[Senate Hearing 110-578]
[From the U.S. Government Publishing Office]
S. Hrg. 110-578
SURGEONS FOR SALE:
CONFLICTS AND CONSULTANT PAYMENT IN THE MEDICAL DEVICE INDUSTRY
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
FEBRUARY 27, 2008
__________
Serial No. 110-22
Printed for the use of the Special Committee on Aging
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
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SPECIAL COMMITTEE ON AGING
HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon GORDON H. SMITH, Oregon
BLANCHE L. LINCOLN, Arkansas RICHARD SHELBY, Alabama
EVAN BAYH, Indiana SUSAN COLLINS, Maine
THOMAS R. CARPER, Delaware MEL MARTINEZ, Florida
BILL NELSON, Florida LARRY E. CRAIG, Idaho
HILLARY RODHAM CLINTON, New York ELIZABETH DOLE, North Carolina
KEN SALAZAR, Colorado NORM COLEMAN, Minnesota
ROBERT P. CASEY, Jr., Pennsylvania DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri BOB CORKER, Tennessee
SHELDON WHITEHOUSE, Rhode Island ARLEN SPECTER, Pennsylvania
Debra Whitman, Majority Staff Director
Catherine Finley, Ranking Member Staff Director
(ii)
C O N T E N T S
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Page
Opening Statement of Senator Herb Kohl........................... 1
Opening Statement of Senator David Vitter........................ 3
Opening Statement of Senator Senator Ken Salazar................. 3
Opening Statement of Senator Bob Corker.......................... 4
Opening Statement of Senator Gordon Smith........................ 32
Panel I
Greg Demske, assistant inspector for Legal Affairs, Office of
Inspector General, U.S. Department of Health and Human
Services, Washington, DC....................................... 4
Charles Rosen, clinical professor, University of California,
Irvine, CA; president, Association for Ethics in Spine Surgery. 16
Said Hilal, president/CEO, Applied Medical Resources Corporation,
Rancho Santa Margarita, CA..................................... 24
Panel II
Edward Lipes, executive vice president, Stryker Corporation,
Mahwah, NJ..................................................... 37
Chad Phipps, senior vice president, general counsel and
secretary, Zimmer Holdings, Inc., Warsaw, IN................... 45
Christopher White, executive vice president, general counsel and
assistant secretary, AdvaMed, Washington, DC................... 57
APPENDIX
Questions from Senator Clinton for Gregory Demske................ 77
Questions from Senator Clinton for Charles Rosen................. 77
Questions from Senator Clinton for Edward Lipes.................. 78
Questions from Senator Clinton for Christopher White............. 78
Letter from Gregory Demske....................................... 80
Letter from Stephen M. Kuperberg, Hogan & Hartson, regarding
Blackstone Medical, Inc.,...................................... 81
Copy of Change of Plea proceedings and Indictment against Dr.
Chan........................................................... 83
Letter from the North American Spine Society..................... 103
(iii)
SURGEONS FOR SALE: CONFLICTS AND CONSULTANT PAYMENT IN THE MEDICAL
DEVICE INDUSTRY
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WEDNESDAY, FEBRUARY 27, 2008
U.S. Senate,
Special Committee on Aging,
Washington, D.C.
The Committee met, pursuant to notice, at 10:36 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. Herb Kohl
(chairman of the committee) presiding.
Present: Senators Kohl, Salazar, McCaskill, Smith, Coleman,
Vitter, and Corker.
OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN
The Chairman. This hearing will come to order. We welcome
all of you who are here today, and we welcome our witnesses for
taking time to be with us.
Last June, I chaired a Special Committee on Aging hearing
that examined the financial and gift-giving relationships that
exist between the pharmaceutical industry and physicians. What
we learned then is that there is a need for more disclosure
relating to doctors accepting gifts from drug companies.
Following that hearing, Senator Chuck Grassley and I
introduced the Physician Payments Sunshine Act, which would
create a national data base of payments and gifts to physicians
from a variety of medical sources. Now today, we will focus on
the tangled, murky and sometimes conflicting financial
relationships between the medical device industry, surgeons and
physicians.
It is important to note that these relationships can play
an important role in product innovation. In areas where these
relationships are legitimate and productive, we do not wish to
disturb them.
However, over the past decade, it has become clear that
interactions between medical device companies and surgeons
often involve substantial payments, taking the form of
consultant fees, educational grants, royalties, funding for
clinical trials, travel and gifts. Some of these payments have
been alleged to be grossly excessive, illegitimate and often
not properly documented. It is not hard to see that these
financial relationships can create conflicts of interest and
can exert inappropriate influence over medical decisions. In
some documented cases, they do break the law.
We will hear testimony today that these types of frequently
unethical payments are not anecdotal but rather have been
pervasive and industry-wide for too long. We will hear that
both the medical device industry and the physicians who take
their money are equal participants and are equally culpable.
One witness will relate that some physicians make it known
to these companies that they will be loyal to the highest
bidder. If these physicians are essentially putting their
medical judgment up for sale, then where does the patient's
well-being fit into the equation?
