Three Troubled Device Companies: ArthroCare, Stryker, AM2PAT

It was quite a week in the medical device business.

Arthrocare

Last week we discussed the shenanigans at ArthroCare Corporation here. Since then, more information has come out about in the Austin Business Journal provided more information about these improper practices:

While the internal review, being conducted with the assistance of outside counsel Latham & Watkins LLP, is not yet complete, the ArthroCare’s audit committee has reviewed evidence that indicates that the company’s spine unit engaged in and may have caused others to engage in improper practices in certain instances by:

* seeking separate reimbursement from insurers for company products in connection with procedures which were contractually reimbursed on a global basis;
* making inaccurate statements in claims submitted to insurers regarding the place where particular procedures were performed;
* providing physicians and insurers with descriptions of company technologies which had the effect of circumventing payor policies that did not cover such technologies;
* recommending and advocating to physicians the use of a Current Procedural Terminology code to identify its coblation nucleoplasty technology that was not approved by the American Medical Association and may have not properly described the procedure that was performed.

These improper practices identified so far may have occurred since at least 2006.

Investigators were informed that certain sales and marketing personnel within the spine unit provided physicians and their billing staff with merchandise and administrative services at no charge potentially in exchange for their utilization of the company’s products. The audit committee has determined that company personnel at all levels lacked adequate health care compliance training and that company billing personnel lacked adequate training and supervision in insurance reimbursement requirements. In addition to considering and implementing remediation efforts, the committee is undertaking a review of such practices in other business units.

Stryker

Meanwhile, the New York Times reported about Stryker:

A Justice Department inquiry into Stryker’s marketing of human bone growth products has resulted in guilty pleas by former company sales representatives.

One former sales official pleaded guilty two weeks ago, and another one did in November, court documents show.

Stryker, a leading maker of medical devices, and the United States attorney’s office in Boston, which is conducting the inquiry, declined to comment. A spokeswoman for the attorney’s office said the investigation was continuing.

The inquiry, which began last year, involves several issues, according to court papers and Stryker filings with the Securities and Exchange Commission. The questions include whether Stryker abused a federal exemption that authorized it to sell only limited quantities of its bone growth products for 'humanitarian' reasons, according to the documents.

The two former sales officials pleaded guilty to charges that they had promoted off-label use of the products even though they knew that such use had earlier caused problems in some patients.

The products in question are used by surgeons to aid the growth of bones that fail to heal properly.

This case is not the only one raising ethical questions about Stryker's management.

The inquiry poses new complications for Stryker, which is already operating under federal oversight as a result of an earlier Justice Department investigation of kickbacks paid by makers of artificial hips and knees to doctors.

We posted about this previous issue, first here, most recently here.

AM2PAT

Last, but most assuredly not least, was a story, (here reported by Newsday) about AM2PAT:

Federal authorities are hunting the mastermind behind a 'horrific case' in which bacteria-laden syringes shipped from an Angier, N.C., plant sickened hundreds of people and killed five.

Two men pleaded guilty Monday in U.S. District Court in Raleigh for their roles in ignoring sterility standards at the former AM2PAT Inc. plant. The court heard of conditions at the plant more consistent with a Third World textile factory than a pharmaceutical facility.

The men - plant manager Aniruddha Patel and quality control director Ravindra Kumar Sharma - were each sentenced to 4 1/2 years in prison for fraud and allowing tainted drugs into the marketplace. They were rewarded with a relatively light sentence in exchange for information about chief executive Dushyant Patel, whose company sold $6.9 million worth of heparin and saline syringes in 2006-07 that did not undergo proper sterility testing.

Dushyant Patel, indicted late last week on 10 charges that include fraud and selling adulterated medical devices, has not been arrested. Authorities think he may have fled to his homeland in India and are seeking help from Interpol.

Syringes from AM2PAT were pulled from the market early last year, and the Angier plant shuttered after an outbreak of Serratia, a bacterial infection, hit patients in Colorado, Texas, Illinois, Florida and other states.

On Monday, prosecutors laid out a scheme before Judge Terrence Boyle in which the plant's operators routinely failed to follow sterility rules to keep production running faster. The drugs were not produced at the plant, but were loaded into syringes there, then shipped.

The plant was subject to U.S. Food and Drug Administration requirements for its production. The syringes were supposed to be loaded in a 'clean room,' with employees in caps and gowns and air carefully ventilated to keep germs from spreading.

A photograph entered into evidence Monday shows a 'clean room' refreshed with a common window fan held together with duct tape. In another photo, women work on an assembly line under lamps, surrounded by what look like green plastic recycling bins.

Once the syringes were loaded with drugs, each batch was required to be held for two weeks, while employees tested for bacteria and other contaminants. If bacteria were cultured from the medicines, the whole batch should have been held back. That wasn't happening, court documents show.

Batches of syringes went straight from the production line into the marketplace, with Sharma falsifying manufacturing dates to make it appear to regulators that requisite quality tests had been done. And when tests were done, results were ignored.

Note first that none of these cases was isolated, in that each of these companies had questions raised about management behavior before (at Arthrocare, about accounting; at Stryker, about marketing and payments to doctors; at AM2PAT, raised by health care professionals about quality of its products.)

In the US, we are undergoing yet another great debate about health care reform. Two big issues are the high cost and questionable quality of our health care. All three of these cases involved behavior that could have raised costs. Two may have had indirect effects on quality. One may have directly caused patient death and disease.

Yet, even after executive arrogance, misbehavior, self-interest, and corruption have lead to the global financial meltdown, we are still not really addressing such behavior as a cause of our global health care crisis.