Deferred Prosecution Agreement
Exhibit 10.3
1. Xxxxxx Medical Technology, Inc. (the “Company”), by its undersigned attorneys,
pursuant to authority granted by its Board of Directors, and the United States Attorney’s
Office for the District of New Jersey (the “Office”), enter into this Deferred Prosecution
Agreement (the “DPA”). Except as specifically provided below, the DPA shall be in effect
for a period of twelve (12) months from the date on which it is fully executed (the
“Effective Date”).
2. The Office has informed the Company that it will file, on or shortly after the Effective
Date of this DPA, a criminal complaint in the United States District Court for the District of New
Jersey charging the Company with conspiracy to commit violations of the Federal Anti-Kickback
Statute, contrary to Xxxxx 00, Xxxxxx Xxxxxx Code, Section 1320a - 7b(b), in violation of Xxxxx 00,
Xxxxxx Xxxxxx Code, Section 371, during the years 2002 through 2007 (the “Criminal Complaint”).
This Office acknowledges that neither this DPA nor the Criminal Complaint alleges the Company’s
conduct adversely affected patient health or patient care.
3. The Company and the Office agree that, upon filing of the Criminal Complaint in
accordance with the preceding paragraph, this DPA shall be publicly filed in the United
States District Court for the District of New Jersey, and the Company agrees to post the DPA
prominently on the Company website for the duration of the DPA.
4. In light of the Company’s remedial actions to date and its willingness to (a)
undertake additional remediation as necessary; (b) acknowledge responsibility for its
behavior; (c) continue its cooperation with the Office and other government agencies; and
(d) demonstrate its good faith and commitment to full compliance with federal health care
laws, the Office shall recommend to the Court that prosecution of the Company on the
Criminal Complaint be deferred for a period of twelve (12) months from the filing date of
such Criminal Complaint. If the Court declines to defer prosecution for any reason, this
DPA shall be null and void, and the parties will revert to their pre-DPA positions.
5. In 2004, the Company incorporated the provisions of the newly promulgated AdvaMed Code of
Ethics on Interactions with Health Care Professionals (“AdvaMed Code”) into its Code of Business
Conduct, which the Company first issued in 1994. More recently, the Company has undertaken a
Compliance Initiative designed to strengthen its compliance processes, procedures and controls,
with a particular focus on those concerning consulting arrangements with customers or potential
customers of the Company’s hip and knee reconstruction and replacement products. In that respect,
the Company has separated the roles of General Counsel and Chief Compliance Officer, appointed a
new Chief Compliance Officer, expanded the obligations of its Nominating, Compliance and Governance
Committee, undertaken a review of its existing consulting agreements with respect to hip and knee
reconstruction and replacement products, and developed a comprehensive needs assessment process for
such consulting services. The Company also has developed additional policies and standard operating
procedures regarding, among other things, educational grants and charitable donations, product
development consultants, research consultants, training and education consultants, and employee and
distributor compliance training programs.
1
General Commitment to Compliance and Remedial Actions
6. The Company commits itself to exemplary corporate citizenship, the best practices of
effective corporate governance, the highest principles of honesty and professionalism, the
integrity of the operation of federal health care programs including
Medicare and Medicaid, the sanctity of the doctor-patient relationship, and a culture of openness,
accountability, and compliance throughout the Company. The Company also commits not to attempt to
influence medical practitioners and institutions to use the Company’s products through the use of
unlawful inducements. To advance and underscore this commitment, the Company agrees to take, or
has acknowledged that it has taken, the remedial and compliance measures set forth herein.
7. In matters relating to federal health care laws, the Company will cooperate fully with all
federal law enforcement and regulatory agencies, including but not limited to: the Criminal and
Civil Divisions of the Office; the United States Department of Justice, Criminal and Civil
Divisions; the United States Department of Health and Human Services, Office of Inspector General
(“HHS-OIG”); the Federal Bureau of Investigation (“FBI”); and the United States Postal Inspection
Service (“USPIS”); provided, however, that such cooperation shall not require the Company’s waiver
of attorney-client and work product protections or any other applicable legal privileges. Nothing
in this DPA shall be construed as a waiver of any applicable attorney-client or work product
privileges (hereafter “privilege”).
8. The Company shall communicate to its employees and distributors that Company personnel and
agents are required to report to the Company any suspected violations of any federal laws,
regulations, federal health care program requirements, or internal policies and procedures.
9. The Company shall implement or continue its operation of an effective corporate compliance
program and function to ensure that internal controls are in place to prevent recurrence of the
activities that resulted in this DPA. The Company shall also develop and implement policies,
procedures, and practices designed to ensure compliance with federal health care program
requirements, including the Anti-Kickback Statute, with respect to all its dealings with
Consultants, as defined herein, and others who cause the purchase of Company hip and knee
reconstruction and replacement products in the United States.
10. The Company shall adhere to the Revised and Restated AdvaMed Code of Ethics on
Interactions with Health Care Professionals. The Revised and Restated AdvaMed Code, which became
effective on July 1, 2009, can be found at xxx.xxxxxxx.xxx. The principles set forth in the
AdvaMed Code are expressly incorporated as compliance requirements under this DPA.
11. The Company agrees that its President and Chief Executive Officer, Vice President, General
Counsel and Secretary, Vice President, Chief Compliance Officer (“Compliance Officer”), and
appropriate Company executives will meet quarterly with representatives of the Office and with the
Monitor, in conjunction with the Monitor’s quarterly reports described in paragraph 19(c) herein.
2
Definitions
12. “Consultant” is defined as any United States-based orthopaedic surgeon, PhD, health care
professional, non-physician practitioner, medical fellow, resident or student, hospital, medical
institution, or any employee or agent of any educational or health care organization the Company
retains for any personal or professional services or compensates or remunerates in any way,
directly or indirectly, for or in anticipation of personal or professional services relating to hip
and knee reconstruction and replacement in the United States. The term “Consultant” shall not
include accountants, auditors, attorneys, fair market value specialists, CME providers,
reimbursement specialists, any non-physician engineering or marketing consultants, or any other
types of non-physician professionals or entities excluded from this definition by the Monitor upon
recommendation by the Company.
