A group of major players in the orthopedics products sector late Wednesday received subpoenas from the Department of Justice (DoJ) seeking documents related to the consulting and service fees paid to physicians.
The subpoenas were acknowledged yesterday by some, but not all, of the companies.
Reportedly receiving the subpoenas – in what looks to be the start of a widespread investigation concerning practices in the orthopedic sector – were Stryker (Kalamazoo, Michigan), Biomet (Warsaw, Indiana), the DePuy division (also Warsaw) of Johnson & Johnson (New Brunswick, New Jersey) and Smith & Nephew (London), whose Smith & Nephew Orthopedics unit is located in Memphis, Tennessee.
Stryker and Biomet issued statements acknowledging receipt of the subpoenas, while also promising cooperation with the probe.
Various industry analysts said that rumors of an investigation of this type had been circulating for some time, and the subpoenas appear to be focused on payment of kickbacks to the surgeons using these companies' products.
Joanne Wuensch, device analyst with Harris Nesbitt (San Francisco, California), issued a report saying the DoJ investigation comes as "no surprise," given that similar investigations have been launched by the government. She cited, in particular, investigations of the pharmaceutical industry over the past 10 years and "the May 2004 announcement by the Department of Health and Human Services that it would accelerate investigations into medical device makers over the next 18 months."
Other analysts commenting on the DoJ subpoenas said they expected that Zimmer (Warsaw, Indiana) also is likely to receive a demand to provide documentation concerning its relationships with physicians.
Stryker reported that the DoJ is asking for documents for the period January 2002 through the present. It said that the request is for "any and all consulting contracts, professional service agreements, or remuneration agreements between Stryker Corporation and any orthopedic surgeon, orthopedic surgeon in training, or medical school graduate using or considering the surgical use of hip or knee joint replacement/reconstruction products manufactured or sold by Stryker Corporation."
The statement added: "Based on an initial conversation" with a DoJ representative, it understands "that similar requests have been or will be directed to other companies in the orthopaedics industry."
Stryker said it would "fully cooperate" with the DoJ regarding the matter.
Biomet said it had received, through the U.S. Attorney for the District of New Jersey, a request for documents "related to any consulting and professional service agreements with orthopedic surgeons using or considering the use of Biomet's hip or knee implants."
Like Stryker, it pledged full cooperation with the DoJ.
Another device company currently under the government microscope – a microscope that apparently is more closely probing alleged kickbacks to physicians – is Advanced Neruomodulation Systems (ANS; Plano, Texas).
ANS in February reported receiving a subpoena from the Inspector General of the Department of Health and Human Services concerning reimbursements provided in its sales and marketing activities.
That notice was followed by the filing of class-action lawsuits charging that the company was engaged in "undisclosed and improper promotional practices" and that it had offered to physicians $1,000 for each implant of its pain management device.
In commenting on the overall effect of the DoJ subpoenas for the orthopedic sector, Wuensch noted that stocks in this sector have declined for the year, somewhat more than 3%, in an apparent response to "pricing pressure from hospitals on implants, and we expect this news to contribute to further multiple contraction."
But she predicted the government probe "shall pass" without greatly impacting the orthopedics firms that Harris Nesbitt covers, which include ArthroCare (Sunnyvale, California), Biomet, Stryker and Zimmer.
Some analysts downgraded their ratings on the orthopedics companies they cover, expecting that the news would impact the entire sector.
Merrill Lynch, however, said that a buying opportunity exists as a result of the stock "pullback."