Healthy Skepticism Library item: 13704

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Publication type: news

Marsh P.
Zimmer faces $450m bill after legal clash
Financial Times 2008 May 16
http://www.ft.com/cms/s/0/b38b6202-2373-11dd-b214-000077b07658.html?nclick_check=1

Full text:

Zimmer, one of the world’s biggest makers of orthopaedic implants, is reviewing its contracts with hundreds of US surgeons in a move that could take the company’s bill for clearing up a legal case last year to more than $450m.

Under procedures intended to make its dealings with surgeons with whom it has consultancy relationships more transparent, Zimmer is considering terminating its royalty contracts with many of these doctors.

As part of the change, Indiana-based Zimmer would “buy out” the surgeons from their current agreements, handing them a one-off payment to substitute for the chance of gaining regular fees for years ahead.

Although the company refused to speculate on how much these one-off payments might amount to, one US-based analyst with close knowledge of the industry – who asked not to be named – said it was “reasonable” to estimate the sum could come to about $250m.

The new arrangements have irritated some surgeons, who might have to be offered substantial one-off sums to win their support for being bought out of current contracts, analysts believe.

The payments to surgeons being contemplated by Zimmer would come on top of a $169.5m fine levied on the company last September by the US government.

This followed an inquiry by the Department of Justice into allegations that Zimmer and other implant makers had paid illicit “kickbacks” to surgeons in the US in an effort to persuade them to use their products.

Zimmer has also said the costs of fitting in with new compliance measures – agreed in the wake of the legal case to prevent unethical practices recurring – could amount to up to $54m over an 18-month period ending next April.

The one-off payments could be classified by the company as a special charge, and are due to be worked out during the next few months.

Zimmer said it would calculate the basis of the payments in a fair way, as part of a procedure for putting all its contracts with surgeons on a new footing.

“We want to be out in front through adopting a new model [for dealing with surgeons],” the company said.

Many of the current agreements between Zimmer and surgeons – which relate to how much the physicians should be paid for helping Zimmer develop novel implants for joints such as hips and knees – are likely to be replaced by new arrangements instituted in the aftermath of last year’s legal case.

The case cast a pall over the entire orthopaedics industry, which includes implants and related products such as operating equipment and had sales last year of about $30bn.

In the case, Zimmer and four other companies – Depuy, Biomet, Stryker of the US and Smith & Nephew of the UK – were accused of paying large sums of money to surgeons as well as giving them trips and expensive perks. None of the companies admitted to any wrongdoing, but agreed to pay fines totalling $311m to settle the affair.

All these new arrangements have to be vetted by a team of lawyers – appointed by the US government but paid for by Zimmer – to ensure that surgeons are paid for work that they have performed, rather than being offered what amounted to bribes for specifying particular products.