Item 1.01.
Entry into a Material Definitive Agreement.
On October
13, 2020, Merit Medical Systems, Inc. (the "Company) entered into
agreements with the United States Department of
Justice (“DOJ”) and others to fully resolve the DOJ’s
investigation of certain marketing and promotional practices of the
Company. The Company denies the DOJ’s allegations, but has
determined that avoiding protracted litigation and its associated
costs will enable it to focus on its mission of being the most
customer-focused company in healthcare. These agreements
memorialize the agreement in principle that the Company previously
disclosed in its press release on July 15, 2020 (a copy of the
press release was also filed in a Form 8-K that same
day).
Specifically,
the Company entered into:
|
(i) |
a Settlement Agreement, a copy of which is attached hereto
as
Exhibit 10.1,
effective October 13, 2020, with the DOJ, and on behalf of the
Inspector General of the Department of Health and Human Services
(the “OIG”), the Defense Health Agency (“DHA”), acting on behalf of
the TRICARE Program, and the relator named therein; and |
|
(ii) |
a Corporate Integrity Agreement, a copy of which is attached hereto
as
Exhibit 10.2,
effective October 13, 2020, with the DOJ and OIG. |
The DOJ
asserted that the Company provided benefits, allegedly in the form
of patient referrals advertising assistance, practice development,
practice support, and educational grants to induce healthcare
providers to purchase and use the Company’s products in medical
procedures performed on federal healthcare program beneficiaries,
in violation of the Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b),
and caused the submission of false claims under the False Claims
Act, 31 U.S.C. §3729 (as further described in the Settlement
Agreement, the “Covered Conduct”). This settlement is neither an
admission of fault or liability on the part of the Company nor a
concession by the DOJ that its claims are unfounded.
Settlement Agreement
Under the
terms of the Settlement Agreement, the Company will pay a total of
$18,000,000 plus accrued interest from July 8, 2020 at a rate of
0.75% per annum (the “Settlement Payment”). The Settlement Payment
consists of $15,210,000 (plus interest) paid to the United States
no later than October 27, 2020, and $2,790,000 (plus interest) to
be paid under the terms of separate agreements the Company will
enter into with participating states to settle claims related to
the Covered Conduct. The Company expects to make the portion
of the Settlement Payment to the United States prior to its due
date and the portion of the Settlement Payment to the states as
those payments become due. Upon reaching an agreement in principle
with the DOJ, the Company previously recorded a legal settlement
expense of $18.2 million in the second quarter of 2020.
Conditioned
upon payment of the Settlement Payment, and dismissal of certain
actions against the government, the DOJ, OIG, DHA and the relator
have agreed to release the Company and its subsidiaries from any
civil or administrative monetary liability arising from the Covered
Conduct; the DOJ and
the relator have agreed to dismiss the civil action filed by the
relator; and in consideration of the Company’s obligations under
the Corporate Integrity Agreement (as described below), the OIG has
agreed to waive its permissive exclusion authority and refrain from
instituting any administrative action seeking to exclude the
Company from participating in Medicare, Medicaid or other Federal
health care programs as a result of the Covered Conduct.
Corporate Integrity Agreement
In connection with the
resolution of the investigated matters, and in exchange for the
OIG’s agreement not to exclude the Company from participating in
federal health care programs, on October 13, 2020, the Company
entered into a five-year Corporate Integrity Agreement with the
OIG. The Corporate Integrity Agreement imposes compliance,
monitoring, reporting, certification, oversight and training
obligations on the Company, certain of which have previously been
implemented. The Corporate Integrity Agreement requires, among
other matters, that the Company (i) maintain a Compliance Officer,
a Compliance Committee, board review and oversight of certain
federal healthcare compliance matters, compliance programs, and
disclosure programs; (ii) establish robust compliance policies and
procedures to meet federal health care program and FDA
requirements; (iii) provide management certifications and
compliance training and education; (iv) engage an independent
review organization to conduct a thorough review of the Company’s
systems,
