Minneapolis-based Coloplast Corp. is paying $3 million to settle allegations that the company made illegal payments to cause thousands of senior citizens to switch to its bowel and bladder devices.
Former Coloplast President Kimberly Herman and two other insiders filed a federal whistleblower lawsuit against the company, accusing it of violating the federal anti-kickback statute that outlaws paying for Medicare referrals.
Such payments incentivize overuse and can increase health care costs for the whole system.
Coloplast Corp., the U.S. subsidiary of Denmark-based Coloplast A/S, was not required to admit any wrongdoing as part of the settlement. A written statement from the company said the decision to settle was "driven solely by business considerations."
"We are satisfied that we're finally able to bring the case to a close with a settlement that makes it possible for us to continue our activities in the U.S., including dealer partnerships, at the same level as prior to the investigation," Coloplast CEO Lars Rasmussen said in a Dec. 23 statement.
The statement came one day after the U.S. attorney's office in Boston announced that Coloplast would pay $3.16 million to settle kickback allegations in the 2011 whistleblower suit that was filed by Herman and her co-plaintiffs and later joined by the Justice Department.
The lawsuit said that starting in 2009, Coloplast made illegal payments to third-party suppliers to induce them to run promotional campaigns designed to refer patients to company devices or increase sales involving people who were current patients.
Coloplast Corp. makes several types of products, including ostomy products for survivors of colorectal or bladder cancers whose intestines have been redirected to an opening in the abdominal wall, as well as urinary-incontinence catheters for patients with spinal cord injuries, MS and prostate-cancer surgery. Patients are generally 65 or older.
The lawsuit said patients using ostomy and incontinence products typically require long-term or even lifelong use of disposable medical products to handle bodily waste, making them dependable sources of Medicare revenue for company officials: "Controlling a patient's product choice equated to considerable, recurring revenue. … In fact, internal Coloplast documents describe ostomy and continence consumer care as an 'annuity business,' " the lawsuit said.
Sales staff allegedly offered many forms of payments to persuade health care providers to convert patients to the company's devices, including rebates, valuable market data and direct cash payments known internally as "spiffs."
The lawsuit alleges that on Aug. 9, 2011, one company official told a group of account managers, "Coloplast was willing to pay commissions or bonuses (internally referred to as 'SPIFFs') to … suppliers' sales representatives for conversion, but that the managers need to be careful how much of the program they put in writing."
In 2013, one distributor invoiced Coloplast with a bill for $8,598 for "Elastic Barrier Strip Spiff Q2 2013."
The lawsuit alleges that whistleblower Amy Lestage was told to call the distributor and have them replace the word "spiff" with "marketing funds" on the invoice, and to delete all of her e-mails regarding it.
CEO Rasmussen said the company chose to settle rather than fight such allegations in court.
"Under the circumstances, we are convinced that a settlement is the right thing to do to bring the case to a close. We avoid spending more time and money on a tiring and lengthy legal process," he said in the company statement.
Whistleblowers like Lestage and Herman may stand to get a percentage of the settlement Coloplast agreed to pay, though the final figures are not yet known.
Globally, sales of Coloplast ostomy and continence products grew 11 percent in the fiscal year ended Sept. 30. Coloplast posted roughly $130 million in net profit on $2 billion in revenue during the fiscal year ended Sept. 30.