Coloplast Corp. and Liberator Medical Agree to Pay Over $3.6 Million to Resolve False Claims Act Allegations

The Justice Department announced today that Coloplast Corp., a manufacturer of ostomy and continence care products, and Liberator Medical Supply, Inc., a supplier of medical products, have agreed to pay $3.16 million and $500,000, respectively, to resolve allegations that Coloplast paid kickbacks to several medical suppliers, including Liberator, to induce them to conduct promotional campaigns designed to refer individual users to Coloplast products.  

The settlement with Coloplast resolves allegations that it paid kickbacks to Byram Healthcare Centers, Inc.; CCS Medical, Inc.; Liberator; Liberty Medical, Inc. and Handi Medical, Inc., in return for marketing promotions and conversion campaigns.  In the case of Byram, Liberty and Handi, Coloplast’s promotional campaigns allegedly included kickbacks in the form of funding for cash incentives – sometimes known as “spiffs” – paid to the suppliers’ sales personnel to induce them to refer patients to Coloplast products.  In other instances, Coloplast allegedly gave rebates or price concessions as inducements for the promotional campaigns.  The settlement with Liberator resolves Liberator’s alleged receipt of kickbacks from Coloplast in the form of price concessions, in return for Liberator’s agreement to conduct two campaigns promoting Coloplast ostomy products to Liberator’s customers.

“This settlement displays the commitment of the Justice Department to protect vulnerable patients in federal health care programs from corporate marketing practices that are not in those patients’ best interests,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. 

 “The payment of kickbacks to induce purchases of medical supplies undermines our federal health care programs, ultimately distorting consumer purchasing decisions, and increasing health care costs,” said U.S. Attorney Carmen M. Ortiz of the District of Massachusetts.

“Both of these companies acted with their own self-interests in mind, putting profits over patient care,” said Special Agent in Charge Harold H. Shaw of the FBI Boston Field Office.  “The decision on which medical products to refer should be based on what is best for the patient, not on cash incentives or rebates.”

The False Claims Act settlements resolve allegations brought in a whistleblower lawsuit filed by two former employees of Coloplast under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery.  Under the False Claims Act, a whistleblower is entitled to receive a share of the federal recovery.  The whistleblowers’ share of the Coloplast and Liberator settlements has not been determined.  Claims against other defendants in the case remain outstanding.

The investigation was conducted by the FBI and the Department of Health and Human Services Office of Inspector General.  The case is being handled by the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office of the District of Massachusetts.

The case is captioned United States ex rel. Herman, et al. v. Coloplast Corp., et al. Case No. 11-cv-12131-RWZ (D. Mass.).  The claims resolved by the settlements are allegations only, and there has been no determination of liability.