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Kickback Charges Against Orthopedic Device Makers Dropped

Mar 31, 2009 | Parker Waichman Alonso LLP

Criminal charges were dismissed yesterday against several orthopedic device makers because they have fulfilled the terms of deferred prosecution agreements they reached with U.S. prosecutors a year and half ago.  According to Dow Jones News Wire, Zimmer Holdings Inc., Johnson & Johnson unit DePuy, Smith & Nephew PLC and Biomet Inc. had all been accused of violating federal anti-kick back laws.

According to Bloomberg News, the four companies  supply 95 percent of hips and knees used annually in 700,000 replacement surgeries in the U.S.  Prosecutors had accused the four firms of handing out excessive consulting agreements, lavish trips and other perks to reward surgeons who used their products.  Investigators said physicians performed little or no consulting work, other than to exclusively use the products of whatever company was paying them, and also failed to disclose the relationships with the hospitals where they performed surgery, or to their patients.

In 2007, the government agreed to defer prosecution if  the firms paid more than $310 million and made reforms. Under the deferred prosecution agreements, Zimmer paid $169.5 million; Johnson & Johnson,  $84.7 million; Smith & Nephew, $28.9 million; and Biomet, $26.9 million, Bloomberg said.  

"We are confident that the industry, which had been engaged in illegal kickback practices to secure market share, has made significant changes in their practices to strengthen compliance programs, increase compliance staffs and enhance internal compliance policies and procedures," said acting U.S. Attorney Ralph J. Marra Jr. in a statement Monday. "We expect they will continue these measures beyond the expiration of the agreements and commit to a continued culture of openness, accountability and compliance."

The Department of Justice statement said consulting payments to surgeons by the companies declined to $105 million in 2008 from $272 million in 2007, while the total number of physicians receiving payments from the companies declined to 628 in 2008 from 1,693 in 2007.

According to the New Jersey Star-Ledger, all four companies that entered into civil settlements remain subject to the terms of separate five-year Corporate Integrity Agreements entered into with the Office of Inspector General of the Department of Health and Human Services until September 2012.

A fifth company, Stryker Orthopedics Inc., voluntarily cooperated with the U.S. Attorney's office and executed a non-prosecution agreement, the Star-Ledger said.  It also pledged to put reforms in place and had been operating as well under a monitor's supervision that also ended yesterday.