Feds Make Hip/Knee Replacement Deal

A federal investigation into concerns that kickbacks were influencing decisions to do hip and knee replacement surgery has led to an agreement between the government and five companies which between them manufacture nearly 95 percent of the replacement joints implanted in the U.S.

Christopher J. Christie, U.S. Attorney in Newark, N.J., says the five companies "avoided criminal prosecution over financial inducements paid to surgeons to use their products" by agreeing to new corporate compliance procedures and federal monitoring under 18-month agreements with the Department of Justice.

Christie says no individuals have been charged in the investigation, which is continuing.

Of the five companies involved in the agreement, all but one will be paying hefty fines, which add up to $310 million.

The companies are: Biomet Orthopedics, fined $26.9 million; DePuy Orthopaedics, fined $84.7 million; Smith & Nephew, fined $28.9 million; Stryker Corporation, which will not be paying any money; and Zimmer Holdings Inc., which will pay $169.5 million and be monitored by former U.S. Attorney General John Ashcroft.

The amounts the companies are paying are based on market share and are part of civil settlements with the Justice Department including more monitoring, allowing them to continue to be part of Medicare reimbursements, and protecting them from any civil lawsuits based on conduct revealed in the investigation.

Christie says Stryker voluntarily cooperated with investigators, before any other company did, and as a result was able to enter into a Non-Prosecution Agreement with the government.

The other four companies were named in criminal complaints accusing them of violating federal laws against kickbacks. Under the terms of their agreement with the government, the complaints will expire if they are successful in following the new rules during the 18-month monitoring period.

Authorities say the companies paid orthopedic surgeons exorbitant amounts of money to be consultants and exclusively use their products. Patients and hospitals, says Christie, were not informed of the doctors' relationships with the manufacturers.

Some doctors were paid "hundreds of thousands" of dollars, says Christie, noting that only a minority of the consulting contracts companies had with surgeons were improper.

"This investigation uncovered evidence that health care decisions were being made based on a doctor's wallet and not on a patient's well-being," said Weysan Dun, the agent in charge of the FBI's New Jersey division.

The U.S. Department of Justice began investigating the industry in 2005 regarding concerns that companies may have paid kickbacks to orthopedic surgeons in return for favoring their products.

In July 2006, another medical device maker, Medtronic Inc., agreed to pay $40 million to settle civil allegations that it paid kickbacks to doctors. The allegations dealt with its Memphis, Tennessee-based subsidiary Medtronic Sofamor Danek, which makes implants used in back surgery to stabilize a patient's spine.

The government said that between 1998 and 2003, Medtronic paid kickbacks that included sham consulting fees, bogus royalty payments and trips to tourist destinations. Medtronic denied any wrongdoing in the settlement.

Biomet, of Warsaw, Indiana, was acquired Tuesday for $11.4 billion by a consortium of private equity firms and ceased trading on Nasdaq.

DePuy, also of Warsaw, Indiana, is a unit of New Brunswick, New Jersey-based health care giant Johnson & Johnson. Zimmer is also based in Warsaw, Indiana.

London-based Smith & Nephew has its U.S. orthopedics operations in Memphis, Tennessee.

Stryker is based in Kalamazoo, Michigan.