Over the past several months, Committee staff has
interviewed dozens of surgeons and medical device industry
sales representatives to learn more about the conditions
surrounding these payments. Disturbingly, some physicians
related that they felt shunned when they declined to take part
in financial relationships with the industry. One surgeon
provided a written statement to the Committee concerning
payment offers explicitly intended to induce her to use
particular medical device products. To speak to this, we have
with us today a clinical professor of surgery and an industry
executive to offer their perspectives on the problems raised by
these types of payments.
We will also hear from HHS Office of the Inspector General.
The Justice Department and OIG have been examining in depth
these troubling and widespread conflicts for at least 3 years.
In September of last year, the Justice Department reached
settlement agreements with the top five orthopedic device
makers which dominate their industry. According to Committee
staff's calculations, the five orthopedic companies which
settled agreements with the Justice Department last fall spent
the combined total of at least $230 million on these consultant
and other payments. While these companies have admitted no
wrongdoing, they collectively paid the government more than
$310 million in settlement fines related to their handling of
these types of payments.
Officials from two of these companies, Stryker and Zimmer,
are here today. I would like to thank their representatives for
agreeing to testify before the Committee, and I want to
emphasize that the concerns we raise today pertain to the
entire range of firms that dominate the industry and not just
to these two manufacturers.
A witness from AdvaMed will also speak on behalf of the
medical device industry today. In fairness, this investigation
has also shown that surgeon-owned medical device companies also
have potentially serious conflicts of interest as we will hear
from the Inspector General's Office.
The Committee has sent detailed questions and document
requests to a number of these firms asking for the same type of
information and disclosure that we required from the larger
medical device companies. Most have responded, and we intend to
continue this line of inquiry to ensure that the entire
industry is accountable in these conflict-of-interest matters.
In closing, I am well aware that the medical device
associations and physician groups have written voluntary
ethical guidelines addressing these areas, but the issue before
us today is whether they have been or are being followed. There
will be ample evidence presented today indicating that they are
not. We look forward to working with cosponsors, Senators
Grassley, McCaskill, Klobuchar, Kennedy and Schumer, along with
my colleagues in the Senate to get our important disclosure
legislation passed.
So once again, we thank everyone for their participation
and now we turn to other senators who are with us today who may
wish to make a statement.
Senator Vitter.
OPENING STATEMENT OF SENATOR DAVID VITTER
Senator Vitter. Thank you very much, Mr. Chairman. I am
going to pass for now and look forward to the testimony.
The Chairman. Thank you so much.
Senator Salazar.
OPENING STATEMENT OF SENATOR KEN SALAZAR
Senator Salazar. Thank you very much, Chairman Kohl, for
holding this hearing on this very important subject. I want to
thank the witnesses from both the government and the companies
for being here and sharing their expertise with us.
Patients place a great deal of trust in their doctors. The
integrity of our health care system is grounded in this trust
relationship. But today we are here to examine some troubling
allegations that the relationship between medical device
manufacturing companies and surgeons have created conflicts of
interest. Some media reports show that surgeons choose to use
certain medical devices in exchange for consulting fees,
royalties or other gifts. These are serious charges. Companies
spend millions of dollars a year in providing these monies to
physicians in so-called in-kind payments, much of which are not
disclosed to the public.
I understand that surgeons and medical device companies
maintain close relationships due to the complex nature of the
devices that are produced. However, it is critical that the
doctor-patient trust never be compromised and that the
relationship is carried out in compliance with a strict code of
ethics.
I agree with many of my colleagues, that increasing
transparency with regards to payments to physicians is
essential. Transparency will enable patients to be more
informed and disclose potential conflicts of interest.
At the same time, we should consider a disclosure system
that is uniform, that is easy to understand and accessible. As
we move forward in this process, we must keep this balance in
mind. I want to thank Chairman Kohl again for his leadership on
this issue. I look forward to learning more about the issues
that are at stake in this very important issue of life and
death and--sometimes can involve the important issue of life
and death. I look forward to working to see whether we get to
some resolution to this issue.
Thank you, Chairman Kohl.
The Chairman. Thank you, Senator Salazar.
Senator Corker.
OPENING STATEMENT OF SENATOR BOB CORKER
Senator Corker. Mr. Chairman, in order to listen to the
witnesses, I will pass and wait to hear the testimony.
The Chairman. Thank you so much.
Senator Corker. Thank you for having the hearing. I
appreciate it, yes, sir.
The Chairman. Thank you so much.
We are pleased at this time to welcome our first panel. Our
first witness will be Gregory Demske, assistant inspector for
Legal Affairs in the Office of Health and Human Services
Inspector General. Mr. Demske is responsible for administrative
health care fraud actions on behalf of the HHS/OIG. He has
worked at the OIG counsel's office for the past 17 years and
also served as a special assistant United States attorney in
the District of Columbia.
Our next witness will be Dr. Charles Rosen, who is the
president and founder of the Association for Ethics in Spine
Surgery and also a clinical professor at the University of
California, Irvine. The stated purpose of AESS is to promote
patient care and evidence-based medicine and to provide
increased public awareness of the detrimental and pervasive
influence--the financial influence--of industry on many health
care providers and patients. Dr. Rosen has been in practice for
more than 17 years. He is a specialist in spinal disorders.
Then we will have Said Hilal, president and CEO of Applied
Medical Resources Corporation. Mr. Hilal will testify to his
perspectives on the attitudes and practices of larger
orthopedic device companies in regard to conflicts of interest
and also paying surgeons.
