PHILADELPHIA _ In the past decade, hip- and knee-replacement surgery has exploded _ nearly doubling to about 750,000 operations a year and fueling a multibillion-dollar implant industry with profit margins approaching 20 percent.
With so much money in play, competition among artificial hip and knee manufacturers has fostered a system of five-, six- and seven-figure payments to doctors in royalties, consulting deals and speaking fees.
Those financial arrangements, long an open secret in the medical community, have now come under intense scrutiny from federal prosecutors and members of Congress _ who are considering legislation requiring disclosure.
Critics question whether the payments can present a conflict of interest by skewing doctors’ judgments on how best to treat their patients. At the same time, some concede that payments to pioneering surgeons who help design and patent artificial joints and other medical devices are legitimate.
Federal investigators who have examined the deals have in some cases found large consulting fees paid to doctors for little or no work, lavish trips disguised as medical seminars, and direct payments to surgeons that seemed aimed at convincing them to use a company’s products.
Last year, a U.S. attorney in New Jersey filed criminal complaints alleging that four of the largest artificial-joint makers conspired to violate a federal anti-kickback statute by making payments to surgeons as inducements to use their medical devices.
In a settlement, the companies _ Biomet Inc., DePuy Orthopaedics, Smith & Nephew, and Zimmer Holdings Inc. _ paid a total of $310 million, without admitting wrongdoing. A fifth manufacturer, Stryker Corp., cooperated with the probe and was not charged.
One byproduct of that settlement is disclosure statements, posted on the companies’ Web sites, showing for the first time all of the payments made to doctors. There is no breakdown detailing which payments were for royalties on patented devices, and which ones were for other purposes.
A Philadelphia Inquirer analysis found that 51 doctors got more than $1 million each in 2007 alone.
Locally, 29 doctors and others received a total of $7.9 million last year. Most of that money went to two of the region’s busiest and most prominent orthopedic surgeons.
Richard H. Rothman, founder of the Rothman Institute at Thomas Jefferson University Hospital, received nearly $3 million last year from Stryker. A Rothman spokesman said most of that money came in royalty payments for a hip Rothman helped design.
The other surgeon, Robert E. Booth Jr., who practices at Pennsylvania Hospital, received nearly $2 million from Zimmer Corp., the company that makes the so-called gender knee for women. Booth is one of eight patent holders on it.
Both doctors declined to be interviewed. Through spokeswomen, they said they disclose their company ties to patients. There is no indication that either have engaged in any wrongdoing.
Indeed, many patients seek out surgeons like Booth and Rothman, who help design implants, precisely because they are known as pioneers in the field.
At the University of Pennsylvania Health System _ which includes Pennsylvania Hospital _ patients are told which implant companies are paying the doctors, though not the amounts, officials said.
“It is important that you are aware of these relationships with implant manufacturers,” the Penn form states.
The surgery consent form at Thomas Jefferson University Hospital doesn’t list the companies, saying only that surgeons participate in the implants’ research and design.
“I am further aware that my surgeons may receive compensation” from the manufacturers, the form says.
Both Penn and Jefferson also have royalty policies aimed at preventing conflicts of interest, officials said. Doctors such as Rothman and Booth can’t get a royalty payment for any device used at the hospitals, whether they do the surgery themselves or not.
Neither health system requires that surgeons disclose the size of the payments they receive.
The implant makers and many others argue that surgeons’ expertise helps the companies develop better, longer-lasting implants. And, the proponents say, doctors deserve to be paid for their contributions.
“Guys at the top end are developing products, doing research, and are truly consultants for the companies,” said surgeon Paul Lotke, a former Penn professor now in private practice in Delaware County.
He says most patients actually like to hear that their doctors helped perfect the devices or surgical techniques they are recommending. Lotke was paid at least $125,000 last year consulting for two of the companies.
In this still-secretive world, it’s difficult even for investigators to figure out which payments are legitimate and which ones might be considered improper inducements intended to sway doctors to use a particular device.
The solution, many say, begins in better disclosure: making sure patients know who’s paying their surgeons _ and how much.
Several members of Congress are pushing a bill that would require better disclosure.
“Collaboration between device companies and surgeons can lead to medical innovation, so we’re not interested in severing those ties completely,” said Sen. Herb Kohl, D-Wis.
“Our hope is that requiring these relationships to be transparent will serve as a litmus test for legitimacy.”
For the doctors, the hospitals, and the device makers, the stakes are huge.
Hospitalizations for hip and knee surgeries generate about $25 billion in revenue a year.
In this boom atmosphere, one company executive said, the deals with doctors got out of hand.
“With hindsight, it now appears that as industry expanded to meet patient needs, the use of consultants may have been excessive at times,” said Chad Phipps, Zimmer’s general counsel, in testimony before Congress.
“Such excess has fostered a degree of mistrust, and invited the understandable scrutiny of the government.”
From 2002 to 2006, the major hip- and knee-implant makers spent more than $800 million on royalties, speaking fees, consulting deals and other payments to orthopedic surgeons, according to the U.S. Department of Health and Human Services’ Office of Inspector General.
“How can we trust what is said if the surgeons deciding which devices to use are paid huge amounts of money by the manufacturers?” asked Charles Rosen, a California spine surgeon.
To be sure, many or even most of the deals with doctors were legitimate, investigators say.
There’s nothing wrong with paying doctors to speak at conferences, or to train others to use a company’s implants. Firms routinely underwrite the cost of research, and pay royalties to doctors who help design devices.
But in some cases, prosecutors say, doctors did little or nothing for the money, other than agree to use a company’s products. Prosecutors contend that amounts to an illegal kickback.
“This had become a deeply ingrained practice … and we needed to do more than issue an admonition to stop,” said Michael Drewniak, a spokesman for New Jersey U.S. Attorney Christopher Christie.
