Westborough-based eClinicalWorks, one of the country’s largest vendors of electronic medical records systems, has reached a $155 million settlement with federal prosecutors over allegations that the company made false claims about its software and paid kickbacks to customers who promoted it.
The first and largest of its kind, it came after a whistle-blower raised concerns about problems with eClinicalWorks’ patient records system, claiming that the software failed to properly list medications, lab results, and other critical information.
The settlement represents more than a third of the company’s annual revenue.
The Department of Justice said eClinicalWorks — a privately held firm whose medical records system houses information about millions of patients nationwide — misrepresented the capabilities of its software.
Electronic records systems must meet a slate of federal requirements. The Justice Department said eClinicalWorks manipulated its software so it could falsely obtain certification, even though the software did not meet federal requirements. The company also allegedly failed to meet requirements for sharing patient data with software systems made by other companies.
“This resolution demonstrates that . . . companies will not succeed in flouting the certification requirements,’’ Acting US Attorney Eugenia A.P. Cowles said in a news release. The case was filed in US District Court in Burlington, Vt.
Federal prosecutors also argued that eClinicalWorks violated anti-kickback laws by improperly paying certain customers who promoted its product.
EClinicalWorks denied any wrongdoing, saying it cooperated with the federal investigation and settled the allegations to avoid the costs and uncertainty of litigation.
The company maintained that its “customer referral program’’ was legal but said the program has been discontinued nonetheless.
The settlement requires the company and three of its founders, chief executive Girish Navani, chief medical officer Dr. Rajesh Dharampuriya, and chief operating officer Mahesh Navani, to pay $155 million to the federal government. Three other employees have to pay smaller amounts.
EClinicalWorks has also entered into a five-year “corporate integrity agreement’’ that requires it to notify customers and patients of the potential for health risks caused by software problems. It must allow customers to obtain updated versions of its software for free and to move their data to another software provider, if they choose, without paying penalties. The company also must take steps to improve its software quality control.
“Today’s settlement recognizes that we have addressed the issues raised, and have taken significant measures to promote compliance and transparency,’’ Girish Navani said in a statement.
“We are pleased to put this matter behind us and concentrate all of our efforts on our customers and continued innovations to enhance patient care delivery.’’
EClinicalWorks is one of the largest companies in the business of making software that is sold to doctors and hospitals. About 125,000 doctors and nurse practitioners use the software, which handled 273 million patient visits last year.
Patient information, including medical histories and medications, was long stored on paper. But over the past several years, these records largely have gone digital, prompted partly by the government, which paid health care providers incentives to adopt electronic records.
This transition has been a boon to companies such as eClinicalWorks and its competitors, which include Watertown-based athenahealth.
EClinicalWorks, with 5,000-plus employees, including more than 1,000 in Massachusetts, reported $444 million in revenue last year, up from $404 million in 2015.
The settlement follows allegations by Brendan Delaney, a New York City government employee who was implementing eClinicalWorks’ system at the Rikers Island jail. Delaney noticed several software problems that he believed put patients at risk. He alleged that eClinicalWorks consistently failed to correct software problems.
The software failed to show the current medications of several patients at Rikers, according to Delaney’s complaint. As a whistle-blower, he will receive about $30 million in the settlement.
The government, which picked up the case after Delaney made his allegations, said eClinicalWorks, because of its deficiencies, caused health care providers to submit false claims for incentive payments.
“I think this will be a very significant development for the electronic health records industry,’’ said Colette G. Matzzie, a lawyer who represented Delaney. “I think the entire industry will take notice of this announced settlement.’’
Dr. John Halamka, chief information officer at Beth Israel Deaconess Medical Center, where some doctors were early adopters of eClinicalWorks’ software, called the company an important member of the state’s health care technology sector. “The marketplace for electronic health record software evolves rapidly and ensuring vendors comply with regulatory requirements builds customer confidence,’’ he said.
Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com.
