Item 8.01. Other Events.
On December 28, 2020, Ra Medical Systems, Inc. (the "Company") entered into a
Settlement Agreement with the United States of America, acting through the
United States Department of Justice (the "DOJ") and on behalf of the Inspector
General of the United States Department of Health and Human Services ("OIG"), to
resolve the pending DOJ investigation and a related civil action concerning the
Company's marketing of the DABRA laser system and DABRA-related remuneration to
certain physicians, as disclosed in the Company press release attached as
Exhibit 99.1 hereto. In connection with the Settlement Agreement, the Company
also has reached tentative agreements that, if executed by participating states,
resolve previously disclosed related investigations conducted by certain state
attorneys general.
The Settlement Agreement recites that a complaint filed by a former employee of
the Company on behalf of the federal government in the United States District
Court for the Eastern District of Michigan, and subsequently amended to assert
claims on behalf of certain states, alleged, among other things, that the
Company violated the False Claims Act, 31 U.S.C. § 3729, and certain state false
claims acts by paying kickbacks to certain physicians in order to induce them to
use the DABRA laser system, promoting off-label use of the DABRA laser system,
failing to report adverse events to the United States Food and Drug
Administration, marketing a device that does not work as advertised, and failing
to adhere to Current Good Manufacturing Practices. The complaint also alleges
that the Company unlawfully retaliated against the former employee. Separate
from the former employee's allegations in the civil action, the United States
and the participating states contend that from May 1, 2017 through October 31,
2019, the Company (a) paid illegal remuneration to certain physicians to induce
them to use the DABRA laser system in violation of the federal anti-kickback
statute and (b) marketed the DABRA laser system for off-label use in atherectomy
procedures despite product performance issues causing calibration and
overheating problems, which posed a risk to physicians and patients (the
"Covered Conduct"). The Company denies the allegations in the civil action and
those asserted by the United States and the participating states, and the
settlement does not constitute an admission of liability or wrongdoing by the
Company.
Under the Settlement Agreement, and the tentative agreements with the
participating states, the Company will make an initial payment of $2.5 million
no later than five (5) business days after the Settlement Agreement is fully
executed. Pursuant to the terms of the Settlement Agreement, (a) if the
Company's revenue exceeds $10 million in any of the next four fiscal years
(2021-2024), it also is required to pay an additional amount in settlement for
the corresponding year: $500,000 for 2021, $750,000 for 2022, $1 million for
2023, and $1.25 million for 2024; (b) if the Company is acquired or is otherwise
involved in a change in control transaction in the years 2020 through 2024, the
Company is required to pay an additional settlement amount of $5 million, plus
4% of the value attributed to the Company in the transaction, so long as the
attributed value is in excess of $100 million, with the total change in control
payment never to exceed $28 million; and (c) if the Company's obligations under
the Settlement Agreement are avoided by bankruptcy, the United States may
rescind the releases and bring an action against the Company in which the
Company agrees is not subject to an automatic stay, is not subject to any
statute of limitations, estoppel or laches defense, and is a valid claim in the
amount of $56 million, minus any prior change in control payments. Under the
Settlement Agreement, the Company will also pay the former employee's reasonable
expenses, costs and attorneys' fees, which amount to $200,000.
Under the terms of the Settlement Agreement and related tentative agreements
with the participating states, upon receipt of the initial payment of $2.5
million, (a) the United States and the former employee will promptly sign and
file in the civil action a joint stipulation of dismissal of the complaint
against Ra Medical Systems with prejudice, and (b) assuming the tentative
agreements are signed, the participating states will dismiss their claims in the
civil action within ninety-one (91) days of receipt of this initial payment. The
United States, the former employee and the participating states have agreed to
release the Company from any civil or administrative monetary liability arising
from the Covered Conduct under
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the False Claims Act, 31 U.S.C. §§ 3729-3733, the Civil Monetary Penalties Law,
42 U.S.C. § 1320a-7a, the Program Fraud Civil Remedies Act, 31 U.S.C. §§
3801-3812, or the common law theories of payment by mistake, unjust enrichment,
and fraud.
The OIG has agreed, conditioned upon the Company's full payment of amounts owed
in the Settlement Agreement, and in consideration of the Company's obligations
under a Corporate Integrity Agreement, to release its permissive exclusion
rights 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. The Corporate Integrity
Agreement has a five-year term and imposes monitoring, reporting, certification,
documentation, oversight, screening, and training obligations on the Company,
including the hiring of a compliance officer and independent review
organization.
The Settlement Agreement does not include a release for any conduct other than
the Covered Conduct or any criminal liability related to the Covered Conduct.
The Settlement Agreement does not release any claims under investigation by the
United States Securities and Exchange Commission.
The foregoing descriptions of the Settlement Agreement and the Corporate
Integrity Agreement are qualified in their entirety by the full terms of the
Settlement Agreement and Corporate Integrity Agreement, which will be filed as
exhibits to the Company's Annual Report on Form 10-K for the year ended December
31, 2020. A copy of the Company's press release is filed as Exhibit 99.1 to this
report and is incorporated by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description
99.1 Press release dated January 4, 202 1.
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