“Until now, there was no transparency, and they operated in this kind of closed world,” he said.
Christie and the inspector general are continuing their investigation, now focusing on doctors and smaller companies.
“We are looking at the physicians who were receiving what we believe were kickbacks,” said Greg Demske, the OIG’s assistant inspector for legal affairs.
No doctors have yet been charged.
Makers of other types of medical devices are also under scrutiny.
In 2006, device-maker Medtronic Inc. of Minneapolis agreed to pay $40 million to settle accusations that it paid kickbacks to spinal doctors. The company did not admit wrongdoing.
In the case, which began with a whistleblower complaint, the government alleged that “Medtronic paid kickbacks in a number of forms, including sham consulting agreements, sham royalty agreements, and lavish trips to desirable locations.”
In a 2003 e-mail to a whistleblower, a Medtronic lawyer said he would pay for golf and theme-park visits, but thought it would be a good idea to have the doctors kick in for the fishing, sailing and surfing.
“When we are sending scores of doctors to a nice resort like this under the guise of training and education on our products, I think we need to be more careful and stick to the limits of our rules as best we can.”
Now, the cardiac-device industry is getting a close look as well.
Medtronic, in corporate filings, said it is cooperating with Philadelphia U.S. Attorney Patrick L. Meehan’s inquiry into payments to doctors who put in stents and other heart implants.
Meehan would not discuss the investigation. In general, he said, doctors should be giving feedback to device makers. But when financial ties don’t “pass the smell test … you begin to invite scrutiny,” he said.
Even if a doctor performs a real service, Meehan noted, a payment can still be a kickback if the goal is to sway the doctor to use the product.
Medtronic and several other heart-device makers also have been asked to supply information to investigators for the U.S. Senate.
At 72, Rothman, the former chairman of orthopedic surgery at Jefferson, remains busy, replacing more than 600 hips and knees a year. Implants cost as much as $7,500 each.
According to Stryker’s disclosures, the company paid Rothman $2.9 million in 2007. In addition, Rothman received $316,885 in “corporate assistance” for research, $52,906 in air travel, $4,705 for ground transportation, and $1,757 in meals.
“The vast majority of payments Dr. Rothman receives from Stryker are royalties for the Accolade hip implant,” said a statement provided by the practice he founded, the Rothman Institute.
Other surgeons at the institute, William J. Hozack and Peter Sharkey, received between $625,000 and $675,000 each that year from Stryker, according to the company’s disclosure, which provides no further detail about the nature of the payments. Together, Hozack and Sharkey replace about 900 knees and 800 hips a year, according to an Inquirer analysis of billing records.
Both doctors declined to comment. Whitney Hays, a spokeswoman for the Rothman Institute, said that some medical staff receive compensation for “the expertise and counsel they provide to medical device manufacturers,” either as royalty payments “because the physician invented or participated in the invention of a device,” or as consulting fees.
“We disclose these relationships to patients and other interested parties as appropriate,” she said.
At Pennsylvania Hospital, Booth, one of the nation’s busiest knee surgeons, routinely replaces a knee in under a half-hour _ 12 to 14 a day, or about 1,200 a year.
Last year, Zimmer paid Booth $1.9 million, plus $35,729 in air travel, $3,135 for lodging, $1,214 for meals, and a $6 gift.
Susan E. Phillips, a senior executive at the University of Pennsylvania Health System, said Booth’s contract with Zimmer prevents him from discussing royalties.
Another surgeon in Booth’s practice, David Nazarian, replaces about 650 hips and knees combined annually. He received $392,829 from Zimmer last year. He declined to comment. The company paid an additional $319,302 to the practice.
Until recently, few doctors or hospitals routinely told patients the details of these financial ties.
“I think it has evolved over the last five years or so,” said Nicholas A. DiNubile, chief of orthopedic surgery at Delaware County Memorial Hospital. “Certainly, the federal investigation accelerated that process.”
Rosen, the California spine surgeon, and other critics are pushing for more transparency. And that means not just revealing the names of the companies _ as is commonly done in the leading medical journals _ but detailing how much was paid, and for what.
“To just see the name of a company doesn’t have the same clarity of being told that he or she gets $800,000 a year from the company,” said Rosen, founder of the Association for Ethics in Spine Surgery.
One former prosecutor says the sheer size of some of those deals raises questions about whether doctors’ decisions were tainted and, ultimately, whether patients were harmed.
“What services were the doctors rendering to warrant those kinds of fees? What particular studies, lectures and research was performed to justify these payments?” asked David R. Hoffman, a former federal prosecutor in Philadelphia. Hoffman developed the legal foundation that enabled the federal government to sue nursing homes and other health providers for fraud based on poor quality of care.
The Physician Payments Sunshine Act, sponsored by Sens. Kohl and Charles Grassley, R-Iowa, would require companies to disclose all gifts, fees or other compensation of more than $500 a year.
If it passes, the federal health department would, starting in 2011, create a searchable database of industry payments to all doctors.
Recently, trade groups representing pharmaceutical and device companies endorsed the measure.
For now, only payments by the top five hip- and knee-implant makers _ who command 95 percent of the market _ are available for the public to see.
For at least one implant maker, the era of huge payouts to doctors may be ending.
In April, the Indiana-based Zimmer announced that it would overhaul its compensation deals with doctors, ban gifts, and tighten its training programs.
And from now on, Zimmer’s sales and marketing staff will have no role in setting payments to physicians. Nor will the company pay doctors to give talks at medical seminars.
Bringing the payments system to light is making a difference, Christie said.
“This industry routinely violated the anti-kickback statute by paying physicians for the purpose of exclusively using their products,” Christie said at the time of the settlement with the device makers.
“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.”
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