Five orthopedic device companies reach settlement with DOJ for investigation into consulting practices

All five companies agree to the appointment of federal monitors who will review their compliance with the required reforms.

Five orthopedic hip and knee implant companies have reached a settlement with the U.S. Department of Justice effectively concluding the ongoing investigation into whether financial relationships and consulting agreements with orthopedic surgeons violated the federal anti-kickback statute.

Under the settlement, the five companies have agreed to adhere to new corporate compliance procedures and 18 months of oversight by a federal monitor appointed by the Department of Justice (DOJ).

Zimmer, DePuy Orthopaedics, Biomet, and Smith & Nephew have executed Deferred Prosecution Agreements (DPAs) with the U.S. Attorney's Office for the District of New Jersey, which will expire in 18 months if the companies meet all of their respective reform requirements, according to a press release from the New Jersey District Attorney's Office. Under the settlements, the companies have agreed to pay a total of $311 million to settle government claims under the anti-kickback statute and the civil federal False Claims Act. As part of the DPAs, the DOJ filed criminal complaints against the four companies, charging them with conspiring to violate the federal anti-kickback statute. The criminal complaints accuse the four companies of using consulting agreements with orthopedic surgeons as inducements to use a particular company's joint replacement device.

The DOJ will dismiss the criminal complaints at the conclusion of the DPAs if the companies comply with the terms of their respective DPA.

Stryker Orthopedics — the fifth company involved in the investigation — voluntarily cooperated with the Attorney's Office before any of the other companies. Because of its cooperation, Stryker executed a Non-Prosecution Agreement (NPA) with the DOJ, which requires Stryker to implement the same reforms imposed on the other four companies under the DPAs, including 18 months of federal monitoring.

Zimmer, DePuy Orthopaedics, Biomet, and Smith & Nephew have also reached civil settlements with the DOJ and U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG). Under the settlements, the companies have agreed to pay a total of $311 million to settle government claims under the anti-kickback statute and the civil federal False Claims Act.

Specifically, Zimmer will pay $169.5 million, Depuy will pay $84.7 million, Smith & Nephew will pay $28.9 million and Biomet will pay $26.9 million. the companies have also entered into 5-year Corporate Integrity Agreements with the HHS-OIG, which require additional reforms and monitoring by the HHS-OIG, the release said.

The financial settlements and integrity agreements release the four companies from any civil liability. They also prevent the companies from being denied Medicare reimbursement based on the findings of the investigation.

Stryker did not enter into any civil settlement with either the DOJ or HHS and has not been released from either potential civil liability or any actions by the HHS.

All five companies have agreed to the appointment of federal monitors who will review their compliance with the required reforms.

Matt Miksic, an orthopedic and spine device analyst for Morgan Stanley, told Orthopedics Today that he believes the investigation was long and difficult, but the settlement is probably "healthy" for the industry "and important for the five manufacturers to put behind them."

"What was significant about the investigation and the improvements in compliance and internal monitoring at these manufacturers over the past few years, is that the companies have already become more focused on compliance with the laws governing their relationships with surgeons, and more compliant with the AdvaMed code of ethics," he said.

"I believe this is a good thing for the industry, and it enables manufacturers to remain engaged with surgeons in terms of training and product design and development, which is critical for maintaining quality and innovation in the industry, which is ultimately good for patients," he said.

"I think the industry is healthier and more compliant than it was 3 or 4 years ago. And the fines that the companies are paying are certainly large enough to send a significant message regarding the importance of these laws, but they are of a size that should not adversely affect their ability to operate nor constrain them from pursuing their strategic objectives.

"In the end, I think it was a good settlement, and good for the industry to put this behind it," Miksic said.

According to the press release, key requirements common to the DPAs and NPA include the following:

A federal monitor will review compliance with the DPAs and NPA as well as all new and existing consulting relationships.
Each company must conduct a needs assessment to determine the reasonable needs for educational consulting services and new product-development consultants.
For all new consulting agreements, physicians must disclose their financial relationships to their patients and the companies must disclose each consultant's name and what they have been paid on the company's Web site.

The settlements paid by the companies are to resolve the covered conduct detailed in the Civil Settlement Agreements with the DOJ, according to the press release. The different civil settlement amounts reflect each company's market share and other related business factors during the time period investigated, and not the relative culpability among the companies, the release said.

Editor's note: This article was updated on Oct. 1, 2007 to include editorial changes to its original version.

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