Scope maker Olympus sought price hike amid superbug outbreak
March 25, 2016
By CHAD TERHUNE & MELODY PETERSEN
The Los Angeles Times
Soon after doctors at UCLA's Ronald Reagan Medical Center traced deadly infections to tainted medical scopes last year, they pressed the device maker to lend them replacements. But Olympus Corp. refused. Instead, the Tokyo company offered to sell UCLA 35 new scopes for $1.2 million — a 28% increase in price from what it charged the university just months earlier, according to university emails obtained from a public-records request. Olympus sales manager Vincent Hernandez told UCLA that the company's previous discounts no longer applied. "Supplies are already low, where demand is high with all academic institutions expanding their inventories," Hernandez wrote to the medical center. The emails show how Olympus continued to push sales even as the devices it previously sold to UCLA and other medical institutions were linked to illnesses and deaths. The messages also mark a sharp departure from what had been a close, mutually beneficial relationship between the giant device manufacturer and one of the country's most prestigious academic medical centers.
Once the outbreak was confirmed in late January 2015, UCLA urgently needed replacement scopes to safely perform gastrointestinal procedures, in which the duodenoscopes were snaked down a patient's throat. In response to the outbreaks and government warnings last year, many medical centers rushed to adopt new cleaning measures. That left them with fewer of the reusable scopes on hand, so they felt compelled to buy more. Ultimately, three UCLA patients died and five more were sickened from October 2014 to January 2015 by drug-resistant bacteria trapped inside the Olympus scopes. Only in January of this year did the company agree to recall its duodenoscopes and repair them over the coming months to cut the risk of bacteria passing to the next patient. Previously, the emails show, UCLA and Olympus collaborated closely: At least one top doctor at UCLA asked for money from the company to hold a medical conference. The company's employees were allowed to observe medical procedures. On Jan. 7, 2015, three weeks before the outbreak at UCLA was confirmed, Dr. Raman Muthusamy, the director of endoscopy at UCLA, asked Olympus to contribute more money for an upcoming medical conference at a Beverly Hills hotel. "Quick question: Who do I speak to about sponsorship from Olympus to the Mellinkoff symposium," Muthusamy wrote to Hernandez and another Olympus employee. "Last year, Olympus gave $18,000 — this year only $10K. Given our increasing collaborations thought it should at least stay the same."
Later, on Jan. 23, 2015, Olympus salesman Richard Ramirez sent an email thanking a UCLA doctor for allowing him and another company representative "to sit in on a few of your cases yesterday." At the doctor's request, Ramirez provided some "special contracted pricing information" on scope-related accessories. The outbreak was confirmed Jan. 28, 2015, and the solicitousness appeared to end on both sides. Rebuffed in their request for replacement scopes, UCLA officials struggled to grasp Olympus' sharp increase in price. "Last February  when we were acquiring the 7 new TJF¿Q180V scopes we have today, the price was $26,200.98 and our new quote is $33,470.15 [per] scope which is an increase of 28%," Randi Hissom, a business operations director at UCLA Health System, wrote Olympus' Hernandez in a Feb. 10, 2015, email. Hernandez advised her that the university could earn a discount if it ordered more scopes. He also warned that "with the number of scopes being requested, it is possible that we could go on a back order." On Feb. 23, four days after the Food and Drug Administration issued a safety alert about the scopes to all U.S. hospitals, Hernandez chastised two UCLA doctors for failing to purchase the amount of equipment specified in their contract with Olympus. The company's salespeople "continued to run into a wall with acquiring orders.... I would like to arrange a meeting with you soon to further review and discuss the compliance of the contract," Hernandez wrote in a Feb. 23, 2015, email. The sudden demand for gastrointestinal scopes triggered an unexpected windfall for Olympus, the leading supplier in the U.S. and worldwide. Full Coverage: Superbug outbreaks tied to faulty scopes Olympus executives boasted last month about the company's "record-breaking" performance, driven by a 13% increase in scope sales for the nine months that ended Dec. 31. The company's profit soared 34% to $352 million for the same period.
Rep. Ted Lieu (D-Torrance) said the emails with UCLA show that Olympus sought to profit from a crisis that it created. In a letter to the company last year, he asked Olympus to donate scopes to hospitals or forgo profits from the sale of additional devices. "What Olympus did was outrageous," Lieu said in a recent interview. "They jacked up the prices and made even more money off their defective scopes and then bragged about it. Have they no shame?" Olympus spokesman Mark Miller said the emails with UCLA "represent standard business discussions within Olympus and between company personnel and customers." He attributed Olympus' recent financial gains to the overall strength of the business. "Olympus launched several new products for medical and surgical specialties during the last 12 months that were all well-received by the market and contribute to our results," he said.
UCLA doctor Muthusamy didn't respond to a request for comment. Nor did Olympus salesmen Hernandez and Ramirez. UCLA continues to use Olympus equipment. But after the company's response to the outbreak it eventually turned to a rival manufacturer, Pentax Medical, for more scopes. "Ronald Reagan UCLA Medical Center ordered additional scopes from Pentax in order to ensure that we had sufficient scopes to perform the necessary procedures for our patients," said Enrique Rivero, a university spokesman. "Pentax was able to quickly provide a sufficient quantity of scopes in a timely manner, allowing us to clear our backlog of patients." Rivero said Muthusamy's request for more symposium support, and Olympus' $10,000 donation to the March 2015 gastroenterology conference, were in keeping with university policy. Olympus recently ran afoul of federal law in regard to its sales practices companywide. This month, the device manufacturer agreed to pay a record $646-million settlement to end federal government investigations into illegal kickbacks and bribery in the U.S. and Latin America.
The company had courted prominent doctors and hospitals for years with millions of dollars of free equipment, cash payments, trips and entertainment such as winery tours and balloon rides in violation of U.S. law, according to federal prosecutors. No specific institutions or hospitals were named in the federal criminal complaint filed March 1, and the practices were not confined to scopes. "Olympus leadership acknowledges the company's responsibility for the past conduct, which does not represent the values of Olympus or its employees," Nacho Abia, chief executive of the Olympus Corp. of the Americas unit in Center Valley, Pa., said in a statement this month after the settlement. Meanwhile, the deterioration in the company's relationship with UCLA continues. Several UCLA patients or their families have sued Olympus over the infections there. Olympus responded to one of the first wrongful death cases by blaming UCLA for the outbreak. In a Feb. 1 filing in Los Angeles federal court, Olympus said UCLA failed to clean its scopes according to the company's protocols and to obtain available training from Olympus.
In interviews, UCLA doctors have said Olympus employees didn't raise those concerns when they visited the hospital after the outbreak was discovered. The FDA has said infections occurred even when hospitals followed the manufacturer's instructions. UCLA and Olympus said they won't comment on the pending litigation. A recent Senate investigation linked Olympus to 19 superbug outbreaks in the U.S. and Europe from 2012 to 2015, including at UCLA and Cedars-Sinai Medical Center. The report also criticized the company for failing to alert U.S. regulators and hospitals sooner about the risk of infection from its scope design. Federal prosecutors are investigating Olympus and two other device manufacturers – Pentax and Fujifilm – over their role in the outbreaks.