Hospitals could soon find themselves facing legal heat stemming from schemes in which they may have been the victims.
Legal experts say that scenario might result from ongoing government investigations into relations between medical devicemakers and their physician clients. For four years, federal prosecutors have scrutinized the sales and marketing practices of devicemakers similarly to the way they have investigated those activities at pharmaceutical manufacturers before them. U.S. attorneys in Boston; Los Angeles; Newark, N.J.; and Philadelphia have sent civil and, in some cases, criminal subpoenas to at least a dozen producers of cardiac and orthopedic devices.
While those investigations so far have focused on the devicemakers themselves and alleged kickback payments to physicians, some healthcare attorneys say it's only a matter of time before prosecutors follow the money downstream to the hospitals where some of those doctors work, sit on formularies or specialty committees, and perform surgery.
"It's a no-brainer that the government will come after the employers of physicians who are found to be taking too much money from devicemakers for consulting arrangements," says Mac Thornton, the former chief counsel to HHS' inspector general's office and now in private practice with the law firm Sonnenschein Nath & Rosenthal.
He notes that employers may not always be aware of conflicts of interest among their physician staff. "But the hospital has a problem whether it knows about the arrangements or not. The hospitals are literally on the hook. None of this is new. I think it was pretty obvious after the Justice Department and HHS' inspector general went after Big Pharma that they would come after the device guys. It came as no great surprise."
The investigations focus on at least three issues: alleged price-fixing and collusion by one or more devicemakers in prices charged to at least one hospital; billing Medicare for the alleged off-label promotion and use of devices; and, most worrisome to hospitals, whether the judgment of physicians and even hospital executives charged with buying or recommending medical-device purchases is clouded by gifts, consulting arrangements or other financial considerations from the devicemakers.
In other words, if devicemakers paid doctors or hospital decisionmakers to obtain favorable product treatment, were those potential conflicts of interest disclosed and transparent, and did hospitals overpay for the devices? And did those arrangements violate the Stark law for physician referral and anti-kickback statutes?
In July, Minneapolis-based Medtronic paid $40 million to resolve civil kickback violations with the U.S. attorney in Memphis, Tenn., that a company Medtronic purchased, Memphis-based spinal-implant maker Sofamor Danek, paid physicians millions of dollars in sham consulting arrangements to buy their products and persuade other doctors to do the same. The whistle-blower in that case has not been publicly identified by the Justice Department, suggesting other defendants may also be targeted in the lawsuit.
Last month, a second whistle-blower excluded from the Medtronic settlement challenged the deal by filing an amended complaint alleging that the company paid doctors to unlawfully promote its products to induce purchases and that it continued to pay kickbacks even as it negotiated with federal prosecutors. Some of the "VIP" doctors-a few of whom held prominent positions with hospital-based clinics or group practices-were paid more than $400,000 apiece per year for as little as eight days of consulting in exchange for agreeing to purchase Sofamor Danek products exclusively, according to the whistle-blower, former company travel manager Jacqueline Poteet, who filed her original complaint in 2003.
The Medtronic lawsuits offer glimpses into the highly competitive world of device sales, the physicians who drive a company's market share and the incentives companies offer to recruit and maintain them. Poteet alleges Medtronic spent millions annually on physician perks at conferences the company sponsored in resort areas to persuade doctors to buy their products.
But the difference between the doctors who received small gifts and the VIP physicians with lucrative consulting contracts "was the latter class was expected to collude with Medtronic Sofamor Danek in the unlawful recruitment of physicians to purchase MSD products," Poteet alleged in her amended complaint.
Some of those physicians also received 2% to 3% royalty checks for the product sales they developed during their contract periods, according to the complaint, which was filed July 31 in U.S. District Court in Memphis. Poteet names Medtronic and 23 physicians or clinics, some from large university academic medical center practices such as Washington University Medical Center, St. Louis, and Emory (University) Clinic, Atlanta.