Alerts and Updates

Government Spotlight Shifts to Physicians' Consulting Arrangements with Device Makers

March 28, 2008

Orthopedic surgeons who have watched from the sidelines as device manufacturers have struggled with government allegations and investigations may now find themselves directly in the field of play, according to a new initiative from the U.S. Attorney's Office in Newark, New Jersey. The investigation is moving on from the manufacturers to their physician consultants.

In November 2007, the five largest manufacturers of hip and knee surgical implants, Zimmer, Inc., DePuy Orthopaedics, Inc., Smith & Nephew Inc., Biomet, Inc. and Stryker Orthopaedics Inc., agreed to corporate reforms, five-year corporate integrity agreements and federal monitoring for 18 months to avoid criminal prosecution for allegedly improper payments made to surgeons. Four of the companies also agreed to pay a total of $311 million to settle government claims under the anti-kickback statute and the civil False Claims Act.

The companies were accused of using consulting agreements with orthopedic surgeons as inducements for the surgeons to use a particular company's knee and hip replacement and reconstruction products. Surgeons typically received tens of thousands of dollars under the consulting arrangements, which the investigation revealed to be a common practice from 2002 through 2006. Some physicians did little or no work for the compensation they received as consultants and failed to disclose their financial relationship with the manufacturers to their patients or to the hospitals where they performed surgery.

The settlements mandate specific requirements for consulting agreements with physicians going forward:

  • A federal monitor will review each company's compliance with its settlement agreement and all new and existing consulting relationships.
  • Each company will conduct an annual needs assessment to determine its reasonable needs for educational consulting services and new product-development consultants.
  • Physicians must disclose their financial relationship with any company to patients and the companies must disclose each consultant payment on the company website.
  • Consulting agreements must meet certain dollar and term limits and must meet strict reporting requirements for services rendered as a condition of payment.

Having completed its pursuit of the major orthopedic device manufacturers, the federal government has now stated that it will investigate the physicians who entered into consulting agreements and allegedly received kickbacks in return for using a particular device maker's product. Surgeons who become the focus of a government investigation can expect to receive a subpoena requesting production of documents. Office employees may be approached by federal agents at their homes or outside of office hours, or requests for depositions under oath may be received.

While no individual physician has yet been identified as the object of a government investigation, Michael Drewniak, spokesman for the U.S. Attorney's Office in Newark, confirmed that the government's "investigation is continuing into the conduct of individual surgeons." Christopher J. Christie Jr., the U.S. attorney in Newark, has stated, "I've dealt with the supply issue, now I need to deal with the demand issue" related to physicians' financial relationships with device makers.

Surgeons with consulting or other financial relationships with a device maker should review the terms of their arrangements in light of the requirements of the manufacturer settlement agreements and potential kickback claims. Surgeons should prepare for a possible government investigation by consulting their legal advisor to assess whether their particular arrangements may be considered problematic. With a lawyer's involvement, the next step would be to compile and analyze records under the attorney-client privilege that will support the surgeon's position that the arrangements do not violate any legal standards. Developing and putting in place a response plan to be followed in the event of a government subpoena or investigation would also be an advisable preparatory step.

For Further Information

For more information regarding this topic, please contact Philip H. Lebowitz, any other member of the Health Law Practice Group or the attorney in the firm with whom you are regularly in contact.

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