Orthopedic Firms Settle Kickback Probe

Four makers of orthopedic devices have entered deferred-prosecution agreements and agreed to pay a total of $311 million to settle criminal and civil probes into allegations they paid kickbacks to surgeons to use their products, prosecutors said. The agreements appear to resolve an issue that has been hanging over the makers of replacement hips and knees since early 2005, when Justice Department subpoenas on the matter were disclosed. Shares of major players, including Zimmer Holdings Inc., which is paying a much larger amount than its rivals, generally moved higher following the announcement from the U.S. attorney’s office in Newark, N.J. Zimmer, Johnson & Johnson unit DePuy Orthopaedics Inc., Smith & Nephew PLC and Biomet Inc. have entered the deferred-prosecution agreements, through which they will avoid criminal prosecution on a conspiracy charge if they adopt industry overhauls and complete 18 months of corporate monitoring. Zimmer, the largest pure-play orthopedics company, will pay $169.5 million. DePuy will pay $84.7 million, while Smith & Nephew, a London medical-device company, will pay $28.9 million and Biomet, a Warsaw, Ind., maker of orthopedic devices, will pay $26.9 million. The companies didn’t admit wrongdoing. Those four companies have reached a civil settlement with the Justice Department and the Department of Health and Human Services’ inspector general. A fifth orthopedics company, Stryker Corp. of Kalamazoo, Mich., voluntarily cooperated with prosecutors and agreed to enter a nonprosecution pact. Stryker, which also agreed to adopt overhauls and to undergo corporate monitoring for 18 months, hasn’t reached a civil settlement with the government. The five companies represent nearly all of the huge market for replacement hips and knees, which continues to expand as baby boomers age and wear down. Zimmer said it will record an expense of $169.5 million in the third quarter in connection with the settlement. It also agreed to be monitored by former U.S. Attorney General John Ashcroft. DePuy said it will work closely with its external monitor and the government to help “bring greater clarity to the marketplace for the benefit of customers and patients.” Smith & Nephew said it believed that the settlement wouldn’t be materially adverse to the company. Biomet said it intended to work with the independent monitor, the Justice Department and the Office of Inspector General to institute and review additional health-care compliance practices and procedures. SOURCE: Wall St. Journal