ResMed to pay more than $37.5M to settle kickback allegations made in 5 whistleblower lawsuits

Gavel court room lawsuit judge
ResMed executives said that the company denies it violated the law and decided to make a civil settlement "in the best interests of patients, ResMed shareholders, customers, and employees."(Pixabay)

Medical equipment maker ResMed will pay $37.5 million to resolve allegations brought by the Department of Justice (DOJ) that it paid kickbacks to durable medical equipment suppliers, sleep labs and other healthcare providers.

The DOJ announced Wednesday that ResMed ran afoul of the Anti-Kickback Statute and alleges that the company filed false claims to federal healthcare programs related to the sale of equipment for sleep apnea and other sleep-related disorders.

“Paying any type of illegal remuneration to induce patient referrals undermines the integrity of our nation’s health care system,” Assistant Attorney General Jody Hunt of the DOJ’s Civil Division said in a press release. "When a patient receives a prescription for a device to treat a health care condition, the patient deserves to know that the device was selected based on the quality of care considerations and not on unlawful payments from equipment manufacturers.”

The Anti-Kickback Statute prohibits the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal healthcare program such as Medicare, Medicaid or Tricare. Claims submitted to these programs in violation of the Anti-Kickback Statute give rise to liability under the False Claims Act, the DOJ said.

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In a statement issued Wednesday, ResMed executives said that the company denies it violated the law and decided to make a civil settlement "in the best interests of patients, ResMed shareholders, customers, and employees."

Terms of the agreement were disclosed in ResMed’s Q4FY19 earnings statement four months ago, ResMed Chief Administrative Officer and Global General Counsel David Pendarvis said in the statement.

"ResMed has not violated any laws; its business practices are conducted in full accordance with U.S. laws and regulations. That said, we are pleased to put this matter behind us and avoid the expense, inconvenience, and distraction it would cause to gain the favorable outcome we deserve," Pendarvis said.

"This settlement does not impact our ability to sell products in the United States, nor does it impact the reimbursement of our products by federal health programs. We have always acted in good faith with patients and our valued customers, and we do not expect this to impact our relationship with either," he said.

The federal investigation into ResMed stemmed from five whistleblower lawsuits filed under the qui tam provisions of the False Claims Act.

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Thomas Baker, a former ResMed sales representative, filed one of the “qui tam," or whistleblower, lawsuits alleging that ResMed paid kickbacks in the form of free “resupply services” to hospital and home health companies that sold its equipment to treat sleep apnea, a sleep disorder, according to Phillips & Cohen LLP, a law firm that filed the case on Baker's behalf. Baker's lawsuit (PDF) was filed in 2016 in federal district court in Columbia, South Carolina.

The company charged service fees to those who sold competitors’ equipment, the whistleblower lawsuits alleged.

"Improper kickbacks don’t always involve bags of cash or free trips to Hawaii," Stephen Hasegawa, a whistleblower attorney and partner at Phillips & Cohen, said. "Services provided by vendors also can be kickbacks if they have some value to customers."

Under the terms of the settlement agreement, ResMed will pay $37.46 million to the federal government and more than $2 million total to various states to settle the five whistleblower cases, including Baker’s, according to Philips & Cohen.

The False Claims Act permits private citizens with knowledge of fraud against the government to bring a lawsuit on behalf of the U.S. and to share in the recovery. The whistleblowers will collectively receive a roughly $6.2 million share of the settlement. 

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The DOJ alleges that ResMed provided durable medical equipment companies with free telephone call center services and other free patient outreach services that enabled these companies to order resupplies for their patients with sleep apnea and provided sleep labs with free and below-cost equipment and diagnostic machines. The company also provided non-sleep specialist physicians free home sleep testing devices, the DOJ alleges.

ResMed also agreed to a corporate integrity agreement with the Department of Health and Human Services Office of Inspector General (HHS OIG). The company is required to implement additional controls around its product pricing and sales and has to conduct internal and external monitoring of its arrangements with referral sources.

“The government contended ResMed provided free goods and services to companies in order to sell more medical equipment bought by taxpayers,” said Derrick Jackson, special agent in charge for the HHS OIG. “The OIG’s integrity agreement with ResMed is designed to ensure such alleged behavior will not be repeated.”

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