13. “Consulting Agreement” includes all contracts with Consultants for services to be performed
on behalf of the Company relating to hip and knee reconstruction and replacement in the United
States. This includes, but is not limited to, agreements for compensation, payments, remuneration,
honoraria, fellowships, professional meetings, speaking engagements, teaching, publications,
clinical studies, fee-for-service consulting, product development and license agreements, research,
and professional services agreements. The term “Consulting Agreement” also includes agreements to
provide grants, donations, sponsorships and other forms of payment to medical educational
organizations, medical societies and training institutions.
14. “Consulting Services” or “Services” include any and all professional services provided by
a Consultant to or on behalf of the Company relating to hip and knee reconstruction and replacement
in the United States.
15. “Payment” shall include any and all compensation or remuneration paid to or for the
benefit of Consultants, including but not limited to payments and reimbursements for personal or
professional services, any type of securities, registered or unregistered, meals, entertainment,
travel, gifts, grants, honoraria, charitable contributions, donations, sponsorships, research
grants, clinical studies, professional meetings, product training, medical education, research
funding, product development services, in-kind services (e.g., use of aircraft), advertising,
promotion, and marketing expenses or support, and royalties or other payments for transfer of
documented intellectual property. Unless otherwise approved by the Monitor, the Company shall only
compensate or remunerate Consultants through direct Payments made pursuant to a Consulting
Agreement. The Company shall not knowingly make any Payments to Consultants indirectly, such as
through distributors. Subject to Monitor approval, payments may be made to Consultants through
consulting entities provided that (1) the Consultant is named in the corresponding Consulting
Agreement, and (2) the Consultant is named on any and all payment documents.
Retention and Obligations of a Monitor
16. The Company agrees that until the expiration of this DPA, it will retain an outside,
independent individual (the “Monitor”) selected by the Office consistent with United
3
States Department of Justice guidelines and after consultation with the Company, to evaluate and
monitor the Company’s compliance with this DPA. The Monitor is an independent third party, and not
an employee or agent of the Company, and no attorney-client relationship shall be formed between
the Monitor and the Company. The Company agrees that it will not employ or be affiliated with any
selected Monitor for a period of not less than one year from the date the monitorship is
terminated.
17. The Monitor shall have access to all non-privileged Company documents and information the
Monitor determines are reasonably necessary to assist in the execution of his or her duties. The
Monitor shall have the authority to meet with any officer, employee, or agent of the Company. The
Company shall use its best efforts to have its independent distributors for hip and knee
reconstruction and replacement products in the United States and their employees and agents fully
cooperate and meet with the Monitor as requested. For all distributor agreements for hip and knee
reconstruction and replacement products and renewals in the United States executed after the
Effective Date, the Company shall require provisions allowing the Monitor access to non-privileged
relevant documents and information relating to Consulting Agreements and Services, and compliance
with all applicable provisions of the DPA.
18. The Monitor shall conduct a review and evaluation of all Company policies, practices, and
procedures relating to compliance with the DPA and the following subjects, and shall report and
make written recommendations as necessary (“Recommendations”) to the Company and the Office
concerning:
| a. | The corporate structure and governance of the Company relative to selecting, engaging, and paying Consultants; | ||
| b. | The effectiveness of the procedures and practices at the Company to select, engage, and pay Consultants in exchange for the provision of Services to the Company, as well as the related legal, compliance, research and development, marketing, sales, internal controls, and finance functions; | ||
| c. | The effectiveness of the training and education programs in the following areas: federal health care laws concerning relationships between the Company and Consultants; Medicare, Medicaid and other health care benefit programs; ethics; and compliance and corporate governance issues relating to federal health care laws; | ||
| d. | The structure and content of agreements memorializing arrangements to engage and pay Consultants in exchange for the provision of Services to the Company and the Company’s payments to Consultants made thereunder. The Monitor shall have access to and may review all previously entered agreements to the extent he or she reasonably deems necessary; and |
4
| e. | The influence, actual or potential, over Consultants’ selection of Company products as a result of the financial relationships between the Company and those Consultants. |
19. The Monitor shall, inter alia:
| a. | Monitor and review the Company’s compliance with this DPA and all applicable federal health care laws, statutes, regulations, and programs, including the Anti-Kickback Statute and regulations promulgated thereunder in connection with the sale and marketing by the Company of the Company’s hip and knee reconstruction and replacement products in the United States; | ||
| b. | As requested by the Office, cooperate with the Criminal and Civil Divisions of the Office, the United States Department of Justice, Criminal and Civil Divisions, HHS-OIG, the FBI and the USPIS, and, as requested by the Office, provide information about the Company’s compliance with the terms of this DPA; | ||
| c. | Provide written reports to the Office, on at least a quarterly basis, concerning the Company’s compliance with this DPA. In these reports or at other times the Monitor deems appropriate, the Monitor shall make Recommendations to the Company to take any steps he or she reasonably believes are necessary for the Company to comply with the terms of this DPA and enhance future compliance with federal health care laws in connection with the sale and marketing by the Company of the Company’s hip and knee reconstruction and replacement products in the United States, and, as agreed by the Company or mandated by the Office pursuant to paragraph 46, require the Company to take such steps when it is agreed that such steps are reasonable and necessary for compliance with the DPA. The first report to the Office shall be due three (3) months after the Effective Date, and subsequent reports shall be made quarterly thereafter; | ||
| d. | After consultation with the Company and the Office, and allowing reasonable time for the Company or the Office to object, the Monitor may retain, at the Company’s expense, consultants, accountants or other professionals the Monitor reasonably deems necessary to assist the Monitor in the execution of the Monitor’s duties. Before retention, these consultants, accountants or other professionals shall provide to the Monitor and the Company a proposed budget. If the Company believes the costs to be unreasonable, the Company may bring the matter to the Office’s attention for dispute resolution by the Office; | ||
| e. | Monitor the preparation of and approve the Needs Assessment and any Modifications thereto described in paragraphs 27-30 herein; |
5
| f. | Review and approve all new or renewed Consulting Agreements executed between the Effective Date and the date the Needs Assessment is approved; | ||
| g. | Review in his or her discretion any requests for Consulting Services made between the Effective Date and the date the Needs Assessment is approved; | ||
| h. | Review in his or her discretion any Payments made to Consultants between the Effective Date and the date the Needs Assessment is approved; | ||
| i. | Review and approve in his or her discretion all Consulting Agreements with new Consultants executed after the Needs Assessment is approved; | ||
| j. | Review in his or her discretion any Consulting Agreement renewals executed after the Needs Assessment is approved; | ||
| k. | Review in his or her discretion any requests for Consulting Services made after the Needs Assessment is approved; | ||
| l. | Review in his or her discretion any Payments made to Consultants after the Needs Assessment is approved; | ||
| m. | Review in his or her discretion any payments made to CME providers, reimbursement specialists, any non-physician engineering or marketing consultants, or other excluded consultants as described in paragraph 12, for personal or professional services relating to hip and knee reconstruction and replacement in the United States; | ||
| n. | Review in his or her discretion any payments made to Consultants as honoraria, fellowships, gifts, donations, charitable contributions and other non-Service payments as described in paragraph 27; | ||
| o. | Review and approve any new or substitute Consultants as described in paragraphs 33 and 34 herein; | ||
| p. | Approve any changes to the Hourly Rate or any Payments made at a rate other than the Hourly Rate, as described in paragraphs 36-37 herein; | ||
| q. | Monitor the Company’s compliance with its Consultant disclosure obligations as described in paragraphs 40-41 herein; and | ||
| r. | Monitor the information received by the confidential hotline and e-mail address as described in paragraph 43 herein. |
6
In the event the Monitor opposes any Consulting Agreement, request for Consulting Services, or
request for Payment, the Monitor will promptly meet with the Company to discuss his or her
concerns. The Consulting Agreement shall not be executed, the Consulting Services shall not be
rendered, or the Payment shall not be made unless and until the Monitor’s objections are remedied.