We welcome you all here today, and Mr. Demske, we will
start with your testimony.
STATEMENT OF GREG DEMSKE, ASSISTANT INSPECTOR GENERAL FOR LEGAL
AFFAIRS, OFFICE OF INSPECTOR GENERAL, US DEPARTMENT OF HEALTH
AND HUMAN SERVICES, WASHINGTON, D.C.
Mr. Demske. Good morning, Mr. Chairman and members of the
Committee. I appreciate the opportunity to appear before you
this morning. Relationships between the medical device industry
and physicians can benefit patients and Federal health care
programs by providing for innovations and improved patient
care. However, these relationships can also lead to conflicts,
which must be managed to safeguard the interests of patients
and the integrity of our health care system.
Physicians receive substantial compensation from medical
device companies in the form of grants, fellowships, royalties
and various types of consulting agreements. These companies
also provide physicians with a variety of non-cash benefits,
such as travel, meals and gifts. We do not know the amount of
these monetary and in-kind benefits, but we did learn in our
investigation of hip and knee manufacturers that over the
course of a 5-year period, four manufacturing companies paid
physicians over $800 million in consulting fees related to the
hip and knee devices alone.
There is a significant risk that such payments will
improperly influence medical decisionmaking. A substantial body
of research shows that money and gifts influence the behavior
of people in general and physicians in particular. Industry-
induced bias presents risks to patients and the health care
system. When a physician's self-interest compromises
independent judgment, the patient faces risks that the
physician will make decisions that are not in that patient's
best interests.
Payments by companies also can create an uneven playing
field and give an unfair competitive advantage to the company
making the payments. Finally, excessive payments to physicians
increase the total costs to our health care system. Some
financial relationships that raise these risks also violate the
law.
In September of last year, the government entered into
settlements with four manufacturers of hip and knee
reconstruction and replacement devices. The government alleged
that these four companies offered inducements to surgeons to
entice them to use the particular company's products. We found
that, for example, in the largest types of consulting
agreements involving the most money--product development
agreements--physicians could be paid up to millions of dollars
a year in royalties.
Despite the amount of money involved in these agreements,
we found that some of the companies did very little to monitor
the actual contribution of individual physicians. We also found
that it appeared that members of some of these product
development teams did little or no work in contributing to the
development of products. To resolve these cases, the four
companies paid a total of over $310 million. They entered into
deferred prosecution agreements with the U.S. Attorney, and
they entered into 5-year corporate integrity agreements with
OIG.
This type of enforcement is an important facet of an
overall strategy to discourage financial arrangements that
distort physicians' professional judgment. However, it would be
both impractical and inappropriate to rely solely on government
enforcement actions to address this complex issue. The health
care industry, medical community and government must develop
and implement additional approaches to reduce the risks raised
by these arrangements.
OIG, for its part, provides guidance to the health care
community about how to comply with laws and implement voluntary
compliance programs. We publish safe harbor regulations,
advisory opinions, compliance program guidance, fraud alerts
and bulletins, and we reach out to stakeholders in the
industry. At the same time, many academic medical centers are
implementing policies designed to limit the financial influence
of the industry at their institutions.
Finally, we are aware of the efforts to increase
transparency of industry-physician financial relationships. We
will monitor these efforts and are considering imposing
transparency requirements in future corporate integrity
agreements. Government, industry and physicians need to look at
this type of requirement and other means to address the risks
raised by financial relationships between the device industry
and physicians.
Thank you for the opportunity to testify today. I will be
happy to answer any questions.
[The prepared statement of Mr. Demske follows.]
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The Chairman. Thank you, Mr. Demske.
Dr. Rosen.
STATEMENT OF CHARLES ROSEN, CLINICAL PROFESSOR, UNIVERSITY OF
CALIFORNIA, IRVINE, CA; PRESIDENT, ASSOCIATION FOR ETHICS IN
SPINE SURGERY
Dr. Rosen. Good morning, I am Dr. Charles Rosen, a clinical
professor of orthopedic surgery at the University of
California, Irvine, School of Medicine. My expertise is in
spinal surgery. I have been asked to testify today as president
of the Association for Ethics in Spine Surgery.
My tale is of the influence medical device makers exert to
sell their product and how this hinges on a small minority of
highly paid spine surgeons who have become nothing more than
marketing men disguised as independent researchers. This all
began in 2005 when I was shocked after reviewing the FDA
approval of an artificial lumbar disk replacement made by a
major device manufacturer. The FDA approved a study that was
small in number, short in follow-up and actually eliminated the
first 26 percent of patients receiving the replacement.
The disk replacement operation needs to be at least as good
as the control operation it was compared to in order to gain
approval. This control operation had a 60 percent failure rate,
not a high bar to exceed by any standard. At the end of the
study, two-thirds of the disk replacement patients, namely the
majority, were still on daily narcotics for pain but still
rated as successes due to the questionable design of the study.
Now in wondering how this was allowed, I noted that some
members of the FDA voting panel had conflicts of interest, and
many authors of the paper itself were paid consultants of the
device manufacturer. As an aside, it was this last conflict of
interest among authors of another disk replacement that
recently became the focus of a Department of Justice probe. I
was similarly concerned about the data and the cozy
relationships with the first disk replacement, so I contacted
the FDA as well as my own professional societies, including the
North American Spine Society. I was politely rebuffed by all.
