What is a reasonable charge for providing consultation concerning a medical technology?

What type of consultation is provided in return for such payment?

Do such payments impact a physician’s choice of products?

Do such payments increase unnecessary procedures and products used to treat patients?

Finally: What’s going on here? — legitimate fees for legitimate services or unethical kickbacks?

The Department of Justice (DoJ) answered some of those questions yesterday — in terms of big fines extracted from a group of big orthopedic companies.

Five medical device implant makers have made settlements with the U.S. government to resolve fraud allegations, with four of those companies agreeing to pay about $311 million and consenting to federal monitoring and other reforms

The agreements were made to settle a government probe into improper consulting contracts with surgeons, federal prosecutors said yesterday.

The office of U.S. Attorney Christopher Christie said in a statement that the settlements were reached with Biomet (Warsaw, Indiana); DePuy Orthopaedics (Raynham Massachusetts), a unit of Johnson & Johnson (J&J; New Brunswick, New Jersey); Smith & Nephew (S&N; London); and Zimmer Holdings (Warsaw, Indiana).

A fifth company, Stryker (Kalamazoo, Michigan), will pay no civil settlement, but it is part of the pact and has agreed to the reforms, including 18 months of federal monitoring, according to the statement.

Under the agreements with the DOJ, Zimmer will pay $169.5 million, DePuy will pay $84.7 million, S&N about $28.9 million and Biomet $26.9 million.

While all the companies will be monitored, Zimmer, the biggest offender — or at least the one paying the largest fine — appears to have drawn the most scrutiny and will be monitored by former U.S. Attorney General John Ashcroft.

Not too surprisingly, the news of the settlement came as a relief on Wall Street, as analysts tended to view it as the best possible way out of a sticky legal overhang for the five companies which account for nearly 95% of the market in hip and knee implants.

The total settlement was “in the ballpark of what Wall Street was expecting,” one analyst, who asked not to be named told Reuters. “More than half of it was paid by Zimmer ... my guess is that the government found more fraudulent issues there, the analyst said.

Zimmer’s net earnings “will look terrible, but investors will ignore this,” the analyst said. “It doesn’t look like it changes anything competitively for the companies,” he added.

The DoJ began investigating the industry in March 2005 regarding allegations that the companies had paid kickbacks to orthopedic surgeons as inducements to use their products.

The five companies received subpoenas from the DoJ through the U.S. Attorney’s Office in Newark, New Jersey, seeking information pertaining to consulting contracts, professional service agreements and other agreements by which remuneration is provided to orthopedic surgeons.

Prosecutors said that the device industry routinely violated anti-kickback law by paying physicians to exclusively use their products.

“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 in a statement. “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.”

Zimmer, which did not admit any wrongdoing, said in a statement that it would recognize an expense of $169.5 million in 3Q07 and would be subject to oversight by a federal monitor for 18 months.

“We believe this resolution is in the best interest of our stockholders, and we are pleased that the settlement preserves our ability to collaborate with physicians to enhance patient quality of life,” said David Dvorak, president/CEO of Zimmer. “Importantly, the resolution agreements clearly define how we and our key competitors will interact with physician collaborators, thereby establishing a standard of conduct across the industry.”

He added: “We believe that Zimmer is well positioned to abide by the requirements of the settlement due to our current Corporate Compliance Program, which we began developing in 2004 and implemented in 2005. U.S. Attorney Christopher J. Christie has acknowledged that Zimmer’s current Program already addresses many of the compliance related requirements that are contained in the agreements with the orthopedic companies.”

Earlier in the day, S&N said in a statement that it was in advanced discussions with Christie’s office to agree to a settlement and that it believed the resolution of the matter “will not be materially adverse to the company.”

The other companies have elected not to make any comment at this time.

In other legal news: SEIU United Healthcare Workers-West and SEIU Local 121RN are seeking an injunction to stop Tenet Healthcare (Santa Barbara, California) from cutting health benefits for nearly 7,000 California hospital employees, including registered nurses, pharmacists, licensed vocational nurses, respiratory care practitioners, radiology technicians, surgical technicians, and certified nursing assistants.

Workers represented by the two unions have been in negotiations with Tenet for nearly a year. In June, Tenet and the workers reached an agreement on maintaining all health benefits and costs. Last week, however, the unions said that Tenet changed its position, reporting a plan to cut benefits beginning in November, during the open enrollment period with PacifiCare, which administers the corporation’s health plan.

The unions have filed Unfair Labor Practice charges with the National Labor Relations Board against 14 California hospitals and Tenet for failure to bargain over changes to the health plan.

“This is the ultimate measure of disrespect that Tenet has shown its dedicated employees,” said Ranell Ross of Doctors Hospital of Manteca, one of the hospitals involved in the lawsuit. “Despite Tenet’s multiple problems and failures in turning around this troubled corporation, their employees have been there each and every day delivering the best care possible under severe circumstances. Cutting back on employees’ healthcare is about as low as this corporation can go.”

SEIU United Healthcare Workers-West and SEIU Local 121RN report representing more than 150,000 California healthcare workers.