Merit Medical: The Local Advertising Program and the Compliance Officer’s Warnings

The Merit Medical kickback settlement required the device maker to pay $18 million to resolve allegations that its Local Advertising Program bought product loyalty through free advertising, practice support and purported educational grants. The government alleged that, for over six years, Merit paid physicians and hospitals to use its products, causing false claims to Medicare, Medicaid, and TRICARE. It also alleged that Merit disregarded warnings from its own chief compliance officer. For an insider who has watched a sales program continue after compliance objected, that is the part of this case worth understanding.

Merit Medical Systems, based in South Jordan, Utah, reached the civil settlement announced by the Justice Department on October 14, 2020. The former chief compliance officer brought the False Claims Act qui tam case. His complaint described how money approved as education or advertising allegedly came back as device sales.

The Local Advertising Program Followed the Sales

The Local Advertising Program allegedly paid for services that helped selected healthcare providers grow their businesses. The government’s account names free advertising assistance, practice development, practice support and purportedly unrestricted educational grants. Merit publicly described its assistance as raising awareness of medical treatments. According to the government, it selected recipients to reward past sales, generate future sales and pull business away from competitors.

The products included EmboSphere devices, generally used for uterine fibroid embolization, and QuadraSphere devices, generally used for other embolization procedures. In the whistleblower’s complaint, the program also served sales of catheters, guidewires and other devices used in those procedures.

The complaint alleged that Merit tracked the return on its advertising money through increased sales and procedures, then used that return to justify renewing a provider’s funding. Sales representatives allegedly initiated payments with management’s approval. That puts the recipient list, the approval email and the subsequent orders in the same story: who received support, who chose them and what business the company expected back.

Referral Letters With No Manufacturer Named

The complaint alleged that Merit drafted, paid for and distributed letters promoting EmboSphere users to other physicians who could send them patients. Some letters pointed out that Medicare reimbursed uterine fibroid embolization. The whistleblower described both the commercial purpose and the missing disclosure:

A referring physician could see an invitation from a clinical practice without seeing the device company paying to fill that practice’s schedule.

The complaint also alleged that most advertisements omitted Merit’s involvement and that patients were not told of the payments. It described a physician referral website whose listings were controlled by Merit’s sales and marketing division. Physicians allegedly could lose their listing if they failed to show loyalty to Merit products. The benefit was access to patients, and the alleged condition was continued device business.

An Unrestricted Grant With a Sales Expectation

A sales representative’s email reproduced in the complaint sought $7,500 for an unrestricted educational grant to a hospital system. The proposed meeting concerned drug-loaded embolization. The representative described the opportunity to help the system develop that practice and position Merit as its vendor of choice, while noting that incoming physicians had used a competing product.

The email described the proposed contribution as small beside the business opportunity, with this qualification:

That is why the approval correspondence matters alongside the grant agreement. The complaint alleged that some written agreements said the money would not influence treatment or device choice, while internal emails described the sales expected from it.

The whistleblower also alleged that an internal email discussed funding events to gain entry into Veterans Affairs hospitals and encourage off-label QuadraSphere use.

What Are Some Examples of Kickbacks in Healthcare?

The Merit complaint alleged benefits ranging from free advertising to consulting payments for no work, paid presentations and physician vacations. Each example turns on what the company allegedly expected to buy with the benefit.

One interventional radiologist allegedly received $4,000 a month in consulting fees despite performing no work for the payment. The complaint said consulting agreements required detailed invoices describing the work, but physicians were paid without supplying them. It also alleged that consultants who actually performed work received additional payments beyond their retainers.

In another example, the whistleblower alleged that Merit paid a physician $5,000 for a continuing medical education presentation to secure his loyalty and influence his remarks. The payment was described as research support, but the alleged purpose concerned what the physician would say and whose products he would favor.

The complaint also described paid physician trips to the company’s President’s Club, including vacations in Puerto Rico and Maui. It alleged that Merit paid for attendance over the compliance officer’s objections under the guise of education that, if provided at all, amounted to a one-hour speech.

