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Device makers to pay $311 mln to settle kickbacks probe

NEWARK, New Jersey (Reuters) - Four medical device makers will pay a total of $311 million and agreed to federal monitoring to settle a government probe into consulting deals prosecutors said were made with surgeons to sway decisions on which hip and knee implants to give to patients.

Zimmer Holdings, which will pay more than half the total, Johnson & Johnson unit DePuy Orthopaedics, Smith & Nephew and Biomet will pay civil settlements and avoid criminal prosecution by agreeing to reforms, U.S. Attorney Christopher Christie said on Thursday in New Jersey.

A fifth company, Stryker Corp, will pay no civil settlement but has entered into a nonprosecution agreement with the government and agreed to the reforms, including the federal monitoring. Stryker voluntarily cooperated with prosecutors before any other company, Christie said.

Zimmer will pay $169.5 million, DePuy will pay $84.7 million, Smith & Nephew about $28.9 million and Biomet $26.9 million.

Prosecutors accused the four companies of using consulting deals with orthopedic surgeons as inducements to use their products. This was common practice from at least 2002 through 2006, with surgeons paid tens to hundreds of thousands of dollars per year for consulting contracts, including trips and other perks, the government contends.

“Prior to our investigation, many orthopedic surgeons in this country made decisions predicated on how much money they could make -- choosing which device to implant by going to the highest bidder,” Christie said.

“With these agreements in place, we expect doctors to make decisions based on what is in the best interests of their patients -- not the best interests of their bank accounts.”

Under the agreement with the government, physicians who serve as consultants must disclose the arrangements to their patients. The companies also must disclose on their Web sites the name of each consultant and what they have been paid.

The five companies account for nearly 95 percent of the market for hip and knee surgical implants, prosecutors said.

Separately, Medtronic Inc said on Thursday that U.S. Sen. Charles Grassley, an Iowa Republican, had raised questions about payments the medical device maker made to spine surgeons. The inquiry follows a $40 million settlement that the company reached with the U.S. government last year to settle allegations it made improper payments to doctors.

ANTI-KICKBACK VIOLATIONS

Zimmer, DePuy, Biomet and Smith & Nephew have entered into deferred prosecution agreements with the government that will expire in 18 months if the reforms are met. Criminal complaints were filed against the four companies, accusing them of conspiring to violate federal anti-kickback law, but will be dismissed if the reforms are carried out.

Zimmer said in a news release that it would recognize an expense of $169.5 million in the third quarter.

Smith & Nephew, a British company, had said earlier in the day that it believed that a resolution of the matter “will not be materially adverse to the company.”

Stryker confirmed the pact in a statement, saying the probe began with a Department of Justice subpoena in March 2005.

Noting that the agreement included no admission of liability or wrongdoing, Biomet CEO Jeffrey Binder said in a statement the company would work with the independent monitor and other authorities “to institute and review additional health-care compliance practices and procedures.”

DePuy in a statement said “the government makes no claim that patient care was impacted by any of the sales practices that were the subject of the investigation.”

Zimmer will be monitored by former U.S. Attorney General John Ashcroft, while DePuy will be overseen by former U.S. Attorney in Los Angeles Debra Yang.

Smith & Nephew will be monitored by David Samson, former attorney general of New Jersey; Biomet will be monitored by David Kelley, a former U.S. Attorney in New York; and Stryker will be monitored by John Carley, a former legal affairs executive at Cendant Corp.

Stocks of the companies rose because the settlement was “in the ballpark of what Wall Street was expecting” and removed a cloud of uncertainty but did not change anything competitively, said one analyst, who asked not to be named.

Most of the settlement money goes to the Medicare trust fund and some goes to defray the costs of the investigation, a spokesman for the prosecutor said.

On the New York Stock Exchange, Zimmer shares rose 1.3 percent to close at $82.21, JNJ moved up 15 cents to $65.54, and Stryker shares rose 1.4 percent to $68.88.

Additional reporting by Martha Graybow and Bill Berkrot in New York and Debra Sherman in Chicago

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