All actions of the Monitor in this regard shall be subject to review by the Office and shall not
require the Company to breach any existing contractual requirements so long as those requirements
comply with all applicable laws. The Office will act promptly to resolve any issues on a good
faith and reasonable basis.
20. The Company shall promptly notify the Monitor and the Office in writing of any credible
evidence of criminal corporate conduct as well as of any known criminal investigations of any type
of the corporation or any of its officers or directors that becomes known to the Company after the
Effective Date. In addition, the Company shall promptly notify the Monitor and the Office in
writing of any credible evidence of criminal conduct or serious wrongdoing relating to federal
health care laws by the Company, its officers, employees and agents. The Company shall provide the
Monitor and the Office with all relevant non-privileged documents and information concerning such
allegations, including but not limited to internal audit reports, letters threatening litigation,
“whistleblower” complaints, civil complaints, and documents produced in civil litigation. In
addition, the Company shall report to the Monitor and the Office concerning its planned
investigative measures and any resulting remedial measures, internal and external. The Monitor in
his or her discretion may conduct an investigation into any such matters, and nothing in this
paragraph shall be construed as limiting the ability of the Monitor to investigate and report to
the Company and the Office concerning such matters.
Remedial Measures
Responsibilities of Compliance Officer
21. The Compliance Officer shall be responsible for monitoring the day-to-day compliance
activities of the Company. The Compliance Officer shall be a member of senior management of the
Company who reports directly to the Nominating, Compliance and Governance Committee of the Board of
Directors and indirectly to the President and Chief Executive Officer, and shall not be a
subordinate to the General Counsel, the Chief Financial Officer, or any sales or marketing
officers. The Compliance Officer shall make periodic (at least quarterly) reports regarding
compliance matters to the Company Board of Directors and is authorized to report on such matters
directly to the Company Board of Directors at any time.
22. The Compliance Officer shall have the authority to meet with, and require reports and
certifications on any subject from, any officer or employee of the Company and any distributor and
its employees.
23. The Compliance Officer shall be responsible for oversight, evaluation, and approval of the
Company’s Needs Assessments (described more fully at paragraphs 27-30), and shall evaluate and
approve requests for Consulting Agreements, Services, and Payments, subject to review and approval
by the Monitor as set forth in paragraph 19.
7
24. The Compliance Officer shall be responsible for approving the Consulting Services budget.
All requests for Consulting Services and Payments must be made to and approved by the Compliance
Officer. Any Payments to or for the benefit of a Consultant must be approved by the Compliance
Officer, subject to review of the Monitor as set forth in paragraph 19.
25. Consulting Agreements shall be managed by Company employees who have no sales
responsibilities and who report to the Compliance Officer on issues relating to Consulting
Services. These employees shall interface directly with the Consultants on the terms of their
Consulting Agreements and on issues relating to Payments.
26. From the Effective Date until the Needs Assessment is approved, all requests for
Consulting Services and Payments shall be pre-approved by the Compliance Officer. In considering
these requests, the Compliance Officer and any other Company personnel with knowledge of the
request shall evaluate the bona fides of the activity for which the Services or Payments are
requested, subject to review of the Monitor. No Consulting Services may be approved unless the
Compliance Officer verifies that the Company has a bona fide commercial need for such services.
No Payments may be made without appropriate documentation and verification of services rendered on
a standard form to be developed by the Compliance Officer and approved by the Monitor.
Needs Assessment
27. The Company shall complete a Needs Assessment no later than December 31, 2010, and
annually thereafter. The Needs Assessment may be modified if bona fide, commercially reasonable,
unexpected business needs arise (“Modification”). The Needs Assessment must reflect the Company’s
expected, commercially reasonable needs for all Consulting Services to fulfill its medical,
clinical, training, educational, and research and development needs for its hip and knee
reconstruction and replacement products in the United States. The Needs Assessment shall also
contain a budget for the total amount of honoraria, fellowships, gifts, donations, charitable
contributions, and any other payments contemplated to be made to Consultants for which no
Consulting Services are provided. The Needs Assessment and any Modifications shall be prepared in
consultation with those areas of the Company that have bona fide needs for the services to be
performed. The Needs Assessment and any Modifications must be approved by the Compliance Officer
and the Monitor before they are finalized. As of January 1, 2011, the Needs Assessment and any
Modifications shall be used as a basis for Consultant selection and all Consulting Agreements,
Services and Payments. The Compliance Officer shall attest to the best of his or her knowledge,
after conducting reasonable due diligence, that the Needs Assessment and any Modifications reflect
the bona fide, commercially reasonable consulting needs of the Company.
28. The Needs Assessment shall establish or incorporate by reference detailed protocols or
procedures that must be followed before a Consulting Agreement will be authorized. The Needs
Assessment must identify and quantify the services needed within each discrete service category
(e.g., operating room training, speaking engagements, clinical studies, product development
groups), and provide written support for the needs. The Needs Assessment must set
8
forth the nature of the services needed, the range of hours or other quantitative measure needed to
complete the services, the number of Consultants needed, and the maximum fair market value
compensation to be paid for each consulting service. The Needs Assessment shall also identify the
qualifications and expertise required to perform the services. The Needs Assessment shall ensure
that Services are distributed appropriately to all regions of the country.
