How a massive kickback scheme eroded Olympus' corporate culture

In 2012, the manufacturer of a widely used medical scope discovered that the equipment could be harboring dangerous bacteria.

This was uncovered by an independent investigator hired by Olympus Corp. to look into the cause of bacteria discovered in a duodenoscope that was suspected of infecting 22 patients at a Netherlands hospital, according to a report obtained by the Los Angeles Times. The investigator discovered a "brownish scale" or film around various parts of the scope, including hard-to-clean spaces around the "forceps elevator," a small mechanism at the tip of the scope.

The discovery had immediate patient safety implications. In the report, the investigator recommended the company "investigate immediately all scopes worldwide of a similar type."

By January 2013, Olympus issued a safety warning to European hospitals for its TJF-Q180V duodenoscope, recommending the use of a specific brush to clean the device, according to the LA Times. The company issued a second warning the following year, even asking hospitals to sign a form indicating they had shared the relevant information with staff members.

But no such warning was issued in the United States despite several infectious outbreaks thought to be linked to the same scope at hospitals in Seattle and Pittsburgh.

In fact, Olympus stayed quiet about the potential safety hazards until March 2015, after UCLA's Ronald Regan Medical Center discovered 179 patients were potentially infected by the with a drug-resistant bacteria called CRE. The infection was found to be a contributing factor in the death of two patients, according to the hospital.

A month later, Olympus issued new cleaning requirements, similar to the recommendations it issued to European hospitals, urging hospitals to use a new "small bristle cleaning brush."

By then the patient safety debacle had gained momentum, and new cleaning requirements weren't going to stop it. Earlier this year, a Senate report determined that the duodenoscopes were linked to 25 different incidents that impacted 250 patients worldwide. Days later, Olympus voluntarily recalled the device and said it would be replacing the forceps elevator mechanism that was found to harbor dangerous bacteria.

Amid the continuous stream of reports that surfaced over the last year, one question has persisted: If the company knew of potential safety infection concerns with its equipment, why did it wait two years to intervene?

A recent record-setting settlement with Olympus offers a few belated answers. The government outlined a kickback scheme that predated the company's patient safety troubles, but painted a picture of a corporate culture in which compliance was viewed as a nuisance, a corrosive attitude that appears to have paved the way for the infectious outbreak U.S. hospitals are currently dealing with.

The $646 million settlement was the largest sum paid by a medical device company involving kickback claims in U.S. history. As part of the settlement, Olympus admitted that it paid hospitals millions in research grants to sign purchasing agreements with the company. In other cases, Olympus paid for trips to Japan or provided free equipment to physicians that helped facilitate purchasing agreements for Olympus devices. The kickbacks facilitated more than $600 million in sales and more than $230 million in gross profits, according to the Department of Justice (DOJ).

The DOJ's criminal complaint says Olympus occasionally held grants for months until hospitals signed deals to use its equipment. In 2007, the company approved six-figure research grants to hospitals simply because they were the "#1 account in the US." That same year, Olympus approved grants for another hospital because the company was "getting tremendous ROI" from the hospital. In 2006, an Olympus vice president thanked the chair of the company's grant committee for inviting a physician on a week-long trip to Japan, writing "We have received all of the orders expected and have kept [a competitor] completely out of the [Midwestern hospital] system. Hooray!"

All of this was happening with virtually no compliance programs in place. It wasn't until 2009 that Olympus even created a position for a compliance officer, and the company didn't fill the position until the following year.

It's not difficult to see how the proverbial snowball began its gradual descent. For years, Olympus gleefully ignored anti-kickback laws ("Horray!") with a corporate culture devoid of compliance that prioritized sales and profits above all else. By 2012, the snowball had gained momentum, and a few small safety concerns at one hospital in the Netherlands weren't going to slow it down. By 2015, the snowball was a rumbling, unstoppable force that even the Food and Drug Administration couldn't rein in.

The financial harm of kickback schemes is often quite clear. In this case, kickbacks translated hundreds of millions in false claims submitted to government-run health programs. But the tangential harm is typically more opaque.

In the case of Olympus, the company's downward slide is long, convoluted and messy, but it was made significantly worse by a corporate culture that eroded the company's attitude toward compliance, setting the stage for a patient safety debacle that could have been avoided. - Evan (@HealthPayer)

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