Then unfortunately in 2005, my prediction of disk
replacement failures came true. I began seeing patients in a
horrible type of pain that I had never seen before in all my
years of practice, pain that often led to their loss of
employment, marriage, family life and sometimes prompted
thoughts of suicide. Getting no response from organized
medicine nor the FDA, I voiced my concerns to the Wall Street
Journal in June 2005 in an article that appeared on the front
page.
I also felt compelled to start the Association for Ethics
in Spine Surgery to help expose this unseemly influence of
industry, which resulted in profits over patients, not to
mention the huge waste of the health care dollar. Thinking that
I might be the only member, I find quite surprisingly that now,
a year and a half later, we have over 250 spine surgeon members
and members-to-be requesting enrollment, all of whom were
required to sign an affidavit stating that they do not have any
financial ties to industry. This sudden groundswell of
grassroots support by surgeons is accelerating because I
believe the association has tapped into the pent-up frustration
of the silent majority of our profession who refuse to violate
the Hippocratic oath and sacred trust of their patients for the
sake of their pocketbook.
Unfortunately, this is in stark contrast to many of those
on industry's payroll who then began to attack me however they
could. For example, after 8 years of being continually promoted
in good standing at the University of California, I suddenly
received a bad evaluation from the department chairman and was
told that I would probably be fired shortly. It was later
revealed to me that he was a paid consultant of a major device
manufacturer and was even on a 1998 FDA Committee to evaluate
disk replacements.
Since then, and fortunately for me, he left the department
under a cloud of controversy to be replaced by a new and highly
ethical chairman without industry ties. However, even the new
chairman is approached repeatedly by professors and chairmen
from all parts of the country as well as my own university to
have me fired. Little reason is given. Not surprisingly, all
seem to be paid consultants of industry.
Attacks on me have reached into the Internet chat rooms and
Web sites, many of which are covertly sponsored by industry to
lure in new patients and mold public thinking. Unfortunately,
industry consultants infiltrate the boards of medical journals
and professional societies which control the flow of medical
information. I have even speculated that maybe this accounted
in part for their rejection of my papers on failed disk
replacements, as well as my opinions on ethics in industry.
High-profile industry physicians also influence the nature
of obscure disclosure rules that reveal little of industry
reimbursement, lest the research lose the enormously valuable
appearance of having independent validation. I believe that
getting enormous sums of money from a company about whose
product you are writing--money that might go away if you write
a negative paper--makes the research neither objective nor
independent.
I have heard repeatedly from physicians on industry's
payroll that those millions don't affect one's judgment.
Nevertheless, the details shouldn't be revealed because that is
private, though the sales pitches are very public. A recent
front-page New York Times article about financial ties in a
particular spine study is a perfect example of this rampant
practice in the spine surgery world of which few outside are
aware.
Before finishing, I would like to make a few
recommendations. First, disclosure of complete financial
compensation should be made in the case of authors publishing
public papers about medical devices, in the case of the
governing bodies of all 501(c)(3) medical societies and all
paid medical consultants of both big and small device companies
so it is a level playing field.
Second, industry money going to individual physicians at
universities must be more tightly regulated, particularly
public universities, such as the University of California,
where I believe the regents know little of the undeclared
financial violations of policy. The public, as do I, look
toward academia for the unbiased truth, and this should be the
standard.
Third, I will mention briefly device distributorships owned
by surgeons. Here, profit is garnered by all the surgeon owners
agreeing to only implant their distributorship's devices.
Patients usually don't know this conflict, which leads
frequently to unnecessary implants and surgery, and it should
be stopped.
Last, the FDA should not have any paid consultants on its
voting panels. To say this is impossible is a dubious claim of
the FDA since there are many honorable and willing spine
surgeons out there. I personally answered an FDA call for
volunteers, yet my letter wasn't even acknowledged.
Thank you for the privilege and honor of addressing this
Committee.
[The prepared statement of Dr. Rosen follows:]
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The Chairman. Thank you very much for being here, Dr.
Rosen.
Mr. Hilal.
STATEMENT OF SAID HILAL, PRESIDENT/CEO, APPLIED MEDICAL
RESOURCES CORPORATION, RANCHO SANTA MARGARITA, CA
Mr. Hilal. Chairman Kohl, thank you, and Ranking Member
Smith and the Committee for kindly extending an invitation for
me to testify. My name is Said Hilal. I represent Applied
Medical from Orange County, CA. I have been in this field from
the time it was health and care and before it became mostly
industry. I am here this morning to outline the serious
concerns I, and my fellow Applied Medical officials, have about
conflicts of interest and ethics we have observed in America's
health care system.
Applied Medical has supplied enhanced clinical outcomes,
although not in orthopedics, coupled with value since its
founding in 1987. We offer advances in minimally invasive
procedures that reduce recovery time, pain and complications
and typically does that for less. I mention this because it is
both important and possible.
