For two years, federal prosecutors in New Jersey have been building a case that the nation’s largest makers of artificial hips and knees defrauded the government and taxpayers by paying surgeons to use and promote their products.

The evidence includes statements from prominent doctors around the country who allegedly accepted lavish vacations, gifts and “consulting fees” as high as $200,000 a year from the implant makers for little or no work, said four attorneys who have been briefed on aspects of the case. The info comes from sources close to the probe, according to John Martin of The Star-Ledger of New Jersey, which owns Pharmalot.

There is no allegation that the practice jeopardized patients or subjected them to substandard products or treatment. But the sources say prosecutors contend that the money had a sole purpose — to buy surgeons’ loyalty to specific products — and that doctors often failed to reveal such a conflict to their patients. If true, such payments would violate the federal anti-kickback statutes that govern hospitals and health professionals who participate in Medicare.

“What the government is alleging is that the companies hired the doctors in order to get their business,” said one attorney, who, like others, asked not to be named because his client had not authorized him to publicly discuss the investigation. “In the hip and knee industry, it’s a doctor-driven business.”

Now in its final stages, the investigation could end as soon as this summer with a settlement of hundreds of millions of dollars, a pledge by the industry to reform and the installation of a federal monitor, according to the sources.

The holdout has been DePuy Orthopaedics, a subsidiary of New Brunswick-based Johnson & Johnson, which is resisting a settlement, the sources said. The stalemate recently has sparked a new round of subpoenas and threats of indictments against doctors, executives or the manufacturers they work for, the attorneys said.

Besides DePuy, which is based in Warsaw, Ind., the other subjects include Zimmer Holdings Inc. and Biomet Inc., also of Warsaw, Ind.; Stryker Corp. of Kalamazoo, Mich.; and Smith & Nephew PLC, a British company with U.S. headquarters in Tennessee.

Together the companies control more than 90 percent of the US market in reconstructive implants, an industry surging as America ages. They employ tens of thousands worldwide and have combined annual revenue of more than $15 billion.

Each has acknowledged aspects of the probe, as well as a second unrelated price-fixing investigation by the Justice Department’s Antitrust Division, in regular Securities and Exchange Commission reports. In one such filing in February, Stryker warned investors: “As a result of these investigations, the Company’s future operating results could be negatively impacted by settlements of these matters.”

For decades, companies have treated doctors to lavish dinners or sponsored Caribbean getaways with the hopes of landing their business. And the biggest manufacturers jockeyed to align themselves with the industry’s best known names, the same way a sneaker or apparel company signs an athlete as a pitchman.

But just as Tiger Woods has to wear and promote Nike products, the doctors’ contracts require them to earn the fees, by hosting training seminars, offering public speeches or helping to develop new products. And their own codes of conduct require them to tell their patients if they are being paid by manufacturers.

In some cases, investigators uncovered what two sources called “egregious” violations in which doctors received payoffs for the equivalent of a no-show consulting job. Others, they said, were more subtle, such as an all-expenses-paid trip or stipend for delivering a speech at a ski resort — sometimes to just one or two other consultants.

“Universally, we’re all opposed to those sorts of arrangements,” says William Dowling, an orthopedic surgeon who sits on the board of the NJ Orthopaedic Society. “It was clear in many respects that these guys were the bought-and-sold guys.”

The full story is here.

[tags]Biomet, DePuy, Johnson & Johnson, Smith & Nephew, Stryker, Zimmer Holdings[/tags]