Stryker, Biomet, DePuy Orthopedics, Zimmer, and Smith & Nephew Settle, Agree to Deferred Prosecution

It's fall, the season for settlements, deferred prosecution agreements, and federal monitors. Reported by numerous reporters was a large settlement made by five companies that manufacture orthopedic devices, Stryker Orthopedics (a unit of Stryker Inc), Biomet, DePuy Orthopaedics (a unit of Johnson & Johnson), Zimmer Holdings, and Smith & Nephew. As reported by Barnaby Feder in the New York Times,

Under the settlements, which were announced by the United States Attorney in Newark, N.J., the four companies were charged with criminal conspiracy to violate anti-kickback laws. But they will not be prosecuted if they follow new compliance procedures under federal monitoring for the next 18 months.

“This industry routinely violated anti-kickback statutes by paying physicians for the purpose of exclusively using their products,” said the Christopher J. Christie, the United States Attorney in Newark. “Prior to our investigation, many orthopedic surgeons in this country made decisions predicated on how much money they could make — choosing which device to implant by going to the highest bidder.”

A fifth big maker of orthopedic devices, Stryker Orthopedics, accepted federal supervision for the next 18 month. But was not subject to criminal charges because it was the first to cooperate in the investigation, according to the government.

The Times story made it clear that the major issue was payments the companies made to physicians.

Although no doctors were cited in the settlements, the investigation is continuing, Mr. Christie said.

The inquiry began in March 2005 when Mr. Christie’s office sent subpoenas to the companies, requesting documents related to their consulting and “professional service” agreements with doctors from 2002 on. Later, the inquiry expanded backward into relationships with doctors starting in the late 1990’s and included matters like the terms of research grants.

Relationships between orthopedics companies and their customers are among the most complicated — and potentially conflicted — in health care. Unlike with drugs, which are typically developed in company laboratories, many orthopedic devices and related tools originate from inventions by doctors, who often retain a financial stake in their market success.

Even when devices are invented by companies, they often are extensively modified during development in consultation with leading doctors, whom the device companies then turn to for help in commercializing the products and training other doctors to use them.

The costs of the devices are usually charged to a hospital or clinic rather than the surgeons, even though the surgeons have control over which are used. And while some orthopedic devices are highly specialized, others are mature products that vary little from company to company.

As a result, as surgeons select among devices, companies have strong incentive to court them with paid consulting agreements or other financial inducements.

Physicians swear oaths to put the interests of their patients ahead of all other concerns. For physicians to pick treatments based on how much the treatments' manufacturers pay the physicians is just plain wrong - unethical conduct by all parties concerned. Although whether the conduct is illegal is up to the courts, it seems to fit the definition of corruption found in Transparency International's 2006 Global Report on health care: "abuse of entrusted power for private gain."

One striking facet of this case is that it took federal prosecution, deferred prosecution agreements, and the imposition of federal monitors for the companies involved to reconsider what they were doing.

As David Dvorak, the President and CEO of Zimmer said, “Importantly, the resolution agreements clearly define how we and our key competitors will interact with physician collaborators, thereby establishing a standard of conduct across the industry." It seems that common sense would have indicated to both the physicians and the corporations that payments to physicians to induce them to use the corporations' products on their patients were unethical on their face.

Another striking facet of this case, like so many others, is that at least so far, no individuals have paid any penalties or suffered any adverse consequences. Corporate payments of huge fines may not be much of a negative incentive to corporate executives because the impact of the fines can be spread across the entire organization. And such fines clearly have no direct effect on physicians.

They may not even have an indirect effect if physicians never hear about them. Yet most cases like this barely if at all make it into the medical news, and never are discussed in the medical, health care, and healthy policy literature. Let's see if this one is.

The Transparency International 2006 report indicated how widespread health care corruption hurts patients, saps resources available for health care, and reduces access. Failure to appreciate that corruption is widespread and systemic in health care, even in the US and other developed countries, will let its bad effects continue.