In the interest of full disclosure, Applied has pursued
litigation related to antitrust and intellectual properties
against many organizations. I have previously had the honor of
testifying about antitrust issues before the Senate Judiciary
Antitrust Subcommittee. While those issues harm upcoming
companies, U.S. companies, they do not compare to the damage
caused by unethical practices and quid pro quo.
Because Applied and its products are used by surgeons, we
sell to hospitals. We, therefore, are directly affected by how
business is done in hospitals. Because we pioneer new
modalities and techniques, we support surgeon training and
peer-reviewed scientific studies. Therefore, university
hospitals and thought leaders are exceptionally important to
us.
Additionally and in my opinion, medical device companies
have an obligation to support research and education, but this
must be accomplished with no strings attached. Sadly, support
has mutated into a quid pro quo instrument. We believe the
correlation between payments and purchases is astoundingly and
embarrassingly high. We believe this clandestine correlation
has a significant impact on market economics.
We also believe some surgeons and other medical personnel
have become inextricably beholden to device companies.
Enticements in such situations go past corrupt to become
corrupting. Some clinical personnel become gatekeepers for
manufacturers.
Corrupting influences are not really limited just to
university hospitals. We hear of large manufacturers
approaching hundreds of surgeons with the invitation to become
``consultants,'' an extension of the sales divisions, it turns
out, of these large companies.
Years may go by without any follow-up activity until a new
competitor shows up at the gate of a hospital. It is then that
the so-called consultants are activated and paid to lecture,
proctor and consult. As the money flows, these consultants
become ardent opponents of change that impacts their sponsors,
often adopting ``sponsor-designed'' lists of objections to
challenge the new supplier.
With some hope, we watched large companies adopt codes of
ethics to address interactions with surgeons and others. But
our hopes have actually evaporated.
I would like to share with you a firsthand experience here.
We got invited to a meeting where large device companies put on
a presentation to leading surgeons, allegedly to educate the
audience on new AdvaMed guidelines and ethics codes for
receiving grants and other payments from these companies. The
presentation was entitled, ``Is the Party Over?'' The title
alone is alarming in my opinion, and I believe encapsulates the
impropriety of this situation.
According to the presenters, the party is far from over.
Surgeons were coached on how to act in a safe manner and
continue to receive lucrative payments. Amazingly, surgeons
were reminded that the grants are ``all about ROI, the return
on investment'' for the granting company. I ask: How are these
companies planning to capture that ROI and what strings are
attached?
To a large extent in these United States, our surgeons and
medical organizations remain the most respected around the
world, but we see corrupting influences every day. This is
precisely why Applied continues to enthusiastically support the
efforts of this Subcommittee to keep the corrupting influences
from undermining the well-earned respect.
Unfortunately, voluntary codes from industry have not
sufficed. Gentle, slap-on-the-wrist settlements and penalties
have not been effective. Many large device companies hide
behind credos, skirt the edge and break promises of ethical
conduct. As long as the penalty for making billions of
unethical dollars for years is a few million dollars every few
years, these corrupting behaviors are not going to recede.
We welcome legislation and enforcement that can get us past
this unhealthy situation. There is little that ethical
companies can do alone. We hope and trust these unethical
practices will get the necessary scrutiny. This great nation's
health care deserves the best, and it is our duty to aim for
the best.
I thank you very much.
[The prepared statement of Mr. Hilal follows:]
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The Chairman. Thank you very much, Mr. Hilal.
We turn now to the Ranking Member in this Committee, the
senator from Oregon, Gordon Smith.
OPENING STATEMENT OF SENATOR GORDON SMITH, RANKING MEMBER
Senator Smith. Thank you, Mr. Chairman. In the interest of
time, I will put my statement in the record.
The Chairman. Without objection.
Senator Smith. The thrust of that statement relates to
balance, and this hearing is in the great tradition, the
bipartisan tradition, of the Aging Committee, which tries to
put light and heat on bad practices while at the same time not
in any way wanting to restrain or stifle innovation or impede
good practices. That is the balance I think we all strike here.
But as I have listened to each of your testimonies, I have
been struck by the circumstance you describe, and it is
alarming. I guess what I am hearing from you is that these
aren't exceptional circumstances, that this is becoming so
pervasive as to become alarming.
Is that your judgment, Dr. Rosen?
Dr. Rosen. Yes, over the last 20 or 30 years, I think it
has become ingrained where it is OK. The leaders in the field
that are heading the societies, editing the journals are
probably for the most part the biggest offenders, which sends
the message that this is OK. So yes.
Senator Smith. So, Mr. Hilal, I assume you are a medical
doctor as well?
Mr. Hilal. No, I am not.
Senator Smith. No, Mr. Hilal, then your point is that codes
of ethics and conduct and voluntary agreements just aren't
providing enough protections? I think that is the thrust of
your testimony.
Mr. Hilal. Yes, sir.
Senator Smith. Dr. Rosen, it would seem to me, were I a
physician, and I have a relationship with a manufacturer of
some surgical product, that I would have in the back of my mind
the potential that I may have a conflict in interest in putting
in to someone that may be an inferior product--this would
really give me pause because of the potential malpractice
implications. But are you saying that that is not a sufficient
deterrent to a financial conflict of interest?
