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Recent settlements highlight government focus on financial arrangements

Device Regulation Alert: Safety, Compliance and Reimbursement News, October 15, 2007

The recent settlements by five companies that market hip and knee surgical implants emphasize how much importance the federal government gives to financial arrangements between device companies and physicians.

The settlements also offer clues to how other companies can improve their compliance efforts by considering what the government says about physician consulting arrangements and what the companies did right in their compliance initiatives and cooperation with the investigation.

Zimmer, Inc., DePuy Orthopaedics, Inc., Biomet, Inc., and Smith & Nephew, Inc., entered into deferred prosecution agreements with the government and a fifth company, Stryker Orthopedics, Inc., entered into a non-prosecution agreement, according to a September press release from the Department of Justice (DOJ).

The deferred prosecution agreements mean that criminal complaints have been filed against the four named companies, but if they comply with the terms of their agreements, which require new compliance efforts and federal monitoring, those complaints will be dropped. The four companies also reached civil settlements under which the companies will pay a total of $311 million to settle allegations they violated the Anti-Kickback Statute and the federal False Claims Act.

The non-prosecution agreement means a complaint will not be filed as long as Stryker Orthopedics, Inc., adheres to its agreement to institute compliance reforms and accept federal monitoring.

Consultant arrangements

Consultant arrangements were at the heart of the government's cases, so device manufactures need to carefully evaluate these arrangements. All consultants must serve a bona fide business purpose and a real need for their services must exist.

The government claimed the five companies entered into consulting agreements with orthopedic surgeons that induced the physicians to use their products. The DOJ claimed in its press release that in some cases the physicians "did little or no work" under the agreements, but agreed to use the company's products exclusively.

The DOJ also alleged that physicians received lucrative payments under the agreements (up to hundreds of thousands of dollars per year), lavish trips, and other perks.

Finally, the government claimed the consultants didn't disclose these financial arrangements to the hospitals where surgeries were performed or to patients receiving the implants.

The companies issued press releases noting the government's industry-wide investigation into consulting arrangements, the settlements, and the companies' commitment to compliance. They also noted the settlements don't involve a guilty plea or admission of wrongdoing.

Device manufacturers can avoid government scrutiny by carefully considering consulting arrangements and how they are implemented.

In our next issue, we'll reveal what the companies did right in responding to the compliance issues and investigations and how the compliance initiatives required in their agreements can help other companies improve compliance.

Click here to review the press release and the agreements on the DOJ's Web site.

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