Physicians, that the Training program and resulting payments were being over- utilized, and that the goal of educating Biotronik employees could be achieved without paying Training Physicians.” However, “Biotronik permitted trainees to attend an excessive number of training procedures for which Training Physicians received payment from Biotronik without first conducting an adequate assessment of the trainee’s need for additional training.”

To further line the pockets of the Training Physicians, “salespeople, including managers, intentionally prevented otherwise qualified trainees from successfully completing the Training Program, not because they needed additional training, but rather as a means of ensuring that the trainee could attend more trainings, thereby purportedly justifying additional payments to Training Physicians.” Biotronik also knowingly paid Training Physicians for some trainings that either never occurred or was of little or no value to trainees. This included paying one “Training Physician for certain trainings for which there was no trainee physically present to observe the implant procedure.”

b.  Lavish Entertainment

The Settlement Agreement also alleged that “Biotronik knowingly paid for lavish meals, entertainment, and travel for certain physicians who are known to Biotronik and the United States (hereinafter the “Subject Physicians”) with a purpose of inducing and rewarding their use of Biotronik’s pacemakers, defibrillators, and other cardiac devices.” The company “did not require sign in sheets for lavish meals with physicians and did not use adequate methods to verify the number or identity of attendees or to confirm whether the meals were for a legitimate business purpose.”

This led to  some Biotronik employees falsifying “receipts and participant lists, making it possible to exceed the company’s compliance spending limit per attendee.” These meals and outings often included little or no legitimate business discussion. There was also the amount of the entertainment expense, which included “winery tours, annual office holiday parties, and lavish meals with certain Subject Physicians and their guests at high-end restaurants.” Yet another example of spending far too much on entertainment was “one Subject Physician’s international business class airfare and honoraria in the thousands of dollars for a short, 30-minute talk at an international conference.”

II. Biotronik Remediation

No doubt one of the reasons Biotronik did receive the settlement amount was that, at some point, it recognized the issues and instituted remediation. With the training programs “beginning in 2017, Biotronik added new compliance measures and oversight of the Training Program, limited the number of Training Program events, and reduced payments made in connection with such Training Program events.” In April 2021, Biotronik hired a new Vice President of Compliance and was able to get the lavish entertainment under control by adding “new compliance measures related to the provision of meals and travel to healthcare providers which provided additional employee training, imposed new restrictions, and improved oversight to identify and prevent meal and travel policy violations.”

III. Lessons Learned

There are multiple lessons here for the compliance professional outside the laws under which Biotronik ran afoul. Perhaps the clearest and foremost is that compliance not only needs visibility into areas of risk about also some modicum of control. In the area of Physician Training, the Settlement Agreement specifically noted that the Biotronik compliance function “warned that Biotronik’s salespeople had too much influence in the selection of Training Physicians, that the Training program and resulting payments were being over-utilized, and that the goal of educating Biotronik employees could be achieved without paying Training Physicians.” Here a control should have been put in place which required compliance approval before payments and reimbursements were made for the training. This is similar to a compliance oversight and control of expenses paid or reimbursed to foreign government officials in a Foreign Corrupt Practices Act (FCPA) compliance program.

Interestingly, the Department of Justice (DOJ) also discussed a more nuanced approach to determining if the Physician’s Training is both initially warranted and then continues to be warranted. This is ongoing monitoring. Obviously for Biotronik, one of their risks was when the company paid for training provided by doctors who could also prescribe the company’s products and services. The risk to the company is similar to the risk of an internationally focused company doing business with foreign governments or state-owned enterprises, under the FCPA. If you are paying out monies for training and that puts you in a high-risk category, you need to make sure those receiving the training are required to receive it or even need it.

Under the lavish spending on entertainment and travel, the same type of analysis can apply. The key is both “reasonable spending and business purpose.” The amount spent must be reasonable for the time, locale and participants. There should also be an articulated business purpose for the dinner or other event.

Under the FCPA, there is no threshold that a Company can establish a value for business entertainment. However, I believe there are clear guidelines which should be incorporated into your business expenditure policy, which should include the following:

• A reasonable balance must exist for bona fide business entertainment during an official business trip.
• All business entertainment expenses must be reasonable.
• The business entertainment expense must be commensurate with local custom and practice.
• The business entertainment expense must avoid the appearance of impropriety.
• The business entertainment expense must be supported by appropriate documentation and properly recorded on the company’s book and records.

The incorporation of these concepts into a compliance policy is a good first step towards preventing potential violations from arising, but it must be emphasized that they are only a first step. There must be procedures to implement these policies. At a minimum, you must require a business justification from the business representative requesting to provide the gift or business entertainment. Next it should be reviewed and approved by a front-line compliance professional. Then, depending on the amount and nature of the request, it may need Chief Compliance Officer (CCO) approval. Finally, if there is a Compliance Committee it should go to that Committee for a final check to make sure everything is in order.

These guidelines must be coupled with active training of all personnel, not only on a company’s compliance policy, but also on the corporate and individual consequences for violation of the policy. Lastly, it is imperative that all such business entertainment be properly recorded, as required by the books and records component of the FCPA.

And, as always, do not forget the gut check test.