Justice Dept. Probes Medical TiesMar 31, 2005 | AP
A probe by the Department of Justice into makers of orthopedic devices has produced only a handful of subpoenas so far but has raised concerns about the relationship between the companies and the doctors that consult for them.
Orthopedic device companies frequently pay physicians for feedback on products and to help them design new ones. But doctors and industry experts speculate that the Justice Department seems concerned that companies, in an effort to rustle up more business, sometimes pay doctors who don't provide services worthy of compensation.
In the past two days, orthopedic device makers Stryker Corp., Biomet Inc., Smith & Nephew PLC, Johnson & Johnson and Zimmer Holdings Inc. received subpoenas from the Justice Department requesting documents on their agreements with orthopedic surgeons.
The companies have all issued press releases saying they would cooperate. A department spokeswoman couldn't immediately provide further details of the investigation.
Wall Street analysts, in notes issued Thursday, tried to shed light on the government's intentions. Analysts reckon the government wants to make sure that consulting relationships between companies and doctors are legitimate, not just ways for the companies to seek more business.
Analysts also say the investigation could theoretically weaken high-volume doctors' relationships with companies, potentially leading to a slowdown in sales growth. That, in part, explains why orthopedic shares fell sharply Thursday.
``We believe the Department of Justice is conducting a probe into whether or not the orthopedic companies received services in return for payment to physicians and are not just writing large checks for using their products or increasing volume,'' said analyst Mark Landy, of Susquehanna Financial Group, in a note to investors.
J. Patrick Anderson, a spokesman for Stryker, said his company depends on doctors for their feedback.
``We ask folks performing surgery, 'Is this product good?''' Anderson said. ``Are these instruments the best? Are they ergonomically satisfying? Is this the best surgical technique for the patient? They provide us input.''
Providing this input to Stryker, Anderson said, takes time away from surgeons, who could instead be performing surgery. So the company compensates them.
Dr. Fred Geisler, a spinal surgeon in the Chicago suburbs, said the Justice Department may be trying to determine the difference between a ``real'' consulting relationship and something that is not useful. For instance, he asked, can a relationship between a doctor and a company be called ``useful'' if the contact is a 15-minute telephone conversation once a year?
Much of the time, relationships between device companies and physicians go well beyond an annual 15-minute phone call. Technology used in implants such as artificial hips and knee joints ages quickly, so companies constantly need to innovate. They work with doctors, who help them design new products and determine if current ones function properly and are easy to use.
``Medical technology innovation depends on very close collaborative relationships between health care professionals and medical technology companies,'' said Blair Childs, executive vice president, strategic planning and implementation, at Advanced Medical Technology Association (AdvaMed), an association representing medical technology companies. ``Unlike drugs, which are developed in the laboratory, most medical technology is developed in a collaborative way between medical technology companies and health care professionals.''
AdvaMed's code of ethics states that companies can use doctors as consultants and pay them ``reasonable compensation'' for their services. However, the code adds that compensation paid to consultants ``should be consistent with fair market value'' and should only be entered into ``where a legitimate need and purpose for the services is identified in advance.''