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Aug 04

DOJ and OIG Continue to Target Physician Consultant Arrangements

The following was reprinted from the Physician Organizations Practice Group section newsletter published by the American Health Lawyers Association. If you are not a member of this organization, I recommend you join immediately. You don’t have to be a lawyer to be a member. Go to www.healthlawyers.org.

Consulting agreements between medical device manufacturers and physicians can play a valuable role in advancing medical device development. However, the U.S. Department of Justice (DOJ) and the U.S. Department of Health and Human Services, Office of the Inspector General (OIG) view these consulting agreements with suspicion because of the potential conflict of interest that they create for physicians in contravention of the federal Anti-Kickback Statute (AKS). While media attention largely focuses on enforcement actions against the manufacturers and their large monetary settlements, the physicians receiving payments from medical device companies are not immune from AKS enforcement actions.

When physicians receive payments above fair market value or for services not actually rendered, consulting arrangements may constitute illegal payment to the physician in exchange for referrals. The DOJ and OIG intend to file complaints against physicians who receive payments under sham consulting agreements with device manufactures. In an interview with The New York Times, OIG Chief Counsel Lewis Morris stated "[w]hat we need to do is make examples of a couple of doctors so that their colleagues see that this isn't worth it."

The OIG has begun to take such action. On February 16, 2010, the OIG reported on its website that it had settled a claim against a Florida orthopedic surgeon whom the OIG claimed had solicited and received payment from medical device companies in exchange for using the companies' products. The physician agreed to pay $650,000 as part of his settlement agreement. Similar investigations and enforcement actions remain a threat to physicians in light of consulting agreement disclosures made to the government by medical device manufacturers. These disclosures have given the government access to the names of physicians who contract with a specific manufacturer and the amount of the physician's compensation, which allow the government to more easily investigate the legitimacy of these agreements.

The DOJ and OIG have investigated a number of major medical device manufacturers over the past several years. Perhaps most notably, the DOJ filed criminal complaints against four medical device companies in 2007. The complaints alleged that the companies had violated the AKS by using consulting agreements with physicians as a way to bolster the use of the respective company's artificial hip and knee products. The companies, Zimmer Inc., DePuy Orthopaedics Inc., Biomet Inc., and Smith & Nephew Inc., entered into eighteen-month deferred prosecution agreements with the DOJ pursuant to which they committed to extensive corporate compliance initiatives, federal monitoring, the creation of a consulting services "Needs Assessment," and disclosure of the name of each physician consultant and payment made to the consultant. Stryker Corp., which cooperated with the government and was not subject to a criminal complaint, entered a non-prosecution agreement subject to the same compliance reform requirements. On March 30, 2009, the DOJ announced the expiration of the deferred prosecution agreements and non-prosecution agreement, and announced that all five companies had met the terms contained therein. According to the DOJ, the enforcement actions against these five companies led to a 61% decrease in consulting payments made to physicians and a 63% decrease in the number of physicians receiving payments under such agreements from 2007-2008.

Leading to more disclosures, in December 2007, the DOJ requested almost ten years' worth of documents relating to consulting and professional service agreements from Exactech Inc. and Wright Medical Group Inc. The subpoenas focus on payments made to orthopedic surgeons and other medical professionals by the two orthopedic device companies.

With the increased disclosure to the government of information regarding arrangements between manufacturers and physicians, and in light of the increased attention the DOJ and OIG have announced for the physician side of the equation, physicians should enter such agreements with caution. Physicians need to take an active role to ensure that their consulting agreements comply with legal requirements. In particular, physicians should ensure that an agreement meets all the requirements of the safe harbor for personal services and management contracts, including that the agreement meets a legitimate need of the manufacturer, that the physician's compensation constitutes fair market value for services actually provided and documented, and that the compensation does not relate to the value of volume or the physician's referrals to the manufacturer.

About Reed Tinsley, CPA

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