COCHLEAR IMPLANTS
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Disability Rights
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COCHLEAR AMERICAS SETTLES KICKBACK CHARGES
Leading Cochlear Implant Manufacturer Pays $950,000 to Department of Justice
Denver, CO (June 15, 2010)--The U.S. Department of Justice has announced that the world's largest manufacturer of cochlear implants will pay $950,000 to settle federal charges that it used kickbacks to physicians to illegally monopolize the market.
The payout by Cochlear Americas comes as no surprise to cochlear implant consumers or professionals. Cochlear's various
kickback schemes were well-documented on this website since 2000 as their legality was widely debated on cochlear implant forums by audiologists, physicians, consumers, and competitors for the past two decades. These illegal inducements include monetary and in-kind payments that control the referral patterns for implant surgeries, artificially inflate the costs of the procedure, and as documented by RAND in 2002 severely limit the number of deaf people who can access the only treatment to alleviate their hearing loss.
Most of these kickback arrangements were put in place by Cochlear in the mid 1990s when Congress began enacting a series of laws to severely limit payments between manufacturers and physicians. Cochlear faced new competition for the first time and correctly believed that by paying physicians they could control the referral patterns for their device and maintain their monopoly position in the market.
Cochlear lawyers and management have long insisted that their kickback schemes operated in a "gray area" that were legally defensible. However, as the Department of Justice began successfully prosecuting other companies for similar practices, Cochlear stubbornly refused to change, since they enabled the company to control over 70 percent of the cochlear implant market.
Former Chief Financial Officer Brenda March filed a whistleblower complaint in 2004 that focused only on a fraction of these illegal inducements, primarily relating to its Partners Program and direct compensation to physicians. The Department of Justice found sufficient evidence to intervene and impose civil penalties. The settlement negotiated by Cochlear Americas requires that the company pay $880,000 in penalties and $70,000 in legal fees.
Obviously, $950,000 is a drop in the bucket for a company whose net profit is over US$65 million. There is great concern in the industry that Cochlear Americas views these penalties as simply a cost of doing business in the United States, and will decide it is much easier to pay fines and continue paying kickbacks.
However, Ms. March should be commended as the public spotlight from her complaint forced Cochlear to change a number of its illegal practices even before the settlement, including those related to service contracts, its dummy billing service, and the Partners Program. Curtailing these monopolistic practices will benefit everyone seeking or receiving a cochlear implant, as fair competition will reduce the artificially high cost of the device, enable more centers can afford to perform the procedure, and ensure that more people who want a cochlear implant can get one.
According to the Department of Justice press release, Ms. March will receive 20 percent of the settlement or $176,000.
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