Federal Investigators Target Orthopedics Sector

One by one, subpoenas from the U.S. Department of Justice (DOJ) were issued, each followed by a company news release pledging complete compliance and cooperation with the investigation. And with each communication, it became increasingly clear that orthopedics—medtech’s hottest sector—was under fire.

U.S. Attorney Christie: Ortho under fire.

Earlier this month, Christopher Christie of the Newark, NJ, office of the U.S. Attorney issued subpoenas to the nation’s five leading orthopedics firms. The subpoenas requested information regarding the companies’ consulting, professional service, and remuneration agreements with orthopedic surgeons dating from January 2002 to the present.

The orthopedic companies under investigation are Biomet Inc. (Warsaw, IN); DePuy Orthopaedics Inc. (Warsaw, IN), a Johnson & Johnson company; Smith & Nephew plc (London); Stryker Corp. (Kalamazoo, MI); and Zimmer Holdings Inc. (Warsaw, IN).

The DOJ is seeking to examine the close relationships that orthopedic manufacturers have with orthopedic surgeons to determine whether any improper activity has occurred. Although manufacturers are permitted to pay legitimate consulting fees to physicians, federal antikickback rules prohibit companies from paying doctors for referrals or providing incentives to encourage the use of their products.

McAnaney: Probe expected.

Washington, DC, attorney Kevin G. McAnaney, a nationally recognized expert on healthcare fraud and abuse, says the current inquiry has been expected for some time. “No doubt, the government is concerned about what some see as the appearance of a cozy relationship between orthopedic manufacturers and surgeons. The probe will seek to determine what kinds of services the companies received for the consulting fees paid to surgeons, and whether or not these can be documented as both real and of true market value.

“While some reports may shy away from the term kickback, in essence, that’s what is being investigated here.”

McAnaney notes that the current probe is similar to DOJ’s recent investigation of the pharmaceutical industry, in which companies were alleged to have provided gifts, food, and exotic trips as incentives—or kickbacks—for prescribing a particular company’s drug products.

The relationship between orthopedic manufacturers and surgeons is perhaps a unique one. Salespeople often scrub-up for surgery, either to train doctors on the use of a particular implant or to gain valuable feedback on design and implantation issues. Companies rely on surgeons as consultants and as resources for training other physicians.

AdvaMed’s Childs: Collaboration essential.

According to Blair Childs, executive vice president for strategic planning and implementation at industry association AdvaMed (Washington, DC), the close collaborative relationships that exist between orthopedic manufacturers and surgeons are an essential part of the advancement of medical technology. “Unlike drugs, which are developed in the laboratory, most medical technology is developed in a collaborative way between medical technology companies and healthcare professionals,” says Childs.

AdvaMed has been actively encouraging medtech manufacturers to embrace the “Code of Ethics on Interactions with Healthcare Professionals,” an industry guidance document commonly known as the AdvaMed code of ethics. While the code permits companies to employ doctors as consultants and to pay “reasonable compensation” for their services, it also specifies that such fees should be consistent with “fair market value” and should be for a “legitimate need and purpose.”

Some industry analysts are concerned about the potential damage that DOJ’s probe could do to legitimate manufacturer-surgeon relationships. But most expect the companies in question to quickly settle with the government, pay any levied fine, and move on. While the sector may take some day-to-day hits as the investigation proceeds, the consensus view cites population trends and demographics as predictors of continued strong growth for the sector over the long term.

According to some reports, DOJ’s investigation of orthopedic firms may take up to three years to complete. We’ll keep you posted.

© 2005 Canon Communications LLC

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