29. The Needs Assessment and any approved Modifications shall be used to define and limit all
Consulting Services performed for the Company for the ensuing year. All Consulting Agreements
entered into by the Company shall be for services specified and enumerated by the Needs Assessment
and any approved Modifications. No Consulting Agreement shall be entered into with any Consultant
for services outside those specified in the Needs Assessment and any approved Modifications, or for
services exceeding the number of services specified in the Needs Assessment and any approved
Modifications. For example, if the Needs Assessment specifies that the Company will require
Consultants to conduct 50 speaking engagements on a particular topic, once the total number of
contracted-for speaking engagements reaches 50, the Company may not engage any additional
Consultants for such speaking engagements unless it obtains an approved Modification.
30. The Company shall maintain a record of all Consulting Services provided under the Needs
Assessment and any Modifications. Monthly reports will be issued by the Compliance Officer to the
Monitor and to senior executives in the areas in which services are provided summarizing the
Consulting Services provided or submitted for Payment, by Consultant, by region, and by total, with
a list of services left to be provided during the calendar year in fulfillment of the Needs
Assessment.
Consulting Agreements
31. All Consulting Agreements shall be in writing and executed by the Compliance Officer, the
President and Chief Executive Officer, and the Vice President, General Counsel and Secretary. For
product development and research agreements, the Senior Vice President, Research and Development
also shall sign. For research and clinical services agreements (such as clinical trials, clinical
studies, and follow-up visits), the Vice President, Clinical and Regulatory Affairs also shall
sign. On an annual basis, the Compliance Officer, the Senior Vice President, Research and
Development, for product development and research agreements, the Vice President, Clinical and
Regulatory Affairs, for clinical services agreements, shall attest and certify in writing that,
based on their reasonable inquiry and knowledge, all Consulting Agreements and all Consulting
Services performed thereunder were bona fide, commercially reasonable, and compliant with all
federal health care programs. The Company shall not enter into Consulting Agreements with
Consultants through any third parties, including distributors. Subject to Monitor approval,
payments may be made to Consultants through consulting entities provided that (1) the Consultant is
named in the corresponding Consulting Agreement, and (2) the Consultant is named on any and all
payment documents.
32. All Consulting Agreements for Consulting Services to be rendered in 2011 and thereafter
shall be for a term of the calendar year, with the exception of product development agreements that
could result in the payment of royalties, clinical agreements, external research
9
agreements, or other agreements which may be for a length appropriate to the type of Service being
rendered, upon approval of the Monitor. All Consulting Agreements shall identify the specific
Services to be provided as defined by the Needs Assessment and any Modification thereto, and
specify the rate to be paid for each Service. The Company may not enter into Consulting Agreements
for Services exceeding the total number of Services set forth in the Needs Assessment and any
Modification thereto. Consultants shall be paid only for the actual time expended in providing
Consulting Services, in hourly billing increments or other reasonable quantitative measure as
identified in the Needs Assessment, without regard to the total amount of consulting services
permissible under their Consulting Agreements.
New and Substitute Consultants
33. The Compliance Officer, in consultation with the Monitor and appropriate Company
employees, shall conduct an evaluation of each new Consultant to be considered for a Consulting
Agreement. This evaluation shall ensure that the proposed Consultant’s qualifications and
experience are commensurate with those required by the Needs Assessment and any Modification
thereto, and that any new relationship meets an unfilled bona fide commercial need of the Company.
34. In the event a Consultant is unable to provide services to the Company under a Consulting
Agreement in any given year, the Company may substitute another Consultant or retain a new
Consultant to perform the specified yet unfulfilled Consulting Services of the Consulting
Agreement. The substitute Consultant must be authorized by the Compliance Officer and approved by
the Monitor after conducting a substantive review of the Consultant’s qualifications and expertise.
Payments to Consultants
35. A Company employee or representative must be present for every Consulting Service, except
that the Monitor, upon application by the Compliance Officer, may exempt certain Services from this
requirement (such as collection of clinical study data, travel or preparation time). Upon
completion of the Consulting Service, both the Company employee (or representative) in attendance
and the Consultant must independently verify in writing that the Service took place, identify the
participants present and length of service, and summarize the Service provided. These
verifications must be certified, made under penalty of perjury, and submitted to the Compliance
Officer within ninety (90) calendar days of the date of the Service and as a condition precedent to
any Payments being issued under a Consulting Agreement.
36. For all Consulting Agreements entered into after the Effective Date of this DPA, the
Company agrees to make Payments to Consultants at a fair market value hourly rate (“Hourly Rate”)
of no more than $500 per hour for time actually expended by a Consultant performing Consulting
Services. In the event the Company wishes to make Payments to a Consultant at a higher Hourly Rate
or at a different rate because of the Consultant’s special expertise or the nature of the service
(such as a per patient rate for clinical studies), the Company must obtain or have obtained a fair
market value analysis conducted by an independent organization with
10
expertise in valuation as approved or accepted by the Monitor. Any changes to the Hourly Rate or
Payments at other than the Hourly Rate must be approved by the Monitor.