The Compliance Officer Could Review, but Management Could Decide

The Justice Department alleged that Merit disregarded numerous warnings about possible Anti-Kickback Statute violations, including warnings from its own chief compliance officer.

According to his complaint, his responsibilities included reviewing marketing, sales, training and communications, attending sales training sessions and making compliance recommendations. He was not the final decision-maker. He alleged that management gave his concerns little more than token respect and failed to investigate or overhaul the programs he challenged.

The employee reviewing a grant may see the stated purpose and raise an objection. The sales team may hold the customer history and expected return. Management may approve the payment. The complaint follows a concern from the person who reviewed the program to the people who could keep funding it.

How Does Reimbursement Work for Medical Devices?

Medicare usually includes a device’s cost in payment for the procedure. In institutional care, the physician may strongly influence the product choice while the hospital or surgery center buys the device and receives payment for the service.

The Health and Human Services Office of Inspector General explains that separation in its alert on physician-owned entities: implantable devices are often chosen by the physician, including the brand and type, rather than by the institution buying them. In Merit’s case, the government alleged that manufacturer payments influenced product use in procedures for federal-program beneficiaries and caused the resulting false claims.

A 2020 review in the Journal of Forensic and Investigative Accounting, A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud, explains that kickback benefits can be indirect or supplied in kind. It also places the request for government payment at the center of a False Claims Act case.

Applied to the Merit allegations, that means following the advertising support through the provider’s device choice to the procedure claim. A manufacturer can fund the practice’s growth while a different business submits the bill.

In the government’s Merit allegations, taxpayers funded procedures influenced by manufacturer payments, while competing device makers lost business to those payments.

What Evidence Is Needed to Prove Fraud?

Our whistleblower experts work with you to connect the benefit, the reason for selecting its recipient, the resulting device use and the government claim. Merit’s complaint makes those connections concrete through advertising drafts, grant requests, sales correspondence, consulting agreements and records of what happened after the company funded a provider.

A practice manager may recognize the referral letter without knowing who paid the printer. A sales employee may know why one practice received support and another did not. A compliance officer may have reviewed the same grant and the objection raised before approval. Someone on the billing side may see the procedure claims.

We work with those different views of the transaction. A grant request can explain the intended benefit. A sales follow-up can show whether the company measured success by new orders. A consulting agreement and its work records can show what a monthly payment actually purchased. The provider’s records connect the clinical use to the payment sought from Medicare, Medicaid, or TRICARE.

The Settlement and the Five-Year Integrity Agreement

The civil settlement allocated $15.21 million to the federal government and $2.79 million to individual states. The states jointly funded Medicaid claims involving Merit devices.

Merit also entered a five-year Corporate Integrity Agreement with the Health and Human Services Office of Inspector General. The agreement required the company to hire a compliance expert and an independent review organization to analyze its systems and transactions.

The allegations concerned payments and decisions inside the company. The integrity agreement imposed outside review going forward. For a case brought by the former chief compliance officer, that is a pointed change in who would examine the company’s arrangements.

How Much Is a Whistleblower Claim Worth?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In the Merit case, the Justice Department announced a $2.65 million whistleblower reward from the federal share of the settlement.

Practice Development Appears in Other Device Cases

The government has also alleged that device makers bought product loyalty by building customers’ practices. In the Covidien practice-development settlement, the alleged support included customized marketing plans, meetings designed to generate physician referrals and help with vein-screening events that could bring in new patients.

In the Cardiovascular Systems case, the government alleged that the manufacturer promoted device users to referring physicians, coordinated meetings and developed business-expansion plans for them.

The common benefit was a larger practice. Advertising, referrals and business development can have value to a physician long before a device order appears. Merit’s complaint adds the internal sales tracking and compliance objections that show why those services deserve attention alongside direct payments.

You Saw What the Program Was Buying

If you know how advertising money, consulting fees or educational grants were tied to device sales, speak to one of our whistleblower experts about what the program was buying. We build your strongest medical device whistleblower case with you, bring in medical device whistleblower lawyers who understand manufacturer payments and provider billing, and stay beside you as your partner throughout the case.