Wright Pays $7.9 Million to Settle Federal Probe

Talk about a valuable lesson.

Wright Medical Group Inc. is shelling out $7.9 million to settle a criminal investigation and avoid prosecution for allegedly violating a federal kickback statute. A deferred prosecution agreement the Arlington, Tenn.-based orthopedic manufacturing company reached with the U.S. Justice Department settles the civil component of a nearly three-year federal probe and establishes a program to monitor the firm’s relationships with its surgeons. In exchange, Wright Medical admitted no wrongdoing.

James B. Tucker, a former U.S. Attorney for the Southern District of Mississippi, will monitor Wright’s relationships with surgeons. A partner and head of the Investigations Group at the Bethlehem, Pa.-based law firm Butler, Snow, O’Mara, Stevens and Cannada PLLC, Tucker has assembled a team to help him monitor Wright’s current and future relationships with surgeons. “My team includes three former in-house compliance officers, three members with in-house orthopedic medical device experience, and three former government prosecutors, the perfect mix for this project,” he said in a news release issued by the law firm. “The strength and depth of this team certainly enhanced my selection.”

In addition to the monitoring program, Wright reached a five-year corporate integrity agreement with the U.S. Office of the Inspectors General within the U.S. Department of Health and Human Services. The integrity agreement requires the firm—in addition to other conditions—to develop, implement and distribute a written Code of Conduct; create and maintain a central tracking system for its existing and new relationships with healthcare professionals; monitor the use of leased space, medical supplies, medical devices, equipment and other patient care items to ensure the uses do not violate the Anti-Kickback Statute; establish a written review and approval process for establishing relationships with healthcare professionals (a legal review is necessary); and requiring Wright’s compliance officer to review the central tracking system, internal review and approval processes and relationships with healthcare professionals on “at least an annual basis.”

Wright Medical President and CEO Gary D. Henley praised the terms of the deferred prosecution agreement, claiming the resolution “is in the best interest of shareholders.” He also said company executives are looking forward to working with Tucker to continue the firm’s “commitment to the highest standards of ethical and legal conduct.”

“The terms of the resolution reflect our cooperation with the government throughout the investigation,” Henley said in a news release. “This commitment applies to all our dealings with customers, vendors and business partners, as well as with our surgeon consultants who are an important source of innovation in medical technology and integral to the training of their peers.”

The federal government began investigating Wright Medical’s relationships with surgeons and other healthcare professionals in 2007 to determine whether the company’s consulting agreements induced physicians to use its hip and knee products. With the investigation now closed, Wright follows in the footsteps of other large orthopedic companies that were the targets of similar probes.

In September 2007, DePuy Orthopaedics Inc., Biomet Inc., Stryker Orthopaedics Inc. and Smith & Nephew reached similar settlements with the federal government over its relationships with surgeons. After completing the terms of its agreement, three former sales agents for Smith & Nephew filed a lawsuit accusing the former president of the company’s Memphis, Tenn.-based orthopedics division of taking a surgeon to a Dallas, Texas-based strip club in April 2009, the Memphis Daily News (in Memphis, Tenn.) reported. The alleged visit to the strip club occurred a month after the company was discharged from its deferred prosecution agreement.

Strip clubs also allegedly were popular destinations for Medtronic Inc.’s sales staff, according to The Wall Street Journal. In 2008, the newspaper published an article about a lawsuit filed by a former Medtronic attorney that claimed sales reps routinely took surgeons to the Platinum Plus strip club in Memphis, Tenn. The attorney was one of several former Medtronic employees who filed whistleblower lawsuits against the company.

In July 2006, Medtronic agreed to pay the U.S. government $40 million to settle kickback allegations. The company was accused of paying kickbacks to doctors through consulting agreements, sham royalty payments and lavish trips, the Memphis Daily News reported.