37. With respect to product development agreements and renewals entered into after the
Effective Date and for all Services to be rendered after January 1, 2011, the Company shall pay a
Consultant on a product development team for the actual time spent providing Services to the
Company, at no more than the Hourly Rate. In addition to the Hourly Rate payments, the Company may
pay each member of a product development team royalties on any product the team may develop. The
number of Consultants serving on a product development team must not exceed the number reasonably
necessary to achieve the identified design and development needs of the project. The aggregate
royalties paid per project to all Consultants shall not exceed fair market value expressed as a
certain percentage of all domestic and international product sales of the product or products that
are the subject of the product development agreement as proposed by the Company and approved by the
Monitor. These royalty payments and Hourly Rate payments shall be the only compensation a
Consultant may receive for participation on a product design team; that is, the Company shall not
make any flat rate payments or minimum guaranteed payments in lieu of or in addition to Hourly Rate
payments and royalty payments. The Company may offset royalty payments to a Consultant with Hourly
Rate payments for Services the Consultant appropriately performed. The Company may pay royalties
to a Consultant only for Intellectual Property received by the Company for products that have
actually been sold. (Products may be considered to have been sold when the products are
transferred to an unrelated third-party or to a Company affiliate located outside the United
States.) If the Intellectual Property has been patented in the United States, royalty payments may
not extend beyond the life of the U.S. patent. If the Intellectual Property has not been patented,
royalties may not extend beyond a reasonable period (in light of factors such as the life cycle and
commercial advantages of the products and Intellectual Property and the burden of administering the
royalty arrangement). As used herein, “Intellectual Property” includes patents, trade secrets and
knowhow received by the Company from the Consultant or product development team under a product
development agreement. The Company shall establish processes for reviewing individual Consultant
contributions to determine whether Intellectual Property has been provided to the Company, and such
processes shall be approved by the Monitor. The persons responsible for deciding whether
Intellectual Property has been provided shall not be involved in sales functions, and their
decision is subject to Monitor approval. The identity of royalty-bearing products must be
reasonable (in light of factors such as the scope of Intellectual Property transferred, the
relationship of the Intellectual Property to the products and the burden of administering the
royalty arrangement) and is subject to Monitor approval. Royalties must not be paid in advance or
in anticipation of product development that might result in a royalty. No royalty may be paid to a
Consultant that is earned by virtue of the use of the product in question by the Consultant or by
any hospital or medical institution with which the Consultant is affiliated. In lieu of royalties,
a fixed amount may be paid for Intellectual Property provided to the Company, provided the amount
is commercially reasonable; such fixed amounts are subject to Monitor approval. For patents and
patent applications that are not assigned or licensed to the Company under a product development
agreement, royalties, patent fees, patent costs, and/or a fixed amount may be paid for the
acquisition or licensing of such patents and patent applications, subject to Monitor approval.
11
38. All Consultants on product design teams shall submit invoices, at least quarterly, and
supporting documentation for services rendered to the Company’s design team project manager for
approval, prior to any Payments being made. A Company employee shall be present at all meetings of
product development teams. That employee shall report the date, the participants, and a summary of
the meeting to the project manager. The project manager must certify in writing that the invoices
reflect bona fide services provided by the Consultant. These invoices, supporting documentation,
and certification must be submitted to the Compliance Officer for Payment.
39. In addition, the following practices have been or shall be implemented no later than sixty
(60) calendar days after the Effective Date:
| a. | The Company may not make Payments to Consultants for collection of clinical data unless there is a written agreement defining the required procedures and protocol and the amount of clinical data to be collected by the Consultant, pre-approved by the Vice President, Clinical and Regulatory Affairs. | ||
| b. | The Company may not make Payments to Consultants for research unless there is a written agreement defining the required procedures and protocol, pre-approved by the Senior Vice President, Research and Development. The Company may not provide unrestricted grants to Consultants. | ||
| c. | The Company may not fund any fellowships for fellows who work with any Consultant, with the exception of fellowship funding to legitimate medical education foundations or institutions so long as that funding is approved in advance by the Compliance Officer and the Monitor. | ||
| d. | The Company may not make charitable contributions to 501(c)(3) organizations that are, to the best of the Company’s knowledge after reasonable due diligence is conducted, controlled by a Consultant or an immediate family member of a Consultant, or at which an immediate family member of a Consultant is employed. All charitable contributions must be approved in advance by the Compliance Officer in consultation with the Monitor, and the Monitor has the discretion to make exceptions to the above standard. | ||
| e. | Other than Consulting Agreements, the sale of products and associated equipment and instruments and the purchase of Intellectual Property, the Company may have no commercial dealings with any Consultant or any entity or organization that the Company has reason to believe, after reasonable due diligence is conducted, is controlled by the Consultant or an immediate family member of the Consultant. The Monitor has the discretion to make exceptions to the above standard. |
12
| f. | The Company shall not hire or engage as an agent or distributor anyone in order to induce a specific Consultant to use or purchase Company products. | ||
| g. | The Compliance Officer shall notify the Monitor of any employees or independent distributors who are known to bear an immediate family relationship to any Consultant. In such cases, the Monitor may recommend changes in assignment or case coverage to avoid actual or perceived conflicts of interest. |
Disclosure
40. All new Consulting Agreements and renewals shall require Consultants to disclose their
financial engagement with the Company to their patients, as well as to their affiliated hospitals.
41. Within thirty (30) calendar days of the Effective Date of this DPA, the Company shall
prominently feature on its web site the name, city, and state of residence for each of the
Company’s Consultants who were retained at any time in 2010, who provided Consulting Services to
the Company at any time in 2010, or who received any Payments from the Company in 2010. The
Company shall also there disclose the Payments made to each Consultant to date in 2010 within
$25,000 increments, and all other Payments made in other than dollar form. Within ten (10)
calendar days after a new Consulting Agreement or renewal is executed, the Company shall post the
name of the Consultant on its web site. If the Company has or does enter into a Consulting
Agreement with an entity rather than an individual, the Company shall post both the name of the
entity and the individual providing Services to the Company under the Consulting Agreement.
Payment information shall be updated quarterly during the term of this DPA to reflect the total
Payments made to each Consultant within $25,000 increments, and all other Payments made in other
than dollar form. The Company must also disclose this information to the Consultant’s affiliated
hospitals.
Compliance, Training, Hotline
42. The Company agrees to enhance, support, and maintain its existing training and education
programs, including any programs recommended by the Monitor pursuant to paragraph 18, above. The
programs, which shall be reviewed and approved by the Company President and Chief Executive
Officer, Board of Directors, Vice President, General Counsel and Secretary, Compliance Officer, and
the Monitor, shall be designed to advance and underscore the Company’s commitment to exemplary
corporate citizenship, to best practices of effective corporate governance and the highest
principles of integrity and professionalism, and to fostering a culture of openness, accountability
and compliance with federal health care laws throughout the Company. Completion of such training
shall be mandatory for all Company officers, executives, and employees who are involved in Sales,
Marketing, Legal, Compliance, and other senior executives at the Company as proposed by the
Compliance Officer and approved by the Monitor (collectively the “Mandatory Participants”). Such
training and education shall cover, at a minimum, all relevant federal health care laws and
regulations, internal controls in place concerning Consultants and their Consulting Agreements with
the Company, and the obligations
13
assumed by, and responses expected of, the Mandatory Participants upon learning of improper,
illegal, or potentially illegal acts relating to the Company’s sales and marketing practices. The
Company Chief Executive Officer and Board of Directors shall communicate to the Mandatory
Participants, in writing or by video, their review and endorsement of the training and education
programs. The Company shall commence providing this training within ninety (90) calendar days
after the Effective Date of this DPA.
