Healthy Skepticism Library item: 10040

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Publication type: news

Martin JP.
Federal probe: Implant makers bought doctors
The New Jerey Star-Ledger 2007 May 8
http://www.nj.com/starledger/stories/index.ssf?/base/news-11/1178599559134500.xml&coll=1&thispage=1

Full text:

Fraud alleged by hip and knee firms

For two years, federal prosecutors in New Jersey have been building a case that the nation’s largest makers of artificial hips and knees defrauded the government and taxpayers by paying surgeons to use and promote their products, according to sources close to the probe.

The evidence includes statements from prominent doctors around the country who allegedly accepted lavish vacations, gifts and “consulting fees” as high as $200,000 a year from the implant makers for little or no work, said four attorneys who have been briefed on aspects of the case.

There is no allegation that the practice jeopardized patients or subjected them to substandard products or treatment. But the sources say prosecutors contend that the money had a sole purpose — to buy surgeons’ loyalty to specific products — and that doctors often failed to reveal such a conflict to their patients. If true, such payments would violate the federal anti-kickback statutes that govern hospitals and health professionals who participate in Medicare.

“What the government is alleging is that the companies hired the doctors in order to get their business,” said one attorney, who, like others, asked not to be named because his client had not authorized him to publicly discuss the investigation. “In the hip and knee industry, it’s a doctor-driven business.”

Now in its final stages, the investigation could end as soon as this summer with a settlement of hundreds of millions of dollars, a pledge by the industry to reform and the installation of a federal monitor, according to the sources.

The holdout has been DePuy Orthopaedics, a subsidiary of New Brunswick-based Johnson & Johnson, which is resisting a settlement, the sources said. The stalemate recently has sparked a new round of subpoenas and threats of indictments against doctors, executives or the manufacturers they work for, the attorneys said.

Besides DePuy, which is based in Warsaw, Ind., the other subjects include Zimmer Holdings Inc. and Biomet Inc., also of Warsaw, Ind.; Stryker Corp. of Kalamazoo, Mich.; and Smith & Nephew PLC, a British company with U.S. headquarters in Tennessee.

Together the companies control more than 90 percent of the U.S. market in reconstructive implants, an industry surging as America ages. They employ tens of thousands worldwide and have combined annual revenue of more than $15 billion.

Each has acknowledged aspects of the probe, as well as a second unrelated price-fixing investigation by the Justice Department’s Antitrust Division, in regular Securities and Exchange Commission reports. In one such filing in February, Stryker warned investors: “As a result of these investigations, the Company’s future operating results could be negatively impacted by settlements of these matters.”

Spokesmen for the companies either declined to discuss the case or did not return calls seeking comment last week. Michael Drewniak, a spokesman for U.S. Attorney Christopher Christie, would neither confirm nor deny any investigation.

A settlement of even a half-billion dollars and scrutiny by a federal monitor might rattle the industry but would not derail it. Nearly 500,000 Americans undergo first-time knee or hip replacement surgeries each year, a number expected to more than double in the next two decades, according to a study last year by the American Academy of Orthopaedic Surgeons.

Any restitution or penalty is likely to be paid to Medicare, not patients. But a settlement would allow the government to claim another victory against fraud or ethical lapses in corporate America, recover wasted tax dollars and potentially lower costs to patients, who ultimately pay for such contracts.

Christie’s office has used similar settlements — referred to as deferred prosecutions because they spare the subjects criminal charges — to recoup millions of dollars and force changes at Bristol Myers Squibb and the University of Medicine and Dentistry of New Jersey.

THE FIRST SALVO

The current probe began in March 2005 when the U.S. Attorney’s Office, working with agents from the FBI and the Department of Health and Human Services’ Inspector General’s Office, served its first subpoenas on the companies.

Investigators sought “documents and related information for the period beginning January 1998 related to consulting contracts, professional service agreements and other agreements by which we may provide remuneration to orthopedic surgeons,” Zimmer Holdings told investors in its most recent filing.

A second inquiry opened last June, when antitrust regulators issued subpoenas to the companies seeking information about potential price-fixing. In one of its SEC filings, Smith & Nephew reported that “the investigation was prompted by an e-mail sent by an independent sales representative of Smith & Nephew that proposed a common pricing strategy in connection with a particular hospital.”

But the company has denied knowledge of the e-mail or any complicity.

The sources said the anti-trust investigation appears to have stalled, but the New Jersey-based kickback probe is in its final stages. It is not clear which or how many doctors are under scrutiny.

For decades, companies have treated doctors to lavish dinners or sponsored Caribbean getaways with the hopes of landing their business. And the biggest manufacturers jockeyed to align themselves with the industry’s best known names, the same way a sneaker or apparel company signs an athlete as a pitchman.

But just as Tiger Woods has to wear and promote Nike products, the doctors’ contracts require them to earn the fees, by hosting training seminars, offering public speeches or helping to develop new products. And their own codes of conduct require them to tell their patients if they are being paid by manufacturers.

In some cases, investigators uncovered what two sources called “egregious” violations in which doctors received payoffs for the equivalent of a no-show consulting job. Others, they said, were more subtle, such as an all-expenses-paid trip or stipend for delivering a speech at a ski resort — sometimes to just one or two other consultants.

Such relationships have increasingly drawn scrutiny from regulators, Congress and the industries themselves. In one of the most notable cases, TAP Pharmaceuticals paid $875 million to settle charges in 2001 that it used bribes to get doctors to prescribe one of its cancer treatments.

SELF-POLICING

In the ensuing years, several medical and health care associations have adopted self-policing guidelines to stem the flow of gifts and other payments — and any perception that doctors’ loyalties can be bought.

In January 2004, the Advanced Medical Technology Association, an industry trade group representing the implant manufacturers, introduced an ethics code that urged its members to “encourage ethical business practices” and banned them from using “any unlawful inducement” to sell their products.

In its code of ethics, the American Academy of Orthopaedic Surgeons, which claims more than 30,000 members, prohibits surgeons from receiving “compensation of any kind from industry for using a particular device or medication.” But in the past two years, the academy expanded its standards of professionalism, recently implementing a system for doctors to lodge complaints against colleagues whose conduct they believe taints their profession.

“It’s legitimately an issue that concerns almost all of us,” said William Dowling, a Morristown orthopedic surgeon who sits on the board of directors of the NJ Orthopaedic Society.

Dowling said he was unaware of the details of the federal investigation, but that many doctors had been uncomfortable with the ties between the implant makers and some of his profession’s best-known surgeons.

“Universally, we’re all opposed to those sorts of arrangements,” he said. “It was clear in many respects that these guys were the bought-and-sold guys.”