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Orthopedists liable under federal anti-kickback statute

Surgeons who have agreements with companies should review their arrangements for compliance.

by Richard S. Liner, JD, MPH  Source: ORTHOPEDICS TODAY March 2008

Richard S. Liner, JD, MPH
Richard S. Liner

Last September, five orthopedic device manufacturers entered into a settlement agreement with the federal government to resolve allegations that the companies paid illegal kickbacks to physicians as inducements for the physicians to use their respective devices.

Four of the five manufacturers, Biomet Orthopedics Inc., DePuy Orthopaedics, Zimmer Inc., and Smith & Nephew, collectively agreed to pay the government $311 million to settle the case. All five manufacturers, including Stryker Orthopaedics, also agreed to certain financial disclosure requirements concerning their financial relationships with physicians. The information disclosed pursuant to the settlement, which includes the name, address and amount paid to the physician by the manufacturer, now is being used to assess potential physician liability under the federal Anti-Kickback Statute.

OIG targeting physicians

Recently, Lewis Morris, chief counsel for the Office of Inspector General (OIG), commented that information the government has received from the five device manufacturers has allowed for further investigation into the legitimacy of the reported payments to physicians. The payment information furnished by the manufacturers opens a new door for federal enforcement of kickbacks involving physicians, particularly orthopedic surgeons who maintain financial relationships with these companies.

Rather than waiting for a whistleblower complaint and committing time to distributing subpoenas, the OIG now has a continuous stream of financial data at its disposal to mine and review for hints of inducement. The OIG has strongly indicated its intention to use payment information provided by device companies as part of an overall strategy to hold physicians liable for kickback violations, just as the government historically has held pharmaceutical and device manufacturers liable.

The OIG and other enforcement agencies are now evaluating whether the payments physicians receive from device manufacturers — typically under consulting arrangements — are actually intended to induce physicians to purchase certain products. Morris indicated that the OIG intends to determine whether the conduct of physicians who receive these payments warrants the imposition of administrative sanctions.

The OIG has the authority to impose civil money penalties against physicians who receive inducements to order or purchase items, as well as services paid for by Medicare, Medicaid and other federal health benefit programs. However, the OIG may refer severe cases to the Department of Justice, which has jurisdiction under the Anti-Kickback Statute to prosecute criminally.

Although a bill is pending before Congress to make mandatory the type of financial reporting imposed upon the five orthopedic device companies under the terms of their settlement agreement, the government currently does not have immediate access to data concerning payments to physicians who do not do business with those companies. However, the government continues to obtain information about physician payments through its investigation of other device manufacturers and distributors.

Two more added

In January, two additional orthopedic device companies, Wright Medical Group Inc. and Exactech Inc., received subpoenas from the U.S. Attorney for the District of New Jersey regarding company agreements with surgeons. Both companies reported that the subpoenas covered the period from January 1998 through the present and included requests for documents related to consulting or professional service agreements with orthopedic surgeons in connection with hip or knee joint replacement procedures or products.

Once these documents are produced, the U.S. Attorney and the OIG will be able to review and evaluate not only the conduct of the manufacturers, but also the conduct of their physician consultants. Even though the risk of a government investigation increases only for physicians who have financial relationships with Wright Medical Group and Exactech, each time federal enforcement agencies target a new device manufacturer or distributor, the field of exposed physicians expands.

Review your agreement

As a precaution, each physician under contract with a manufacturer would be wise to review their agreement for legal compliance and to consider whether payments made under the agreement, as well as any other remuneration received from the manufacturer, are consistent with the fair market value of the services performed by the physician.

One form of non-contractual remuneration specifically identified by the OIG as vulnerable to abuse is financial support offered by a pharmaceutical manufacturer or device company to a physician for the cost of continuing medical education (CME) programs. This also would include any corresponding education programs attended by nurses or other members of the physician’s clinical staff for which the physician otherwise would be obligated to pay as their employer. Of course, elaborate meals and frequent or valuable gifts and entertainment paid for by the manufacturer also may create the appearance of an inducement.

Physicians who receive payments from device manufacturers should no longer assume that the government will target only the deeper pockets of big companies, either. Federal law permits the government to prosecute both parties to a kickback, and it appears the federal government is looking to start making examples of unscrupulous physicians who take money from manufacturers in exchange for using their products.

The investigation of device companies shows no sign of fading, and with each new settlement, we can expect to see the government impose a payment disclosure requirement on the targeted manufacturer, which will widen the circle of exposure to every physician who receives compensation from the manufacturer.

For more information:

  • Richard S. Liner, JD, MPH, can be contacted at Arent Fox LLP, 1050 Connecticut Ave., NW, Washington, D.C. 20036;             202-857-8972      ; e-mail: .


  • Device makers’ disclosures being used to unearth doctor kickbacks, official says. 11 BNA Health Care Fraud Reporter. 855;Nov. 21, 2007.
  • DOJ subpoenas orthopedic device makers probing company agreements with surgeons. 12 BNA Health Care Fraud Reporter. 21;Jan. 2, 2008.
  • Medtronic discloses U.S. attorney inquiry regarding payments to physicians, others. 12 BNA Health Care Fraud Reporter. 21:Jan. 2, 2008.