Dr. Rosen. No, I don't think that enters the picture really
at all. Should it? I think that among----
Senator Smith. Let's say, I am doing a hip replacement, and
I have got an inferior product in which I have a financial
interest. The patient as you describe is in pain, and it is
just inferior to what else I could have put in. It just seems
to me that that is a lawsuit ripe with liability.
Dr. Rosen. Well, most of the implants, whether it is total
hips or spine, they are all generically good. I mean, they have
all passed 501--they have all passed through some type of
approval. They are generally the same, and people can make
arguments for one product over another based on some aspects of
them, but it is rarely one is felt universally inferior to any
of the others.
So it doesn't usually take that sort of discussion. It is
usually about the particular aspects of one versus the other,
and you can justify using most any of the products out there in
some fashion.
Senator Smith. So the current circumstance just doesn't
work sufficiently to protect patients or to sever the conflict-
of-interest relationship between a manufacturer and a
physician. Is there any other marketing model that would
protect older Americans and all Americans?
Dr. Rosen. I think that disclosing the exact amounts that
someone gets from a company, precisely, in the papers they
write, in the presentations they give----
Senator Smith. How about before the operation they give?
Dr. Rosen. Well, I think as well as that to the patient,
that there should be signed consent that they acknowledge the
doctor has this amount of compensation from this company. So--
--
Senator Smith. Nothing like that happens now?
Dr. Rosen. Oh no, not at all. I mean, most of the time
patients--have no clue. Most of the doctors don't have any clue
because--including me. In some cases I will know because I have
heard, but the majority of the time that is obscured
effectively.
Senator Smith. Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Mr. Demske, in your written testimony, you state that we
have seen instances in which physicians, in turn, have signaled
to the industry that their loyalties are for sale to the
highest bidder. ``In some cases it comes down to how much each
company is willing to pay for a physician's business, which is
often being simultaneously solicited by multiple competing
companies,''.
So what you make clear is that there are two groups of
players here in this unethical conduct, the companies as well
as the doctors. What is the OIG office doing to detect and
address wrongdoing on the part of surgeons and physicians?
Mr. Demske. OIG is working with the Department of Justice
to follow up on the investigations in New Jersey and other
cases to identify whether we can pursue criminal, civil or
administrative cases against physicians who are in this
situation where they have demanded payments in exchange for
their patients. One of the difficulties that we face in
prosecuting these cases is that our primary tool is the Federal
anti-kickback statute, and that statute requires knowing and
willful conduct on behalf of the defendant in order for the
government to get a conviction. This is often difficult--it
means we have to prove the state of mind of the defendant.
Absent evidence that the physician made statements such as
those reflected in my testimony or the existence of witnesses
that can make statements as to that physician's intent, these
cases are very difficult to prove.
But we are working with the U.S. Attorney's Office to
identify cases in New Jersey and elsewhere in the country
against physicians as part of that case. You can anticipate in
the future that we will be bringing additional cases against
physicians.
The Chairman. Is it fair to say that we need some
additional legislation to root out the problems that we are
discussing today?
Mr. Demske. I would say that the anti-kickback statute
itself is insufficient to address the influence of money in
this industry. Because of the high burden of proof that the
government must meet, it cannot reach many of the arrangements
that can influence medical judgment in an inappropriate way.
The Chairman. Thank you.
Dr. Rosen, we expect to hear from witnesses on the second
panel that many of these questionable and unethical payments to
physicians and surgeons have been identified and are being
addressed. Do you believe that that is correct? To your
knowledge, what is the state of the problem today?
Dr. Rosen. I don't believe they are being really addressed
in any substantive way at all. I think it is mostly been a
reactive action taken by many of the medical societies and
organizations, such as AdvaMed, to give lip service to ethics
and the concerns just to the point where it sort of satisfies
the public. But really as far as disclosing the amounts of
money, stock, royalty options that people get, I don't think it
happens at all.
In fact, one of the--for example, one of the main
societies, the North American Spine Society, has said it is
pioneered ethics, and yet the highest level of disclosure on a
five 'A' through 'E' is letter 'E,' which means someone gets
over $10,000 from a company or owns more than 5 percent of a
company. Now that doesn't tell you whether it is $11,000 or $1
million, which can often be the case. So it is sort of
piecemeal trying to throw out that we are dealing with the
ethics. No, I don't think it is being really addressed at all.
The Chairman. So it is fair to say that you do not believe
that voluntary industry guidelines can resolve this problem?
Dr. Rosen. Embarrassingly, I don't believe the medical
societies are capable of doing it nor industry. As in the
previous question, it is so embedded now among most of the
people that are running these societies, including educational
foundations, that I don't think it is possible to change that
without something from the outside happening.
The Chairman. Mr. Hilal, do you agree with that, that
voluntary guidelines are not going to resolve the problem?
Mr. Hilal. I wholeheartedly agree. They have not so far.
They have simply forced the groups that are practicing their
quid pro quos to just go more covert and more careful. I have
seen it with my own eyes where they were coached on that.
I just don't see it going away. It doesn't kick in where
the product is best and the value is fair. It kicks in when the
product is marginal and the value is high. For the competition,
that is not best for free markets. What distorts free markets,
in my opinion, is the act of the kickback.
The Chairman. Thank you.
Senator Corker.
Senator Corker. Mr. Chairman, thank you, and I want to
thank the panelists for great testimony. I think that the
comments by the Ranking Member about achieving balance is what
we all wish to do.
