September 28, 2007
Five Medical Companies Settle Criminal Kickback Investigation
Five companies that are the dominant suppliers of surgical knee and hip implants agreed to settle a criminal investigation that they paid kickbacks to doctors in the form of consulting fees and lavish travel and entertainment to get them to use their products. The companies are Zimmer, Inc., Depuy Orthopaedics, Inc., Biomet Inc., Smith & Nephew, Inc., and Stryker Orthopedics, Inc., and together they control 95% of the market for the surgical products. The U.S. Attorney's Office for the District of New Jersey announced that the first four companies listed agreed to a deferred prosecution agreement, while the fifth, Stryker, entered into a non-prosecution agreement because it was the first one in the door to report the illegal payments to physicians. According to a press release (here):
The criminal Complaints accuse the four companies of using consulting agreements with orthopedic surgeons as inducements to use a particular company’s artificial hip and knee reconstruction and replacement products. The investigation revealed that this was a common practice by the companies from at least 2002 through 2006. 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.
The deferred and non-prosecution agreements each last for 18 months. Four companies also agreed to five-year Corporate Integrity Agreements with the Department of Health and Human Services, and settled civil claims by paying over $300 million for violating the anti-kickback statute. Stryker was not involved in the civil settlements. By receiving a non-prosecution agreement, Stryker gained the benefit of not having a criminal complaint filed against it, and the U.S. Attorney's approach is similar to the Antitrust Division's policy of giving the first reporter of a violation immunity from prosecution.
The deferred prosecution agreements require the companies to pay for corporate monitors to ensure their compliance, a standard feature of such settlements. The monitors appointed pursuant to the four deferred prosecution agreements are former Attorney General John Ashcroft, former U.S. Attorneys Debra Yang (CD Cal.) and David Kelley (SDNY), and former New Jersey Attorney General David Samson. Interestingly, all four are law enforcement colleagues of the New Jersey U.S. Attorney, Christopher Christie, showing again the value of connections in receiving such appointments, which can be quite rewarding to the firm's employing the monitors. The agreements are available on the U.S. Attorney's website (here). (ph)
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