43. The Company agrees to maintain its confidential hotline and e-mail address, of which
Company employees, agents, and customers are informed and which they can use to notify the Company
of any concerns about unlawful conduct, other wrongdoing, or evidence that Company practices do not
conform to the requirements of this Agreement. Subject to Monitor approval, the Company may retain
a vendor to assist in the maintenance of the Company’s confidential hotline and e-mail address.
This hotline and e-mail address shall be reviewed by the Monitor. The Company shall post
information about this hotline on its website and shall inform all those who avail themselves of
the hotline of the Company’s commitment to non-retaliation and to maintain confidentiality and
anonymity with respect to such reports.
Disclosure of Monitor Reports
44. The Company agrees that the Monitor may disclose his or her written reports, as directed
by the Office, to any other federal law enforcement or regulatory agency in furtherance of an
investigation of any other matters discovered by, or brought to the attention of, the Office in
connection with the Office’s investigation of the Company or the implementation of this DPA. The
Company may identify any trade secret or proprietary information contained in any report, and
request that the Monitor redact such information prior to disclosure.
Replacement of Monitor
45. The Company agrees that if the Monitor resigns or is unable to serve the balance of his
or her term, a successor shall be selected by the Office consistent with United States Department
of Justice guidelines and after consultation with the Company, within forty-five (45) calendar
days. The Company agrees that all provisions in this DPA that apply to the Monitor shall apply to
any successor Monitor.
Adopting Recommendations of Monitor
46. The Company shall adopt all Recommendations contained in each report submitted by the
Monitor to the Office, unless the Company objects to the Recommendation and the Office agrees that
adoption of the Recommendation shall not be required. The Monitor’s reports to the Office shall
not be received or reviewed by the Company prior to submission to the Office; such reports will be
preliminary until the Company is given the opportunity, within fifteen (15) calendar days after the
submission of the report to the Office, to comment to the Monitor and the Office in writing upon
such reports, and the Monitor has reviewed and provided to the Office responses to such comments,
upon which such reports shall be considered final. In the event the Company disagrees with any
Recommendation of the Monitor, the Company and the Monitor may present the issue to the United
States Attorney for his consideration and final decision, which is non-appealable.
14
Meeting with the U.S. Attorney
47. Within thirty (30) calendar days of the Effective Date of this DPA, the Company agrees to
call a meeting, on a date mutually agreed upon by the Company and the Office, of Company senior
compliance, sales, and marketing executives, and any other Company employees whom the Company
desires to attend, such meeting to be attended by the United States Attorney, his designee, and/or
other representatives of the Office for the purpose of communicating the goals and expected effect
of this DPA.
Cooperation
48. The Company agrees that its continuing cooperation during the term of this DPA shall
include, but shall not be limited to, the following:
| a. | Not engaging in or attempting to engage in any criminal conduct; | ||
| b. | Completely, truthfully and promptly disclosing all non-privileged information concerning all matters about which the Office and other government agencies designated by the Office may inquire with respect to the Company’s compliance with health care laws, and continuing to provide the Office, upon request, all non-privileged documents and other materials relating to such inquiries; | ||
| c. | Consenting to any order sought by the Office permitting disclosure to the Civil Division of the United States Department of Justice of any materials relating to compliance with federal health care laws that constitute “matters occurring before the grand jury” within the meaning of Rule 6(e) of the Federal Rules of Criminal Procedure. If the Company asserts that any such any material contains trade secrets or other proprietary information, the Company shall propose redactions to the Office prior to disclosure to any other governmental entity, or the material shall be accompanied by a prominent warning notifying the agency of the protected status of the material; | ||
| d. | Making available current Company officers and employees and using its best efforts to make available former Company officers and employees to provide information and/or testimony at all reasonable times as requested by the Office, including sworn testimony before a federal grand jury or in federal trials, as well as interviews with federal law enforcement authorities as may relate to matters involving compliance with health care laws. The Company is not required to request of its current or former officers and employees that they forego seeking the advice of an attorney nor that they act contrary to that advice. Cooperation under this paragraph shall include, upon request, identification of witnesses who, to the Company’s knowledge, may have material non-privileged information regarding the matters under investigation; | ||
| e. | Providing testimony, certifications, and other non-privileged information deemed necessary by the Office or a court to identify or establish the original location, authenticity, or other evidentiary foundation necessary to admit into evidence |
15
| documents in any criminal or other proceeding relating to compliance with health care laws as requested by the Office; |
| f. | The Company acknowledges and understands that its future cooperation is an important factor in the decision of the Office to enter into this DPA, and the Company agrees to continue to cooperate fully with the Office, and with any other government agency designated by the Office, regarding any issue about which the Company has knowledge or information with respect to compliance with health care laws; | ||
| g. | This agreement to cooperate does not apply to any information provided by the Company to legal counsel in connection with the provision of legal advice and the legal advice itself, or to information or documents prepared in anticipation of litigation, and nothing in this DPA shall be construed to require the Company to provide any such information or advice to the Office or any other government agency; and | ||
| h. | The cooperation provisions in this paragraph shall not apply in the event that the Office pursues a criminal prosecution against the Company. |
Breach of Agreement
49. Should the Office determine, in good faith and in its sole discretion, during the term of
this DPA that the Company has committed any criminal conduct relating to compliance with health
care laws subsequent to the Effective Date of this DPA, the Company shall, in the discretion of the
Office, thereafter be subject to prosecution for any federal crimes of which the Office has
knowledge.
50. Should the Office determine in good faith and in its sole discretion that the Company has
knowingly and willfully breached any material provision of this DPA, the Office shall provide
written notice to the Company of the alleged breach and provide the Company with a three-week
period from receipt of such notice in which to make a presentation to the Office to demonstrate
that no breach occurred, or, to the extent applicable, that the breach was not material or
knowingly and willfully committed or has been cured. The parties understand and agree that should
the Company fail to make a presentation to the Office within the three-week period after receiving
written notice of an alleged breach, it shall be conclusively presumed that the Company is in
breach of this DPA. In the event the Office determines, in good faith and in its sole discretion,
that a second material breach has occurred, or that the first material breach has not been
adequately cured, the Office shall provide written notice to the Company of the breach, and the
breach may result, in the sole discretion of the Office, in the prosecution of the Company relating
to the allegations set forth in the criminal complaint described in paragraph 2 above. In the
event of any breach of this DPA that results in a prosecution of the Company, such prosecution may
be premised upon any information provided by or on behalf of the Company to the Office at any time,
unless otherwise agreed at the time the information was provided. The parties further understand
and agree that the determination whether the Company has breached this DPA rests solely in the
discretion of the Office, and the exercise of discretion by the Office
16
under this paragraph is not subject to review in any court or tribunal outside the United States
Department of Justice.