I know we are going to hear from some other panelists in
just a moment, but it does seem to me that disclosure would be
a no-brainer. I mean, I think that people should know. I will
tell you, on the other hand, that all of us see physicians, and
I think even if my physician told me that they had a major
financial relationship regarding a particular procedure, I
don't know if it really would affect me that much. I just
wonder if you would expand on that a little. But I mean, just
honestly, I go to these little specialty facilities, and I know
the doctors are making money off of those, and yet if they tell
me I need a procedure, then I suppose I am going to have it
anyway. I just wonder if you might respond to that.
Dr. Rosen. I don't think it necessarily will change that
much either. In some cases, though, if there is a new procedure
that came out and it is a little questionable, and the person
is not sure and they see that, well, this doctor owns 10
percent of the company that brought this public, and he is
suggesting the device in putting--I think that might affect
them. For the most part, probably not, but I think the patient
would be and the doctor would be better off protected as well,
if the patient knew. Certainly with things like
distributorships, though, where the money is made by putting in
implants, I think the patients should know that there is really
a close correlation between the profit and putting in the
implants versus not using them, because many operations can be
done without them.
The main thing, really, is for papers and presentations
that the rest of the doctors in this country read. I really
believe 95 percent of the spine surgeons in this country have
really nothing to do with industry. They just want to do the
best for their patient, but they rely on the 5 or 10 percent of
high-profile people that are writing papers to decide what to
do. If they knew that these people had a million dollars in
salary from so-and-so company, when they read a paper that
proposes using a certain device, they will realize this is not
an independently validated paper, and that is a big difference.
Independent validation is when somebody looks at it in an
unbiased fashion, and that is the keystone goal in medicine.
That would be the most valuable thing, because this all happens
with products that are not so great, and that is the reason
they have to sort of make a pretense that they are
independently validated. But as far as the person in the
office, maybe some difference, but mostly for other doctors.
Senator Corker. I would imagine it might affect the
utilization rate in many cases, but more than--you know, you
talked about that products were actually, in some cases, very
comparable, but I would think that just from the standpoint of
utilization, that could be driven up greatly by having the
financial relationship. I know it applies in most other
business, but----
Dr. Rosen. Absolutely.
Senator Corker. OK.
Mr. Hilal, the issue, on the other hand, it seems to me
that physicians who are using products--I know some physicians
that are inventor-types, if you will, and they have an
imagination, and they are able to figure out ways that products
can provide a better service, and so they do work with
companies, you know, to make those products better. Could you
talk just a little bit about that?
I think, at the end of the day, we all want innovation to
take place, and we want to make sure that the products that are
sold are products that physicians know will do a better job for
the patients involved. Again, I think as Ranking Member Smith
mentioned we do need a balance here. So how do we keep that
from being perverted, if you will?
Mr. Hilal. Absolutely, I truly believe that the best
innovation is the innovation that starts from the clinical need
itself. As a matter of fact, we at Applied would argue that 80
percent of the solution may be in the proper definition of the
need or the problem. Therefore this correlation, this
cooperation, between surgeons and companies is very important
for the development of products.
Surgeons are the users. They are the champions of the
patient. In that term, they really need to be listened to. They
need to be allowed to innovate and help the companies develop
new products. That is a far cry from pushing and hawking the
product. That is a far cry from getting a kickback to favor a
product. I think that is really what the concern is.
I believe that disclosure is helpful, but I would take the
time to differentiate between ``disclosure'' and inadvertently
turning it around to the patient and saying, ``Patient, protect
thyself,'' because patients cannot protect themselves. I agree
with you. A patient is not going to look at the financial
statement of his or her doctor and decide whether that doctor
is acting in the patient's best interest. This is why I delved
a little bit on what I call the corrupting influence.
I agree with Dr. Rosen. Most surgeons dedicate their lives
to taking care of patients, to doing the right thing. Why tempt
them? Why walk up to them and say, ``You can make an extra buck
if you use this product?'' How does that help a free market
compete, innovate and continue to be the leading force in the
world health endeavor?
Senator Corker. Mr. Demske, what are your specific concerns
about the physician-owned facilities? I know you mentioned that
just in passing in your testimony. I wonder if you would expand
on that particular issue.
Mr. Demske. Certainly. The OIG has for many years given
guidance about the risks that are inherent when health care
providers enter into joint ventures with physicians, because
there is a risk that the physicians are being brought in as
investors as a way to funnel profits back to the physicians to
induce them to send their business to a facility. So physician
ownership raises those sort of risks.
One has to look at how those investors are selected,
whether they are a major source of business for the entity and
whether it is a bona fide investment at all. We have recently
been looking at physician involvement in distributors of
medical equipment and group purchasing organizations. Those
types of investments can be additional ways device
manufacturers can funnel money to physicians. These payments
may not be for the service that a GPO or distributor would
usually provide but is essentially money being paid to
influence the physician's choice of devices.
Senator Corker. Mr. Chairman, thank you. It is a very good
panel, and thank you for your testimony.
The Chairman. Thanks, Senator Corker. I want to reiterate
what he said. This has been a very, very good panel. You have
really shed light on some of the issues and the problems that
we face and given some indication as to the direction in which
you believe we need to go. In that sense, it has been really
good to have you. You made a great contribution, thank you so
much.
