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By DANIEL ROSENBERG
daniel.rosenberg@dowjones.com
March 31, 2005 5:27 p.m.
Of DOW JONES NEWSWIRES
CHICAGO -- The Department of Justice's probe into
orthopedic device companies has produced only a
handful of subpoenas so far but has raised concerns
about the relationship between doctors and those
companies for whom they consult.
Orthopedic device companies frequently pay physicians
for feedback on products and to help them design
new ones. But doctors and industry experts speculate
that the Justice Department seems concerned that
companies, in an effort to rustle up more business,
sometimes pay doctors who don't provide services
worthy of compensation.
In the past two days, orthopedic device makers Stryker
Corp. (SYK), Biomet Inc. (BMET), Smith & Nephew
PLC (SNN), Johnson & Johnson (JNJ) and Zimmer
Holdings Inc. (ZMH) received subpoenas from the
Justice Department requesting documents related
to their consulting or professional service agreements
with orthopedic surgeons.
The companies have all issued press releases saying
they would cooperate. A department spokeswoman couldn't
immediately provide further details of the investigation.
Wall Street analysts, in notes issued Thursday,
tried to shed light on the government's intentions.
Analysts reckon the government wants to make sure
that consulting relationships between companies
and doctors are legitimate, not just ways for the
companies to seek more business.
Analysts also say the investigation could theoretically
weaken high-volume doctors' relationships with companies,
potentially leading to a slowdown in sales growth.
That, in part, explains why orthopedic shares fell
sharply Thursday.
"We believe the Department of Justice is conducting
a probe into whether or not the orthopedic companies
received services in return for payment to physicians
and are not just writing large checks for using
their products or increasing volume," said
analyst Mark Landy, of Susquehanna Financial Group,
in a note to investors.
In addition to analysts, doctors also are trying
to figure out the probe's thrust. The Justice Department
may be trying to determine the difference between
a "real" consulting relationship and something
that is not useful, said Dr. Fred Geisler, a spinal
surgeon in the Chicago suburbs. For instance, he
asked, can a relationship between a doctor and a
company be called "useful" if the contact
is a 15-minute telephone conversation once a year?
Much of the time, relationships between device companies
and physicians go well beyond an annual 15-minute
phone call. Technology used in implants such as
artificial hips and knee joints ages quickly, so
companies constantly need to innovate. They work
with doctors, who help them design new products
and determine if current ones function properly
and are easy to use.
"Medical technology innovation depends on very
close collaborative relationships between health
care professionals and medical technology companies,"
said Blair Childs, executive vice president, strategic
planning and implementation, at Advanced Medical
Technology Association (AdvaMed), an association
representing medical technology companies. "Unlike
drugs, which are developed in the laboratory, most
medical technology is developed in a collaborative
way between medical technology companies and health
care professionals."
Childs declined to speculate on what exactly the
Justice Department might be interested in, but said:
"I know our industry is committed to ethical
relationships with health care professionals."
Industry Ethics
Code Firm On Compensation Rules
AdvaMed's code of ethics states that companies can
use doctors as consultants and pay them "reasonable
compensation" for their services. However,
the code adds that compensation paid to consultants
"should be consistent with fair market value"
and should only be entered into "where a legitimate
need and purpose for the services is identified
in advance."
J. Patrick Anderson, a spokesman for Stryker, said
his company depends on doctors for their feedback.
"We ask folks performing surgery, 'Is this
product good?,'" Anderson said. "'Are
these instruments the best? Are they ergonomically
satisfying? Is this the best surgical technique
for the patient?' They provide us input."
Providing this input to Stryker, Anderson said,
takes time away from surgeons, who could instead
be performing surgery. So the company compensates
them.
Asked if ethical lines ever get crossed, Anderson
replied: "Like any industry, there can be certain
things that occur, but we try very hard to comply
with laws."
Dr. John Boockvar of Wyckoff Medical Center in Brooklyn
has served as a consultant to medical device companies
and said the rules are clear on how this should
be done.
"They can't give us any fiduciary incentive
to put in any product," Boockvar said. "But
I can still consult for a company, talk about a
product and be paid. This is an ongoing physician
issue. Everyone just has to be careful."
Dr. Geisler said he goes out of his way to try different
products and sometimes doesn't even use products
from companies that pay him for consulting.
"I've always tried to avoid being exclusive
with any company," Geisler said. "I try
to buy a variety of products. But at times you use
one kind because you get familiar with it."
Most devices, he said, are quite good, so often
a doctor's decision on which one to use depends
on the level of service a company provides. A product
that arrives at the hospital on time has an advantage.
-By Daniel Rosenberg, Dow
Jones Newswires; 312-750-4118
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