51. In the event of breach of this DPA as defined in paragraph 49 or 50 above, the Company may
be subject to exclusion by HHS-OIG from participation in all federal health care programs. Such
exclusion shall have national effect and shall also apply to all other federal procurement and
non-procurement programs. Federal health care programs shall not pay anyone for services or items
manufactured, furnished, or distributed by the Company in any capacity while the Company is
excluded. This payment prohibition applies to the Company and all other individuals and entities
(including, for example, anyone who employs or contracts with the Company, and any hospital or
other provider where the Company provides services). The exclusion applies regardless of who
submits the claim or other request for payment. The Company shall not submit or cause to be
submitted to any federal health care program any claim or request for payment for services or items
manufactured, furnished, or distributed by the Company during the exclusion. Violation of the
conditions of the exclusion may result in criminal prosecution, the imposition of civil monetary
penalties and assessments, and an additional period of exclusion. The Company further agrees to
hold the federal health care programs, and all federal beneficiaries and/or sponsors, harmless from
any financial responsibility for services or items manufactured, furnished or distributed to such
providers, beneficiaries or sponsors after the effective date of the exclusion. The Company waives
any further notice of the exclusion under 42 U.S.C. § 1320a-7(b)(7), and agrees not to contest such
exclusion either administratively or in any state or federal court. Reinstatement to program
participation is not automatic. If at the end of the period of exclusion the Company wishes to
apply for reinstatement, the Company must submit a written request for reinstatement to the OIG in
accordance with the provisions of 42 C.F.R. §§ 1001.3001-.3005. The Company will not be reinstated
unless and until the OIG approves such request for reinstatement.
52. In the event of breach of this DPA as defined in paragraph 49 and 50 above, the Office
shall have discretion to extend the term of the Monitor by a period of up to 6 months, with a total
term not to exceed 18 months, in lieu of prosecuting or subjecting the Company to exclusion.
53. In the event that the Company can demonstrate to the Office that there exists a change in
circumstances sufficient to eliminate the need for a Monitor, the Office may exercise its
discretion, consistent with United States Department of Justice policy, to terminate the
monitorship.
Waivers and Limitations
54. The Company shall expressly waive all rights to a speedy trial pursuant to the Sixth
Amendment of the United Xxxxxx Xxxxxxxxxxxx, Xxxxx 00, Xxxxxx Xxxxxx Code, Section 3161, Federal
Rule of Criminal Procedure 48(b), and any applicable Local Rules of the United States District
Court for the District of New Jersey, for the period that this DPA is in effect for any prosecution
of the Company relating to the allegations set forth in the criminal complaint described in
paragraph 2 above.
17
55. In case of a knowing and willful material breach of this DPA, any prosecution of the
Company relating to the allegations set forth in the criminal complaint described in paragraph 2
above that is not time-barred by the applicable statute of limitations as of the Effective Date of
this DPA may be commenced against the Company notwithstanding the expiration of any applicable
statute of limitations during the term of the DPA. The Company agrees to waive any claims of
improper venue with respect to any prosecution of the Company relating to the allegations set forth
in the criminal complaint described in paragraph 2 above. This waiver is knowing and voluntary and
in express reliance on the advice of counsel. Any such waiver shall terminate upon final
expiration of this DPA.
56. Absent the express written consent of the Office to conduct itself otherwise, and
consistent with United States Department of Justice policy, the Company agrees that if, after the
Effective Date of this Agreement, the Company sells all or substantially all of its business
operations as they exist as of the Effective Date of this Agreement to a single purchaser or group
of affiliated purchasers during the term of this Agreement, or merges with a third party in a
transaction in which the Company is not the surviving entity, the Company shall include in any
contract for such sale or merger a provision binding the purchaser, successor, or surviving entity
to continue to comply with the Company’s obligations as contained in this DPA.
57. The Company is simultaneously entering into an agreement with the Office’s Civil Division
(the “Civil Settlement Agreement’) regarding the payment of money to settle certain civil claims.
The Company is also simultaneously entering into a Corporate Integrity Agreement (“CIA”) with
HHS-OIG to implement certain specified compliance measures. Failure by the Company to comply fully
with those material terms of the Civil Settlement Agreement scheduled to occur during the Effective
Period of this DPA may constitute a breach of this DPA; provided, however, that a breach of the CIA
referenced in the Civil Settlement Agreement does not constitute a breach of this DPA. Any
disputes arising under the CIA shall be resolved exclusively through the dispute resolution
provisions of the CIA.
58. Nothing in this DPA restricts in any way the ability of the Office to investigate and
prosecute any current or former Company officer, employee, agent or attorney.
59. It is understood that this DPA is limited to the Company and the Office, and it cannot
bind other federal, state or local authorities. However, the Office will bring this DPA, the
United States Department of Justice Petite Policy and the cooperation of the Company and its
compliance with its other obligations under this DPA to the attention of other prosecuting offices,
if requested to do so.
Dismissal of Complaint
60. The Office agrees that if the Company is in full compliance with all of its obligations
under this DPA, the Office, within ten (10) calendar days of the expiration of the term of this
DPA, will seek dismissal with prejudice of the criminal complaint described in paragraph 2 above.
Except as otherwise provided herein, during and upon the conclusion of the term of this DPA, the
Office agrees that it will not prosecute the Company further for the matters
18
that have been the subject of the Office’s investigation relating to this DPA, including but not
limited to Payments that the Company made to Consultants between 2002 and 2007.
The Full Agreement
61. This DPA constitutes the full and complete agreement between the Company and the Office
and supersedes any previous agreement between them. No additional promises, agreements, or
conditions have been entered into other than those set forth in this DPA, and none will be entered
into unless in writing and signed by the Office, Company counsel, and a duly authorized
representative of the Company. It is understood that the Office may permit exceptions to or excuse
particular requirements set forth in this DPA at the written request of the Company or the Monitor,
but any such permission shall be in writing.
