The anti-kickback statute makes it illegal for doctors or medical facilities to receive financial incentives to increase the use of devices, which in turn increases the number of implant procedures, in patients covered by public health care programs.
The companies charged include Zimmer, DePuy Orthopaedics, a subsidiary of Johnson & Johnson, Biomet and Smith & Nephew. A fifth company, Stryker Orthopedics, cooperated with the US Attorney's Office before any other company and was not criminally charged due to its cooperation.
"This industry routinely violated the anti-kickback statute by paying physicians for the
purpose of exclusively using their products," New Jersey US Attorney Christopher Christie said in a press release.
"Surgeons who had agreements with the companies were typically paid tens to hundreds of thousands of dollars per year for consulting contracts and were often lavished with trips and other expensive perquisites," according to the press statement.
The five companies named account for nearly 95% of the market in knee and hip implants. The US Department of Health and Human Services reports that more than 700,000 total hip and knee replacement surgeries are performed in the US each year, and approximately two-thirds are performed on patients covered by Medicare, according to the press release.
The investigation by the Department of Justice, which began in 2005, found the financial inducements in the form of consulting agreements were entered into with hundreds of surgeons throughout the 2002-2006 timeframe. In many instances, the physicians did little or no work but did agree to exclusively use the company's products.
The physicians failed to disclose these relationships with the companies to the hospitals where the surgeries were performed and, more importantly, to the patients whom they treated, the press release notes.
The cost spread between devices leaves plenty of room for kickbacks to doctors. According to a 2006 survey by the Greater New York Hospital Association, one New York area hospital paid $8,000 more for a DePuy hip than a competitor.
On September 26, 2006, the New York Times reported that, in the previous two years, Medicare payments to hospitals for implant surgery had risen about 40%, from $10 billion to $14 billion, citing an analysis of Medicare records.
Zimmer, DePuy, Biomet and Smith & Nephew have avoided criminal prosecution by agreeing to new corporate compliance procedures and federal monitoring under 18-month agreements with the Department of Justice, Mr Christie reports.
They have entered into Deferred Prosecution Agreements, and the criminal complaints will be dismissed if they adhere to the requirements in the agreements.
Stryker entered into a Non-Prosecution Agreement, under which it is required to implement all the reforms imposed on the other companies, including the 18 months of federal monitoring.
Additionally, the four companies charged have reached civil settlements with the Department of Justice and the US Department of Health and Human Services and have agreed to pay a total of $311 million to settle claims under the anti-kickback statute and the civil federal False Claims Act.
Under the terms of the agreement, Zimmer will pay $169.5 million; Biomet will pay $26.9 million; DePuy, $84.7 million, and Smith & Nephew will pay $28.9 million. Stryker will not pay any money.
They have also entered into five-year Corporate Integrity Agreements which require additional reforms and monitoring under the supervision of the HHS-OIG.
The financial settlements and CIA's release the four companies from any civil liability, and most importantly, prevent them from being excluded from the Medicare reimbursement program based on the conduct identified in the investigation. Stryker did not enter into any civil settlement and, therefore, has not been given any release from civil liability nor any release from HHS, according to the press statement.
Key requirements common to the agreements include: (1) A federal monitor will be in place at each company to review compliance and all new and existing consulting relationships; (2) Each company is required to conduct a needs assessment to determine the reasonable needs for educational consulting services and new product-development consultants; and (3) All new consulting agreements will require physicians to disclose their financial engagements to their patients and require the device makers to disclose the name of each consultant and what they have been paid on the company website.
"With these agreements in place," Mr Christie stated in the press release, "we expect doctors to make decisions based on what is in the best interests of their patients - not the best interests of their bank accounts."
"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," he stated.
"Patients in federal health care programs deserve the best available treatment from physicians and surgeons without the corrupting influence of kickbacks from the medical device companies," said Gary Heuer, Special Agent in Charge of the HHS-OIG in New York, in the press release.
"We will continue to work closely with our law enforcement partners to vigilantly investigate schemes meant to defraud Medicare, and to prosecute those individuals to the fullest extent of the law," he stated.
All that said, the device makers recently posted their disclosure forms for the first 10 months of 2007, and the payments made to doctors this year appear to be every bit as outrageous as in past. For instance, DePuy paid Dr Richard Scott of Boston between $6,675,000 and $6,700,000; Dr Richard Jones of Dallas between $2,825,000 and $2,850,000, and Dr Thomas Thornhill of Boston was paid between $6,725,000 and $6,750,000.
Dr Amar Ranawat of New York made between $2,375,000 and 2,400,000 off DePuy; Dr Thomas Schmalzried of Los Angeles was paid between $1,275,000 and $1,300,000, and Dr Dennis Douglas of Colorado received between $2,925,000 and $2,950,000.
The other four companies also paid out big bucks to doctors in 2007. Zimmer paid North Salt Lake Dr Kim Bertin $1,963,291; Dr Richard Berger of Chicago, $2,495,028, and Philadelphia Dr Robert Booth was paid $1,881,092.
Stryker paid Dr Lester Borden of Cleveland between $1,800,000 and $1,825,000, and Dr Anthony Hedley of Phoenix received $3,025,000 to $3,050,000.
Biomet paid California Dr Thomas Donaldson between $1,025,000 and $1,049,999, and Dr Adolph Lombardi of Ohio received between $1,825,000 and $1,849,999.
Smith & Nephew also paid several doctors millions of dollars. Dr Ramon Gustilo of Minneapolis received over $3,000,000; Dr Steven Haas of New York was paid between $1,650,001 and $1,675,000, and Dr Michael Ries of California made between $1,400,001 and $1,425,000.
Mr Christie did not disclose whether any doctors would be charged as a result of his investigation, and Michael Drewniak, a spokesman for the prosecutor, would not discuss individual physicians, citing a policy not to comment on ongoing investigations, according to a report by Clifford Marks in The Harvard Crimson on November 7, 2007.
"We are continuing our investigation into the conduct of particular doctors," Mr Drewniak said. "We never identify targets of our investigation until or unless they are charged."
On October 12, 2007, Dow Jones Newswire reported that Zimmer, Stryker, Biomet, Smith, and device maker Medtronic, had acknowledged getting letters from the SEC, regarding an informal probe of possible violations of the Foreign Corrupt Practices Act.
The act in question is meant to stop improper payments to foreign officials in return for favors.