62. This DPA may be executed in counterparts, each of which shall be deemed an original but
all of which taken together shall constitute one and the same agreement. The exchange of copies of
this DPA and of signature pages by facsimile or electronic transmission shall constitute effective
execution and delivery of this DPA as to the parties and may be used in lieu of the original DPA
for all purposes. Signatures of the parties transmitted by facsimile or electronic transmission
shall be deemed to be their original signatures for all purposes.
AGREED TO:
/s/: Xxxx X. Xxxxxx
|
/s/: X. Xxxxxxx Childers | |
Xxxx X. Xxxxxx
|
X. Xxxxxxx Childers | |
President and Chief Executive Officer
|
Attorney for the United States, Acting Under | |
Xxxxxx Medical Technology, Inc.
|
Authority Conferred by 28 U.S.C. § 515 | |
9/22/10 Date |
9/29/10Date |
19
DIRECTOR’S CERTIFICATE
I have read this agreement and carefully reviewed every part of it with counsel for Xxxxxx
Medical Technology, Inc. (the “Company”). I understand the terms of this Deferred Prosecution
Agreement and voluntarily agree, on behalf of the Company, to each of the terms. Before signing
this Deferred Prosecution Agreement, I consulted with the attorney for the Company. The attorney
fully advised me of the Company’s rights, of possible defenses, of the Sentencing Guidelines’
provisions, and of the consequences of entering into this Deferred Prosecution Agreement. No
promises or inducements have been made other than those contained in this Deferred Prosecution
Agreement. Furthermore, no one has threatened or forced me, or to my knowledge any person
authorizing this Deferred Prosecution Agreement on behalf of the Company, in any way to enter into
this Deferred Prosecution Agreement. I am also satisfied with the attorney’s representation in
this matter. I certify that I am a director of the Company, and that I have been duly authorized
by the Board of Directors of the Company to execute this certificate on behalf of the Company.
/s/: Xxxx X. Xxxxxx
|
9/22/10 | |
Xxxxxx Medical Technology, Inc.
|
Date | |
By: Xxxx X. Xxxxxx |
20
CERTIFICATE OF COUNSEL
I am counsel for Xxxxxx Medical Technology, Inc. (the “Company”). In connection with such
representation, I have examined relevant Company documents, and have discussed this Deferred
Prosecution Agreement with the authorized representative of the Company. Based on my review of the
foregoing materials and discussions, I am of the opinion that:
1. Xxxx X. Xxxxxx, President, Chief Executive Officer and a Director of the Company, is duly
authorized to enter into this Deferred Prosecution Agreement on behalf of the Company; and
2. This Deferred Prosecution Agreement has been duly and validly authorized, executed and
delivered on behalf of the Company, and is a valid and binding obligation of the Company.
Further, I have carefully reviewed every part of this Deferred Prosecution Agreement with
directors of the Company. I have fully advised these directors of the Company’s rights, of
possible defenses, of the Sentencing Guidelines’ provisions, and of the consequences of entering
into this Agreement. To my knowledge, the Company’s decision to enter into this Agreement is an
informed and voluntary one.
/s/: Xxxxx X. Xxxxx, Esq.
|
9/23/10 | |
Xxxxx X. Xxxxx, Esq.
|
Date | |
Xxxxxx Xxxxxx Xxxxxxxxx Xxxx and Xxxx LLP |
21
CERTIFIED COPY OF RESOLUTION
Upon motion duly made, seconded, and unanimously carried by the affirmative vote of all the
Directors present, the following resolutions were adopted:
WHEREAS, Xxxxxx Medical Technology, Inc.
(the “Company”) has been engaged in discussions with the United States Attorney’s Office for the
District of New Jersey (the “Office”) in connection with an investigation being conducted by that
Office;
WHEREAS, the Board of the Company consents to resolution of these discussions by entering
into a deferred prosecution agreement that the Company Board of Directors has reviewed with outside
counsel representing the Company, relating to a criminal complaint to be filed in the U.S. District
Court for the District of New Jersey charging the Company with conspiracy to commit violations of
the federal anti-kickback statute;
NOW THEREFORE, BE IT RESOLVED that Xxxx X. Xxxxxx, the Company’s President, Chief Executive
Officer and a Director, be, and hereby is authorized to execute the Deferred Prosecution Agreement
on behalf of the Company substantially in the same form as reviewed by the Company Board of
Directors at this meeting and as attached hereto as Exhibit A, and is authorized to execute the
Director’s Certificate attached thereto.
22
SECRETARY’S CERTIFICATION
I, Xxxxxxx X. Xxxxx, the duly elected Secretary of Xxxxxx Medical Technology, Inc. (the
“Company”) a corporation duly organized under the laws of the State of Delaware, hereby certify
that the following is a true and exact copy of a resolution approved by the Board of Directors of
the Company at its telephonic meeting held on the 21st day of September, 2010;
WHEREAS, Xxxxxx
Medical Technology, Inc. has been engaged in discussions with the United States Attorney’s Office
for the District of New Jersey (the “Office”) in connection with an investigation being conducted
by the Office into activities of the Company relating to certain payments to Consultants who have
selected orthopaedic hip and knee replacement products manufactured by the Company in surgeries
performed by them;
WHEREAS, the Board of Directors of the Company consents to resolution of these
discussions on behalf of the Company by entering into a deferred prosecution agreement that the
Board of Directors has reviewed with outside counsel representing the Company, relating to a
criminal complaint to be filed in the U.S. District Court for the District of New Jersey charging
the Company with conspiracy to commit violations of the federal anti-kickback statute;
NOW
THEREFORE, BE IT RESOLVED that Xxxx X. Xxxxxx, the Company’s President, Chief Executive Officer and
a Director be, and hereby is authorized to execute the Deferred Prosecution Agreement on behalf of
the Company substantially in the same form as reviewed by the Board of Directors at this meeting
and as attached hereto as Exhibit A, and is authorized to execute the Director’s Certificate
attached thereto.
IN WITNESS WHEREOF, I have hereunto signed my name as Secretary and affixed the Seal of said
Corporation this 21st day of September, 2010.
| /s/: Xxxxxxx X. Xxxxx | ||
| Xxxxxxx X. Xxxxx, Secretary |
23