At this point, we would like to call the second panel. Our
first witness on the second panel will be Ned Lipes, who is the
executive vice president of Stryker Corporation. Mr. Lipes has
worked at Stryker for nearly 20 years, and he will discuss how
his company is now addressing conflicts of interest and
potential violations of law by its employees.
Then we will hear from Chad Phipps, who is the senior vice
president and general counsel at Zimmer Holdings, Incorporated,
one of the largest medical device companies in the industry.
Mr. Phipps' global responsibility for Zimmer's legal affairs,
and he also serves as secretary to the board of directors.
Finally, we will be hearing from Christopher White, who is
the executive vice president and general counsel at AdvaMed.
AdvaMed's member companies produce nearly 90 percent of the
health care technology purchased annually in the United States,
and its mission is to, ``advocate for a legal regulatory and
economic climate,'' on behalf of medical device manufacturers.
Gentlemen, we welcome you here today.
Mr. Lipes, we will take your testimony.
STATEMENT OF EDWARD LIPES, EXECUTIVE VICE PRESIDENT, STRYKER
CORPORATION, MAHWAH, NJ
Mr. Lipes. Good morning, Chairman Kohl, and Senator Corker.
My name is Ned Lipes. You are not the first one that has made
that mistake, sir.
The Chairman. Thank you.
Mr. Lipes. I am the executive vice president of Stryker
Corporation, and I would like to take this opportunity to thank
you for the invitation to appear here on behalf of Stryker
Corporation in connection with the committee's efforts to
explore the relationship between medical device companies like
Stryker and physicians.
As you may know, Stryker is one of the world's leading
medical technology companies, with the most broadly based range
of products in orthopedics and a significant presence in other
medical device areas or medical specialties. Our corporate
headquarters and the majority of our manufacturing operations
are headquartered right here in the United States. Stryker has
grown into a Fortune 500 company based on our offering of an
unparalleled variety of high quality products and services as
well as the dedication of each of the company's more than
15,000 employees around the world.
In the late 1930's, Dr. Homer Stryker, who was a resident
in orthopedic surgery at the University of Michigan, found that
certain medical products were not meeting his needs or the
needs of his patients. He put his inventive mind to work and
created new products to solve real clinical problems that he
faced with his patients. Some of his inventions included the
walking heel for leg casts, the turning frame for immobile
patients and the oscillating saw to remove casts for broken
bones.
Dr. Stryker's devices gained attention of other medical
professionals, and in 1941, the demand for the products grew so
large that Dr. Stryker founded the company to make those
products. The company became Stryker Corporation when Dr.
Stryker retired from his medical practice in 1964. Dr. Stryker
was a great example of the role that surgeons can play in the
development of new products to meet the challenges and needs of
patients.
Since its founding, Stryker has focused its attention on
continuing to meet and surpass the needs of medical
professionals and patients. Working with the medical
professionals who use our products, we have continued to
improve the quality of care available to patients by solving
real clinical problems and finding better ways to make products
that will last longer and perform at higher levels. In the past
year, 2007, Stryker's sales were over $6 billion.
As for me, I started working at Stryker in 1988. In 1989, I
became president of Osteonics Corporation, which was the
orthopedic implant division of Stryker Corporation. In 1998,
Stryker purchased Howmedica Corporation from Pfizer and became
Howmedica Osteonics Corporation, which is now known as Stryker
Orthopaedics, based in Mahwah, NJ.
Early in my career with Stryker Orthopaedics, I recognized
that one of the keys to success was to have close interactions
with a select and small number of thought-leader surgeons who
have good ideas about how to better treat their patients.
Throughout the 1980's, the 1990's and continuing to today,
Stryker has had consulting contracts with a select group of
orthopedic surgeons. For example, surgeons from Indiana and
Pennsylvania assisted Stryker in developing a new hip implant
system designed to secure initial fixation in the implanted
patients. These same surgeons have been involved in following
the clinical results of this product in their patients to
demonstrate that our design goal has actually been achieved.
Another orthopedic surgeon from California helped Stryker
design a new knee implant system to give patients a greater
range of motion with their new knee.
Because these surgeons contributed their time and their
ideas to Stryker, we paid them for their efforts. How much did
Stryker pay? We paid what we believed to be fair market value
for the services that they provided.
Stryker has other types of contractual relationships with
surgeons as well. For example, some surgeons are great
teachers. One surgeon from Massachusetts has a very strong
interest and understanding of ceramic technology. He uses that
knowledge and that expertise to help other surgeons understand
when that technology may be appropriate for their patients.
Another surgeon from Georgia helped Stryker teach Japanese
surgeons about the benefits of a new knee design that can help
patients kneel and squat more easily.
Finally, other surgeons are outstanding peer-to-peer
teachers of implant techniques. One surgeon from Michigan
regularly teaches his peers--in sawbones, cadaver laboratories
and in his operating room--by demonstrating the proper use of
our newly developed computer navigation technology for hip and
knee replacement surgery, all with the goal of enhancing
outcomes for patients.
We retain these consultant services because they help us
teach the proper use of our products, and this helps our
business grow. In the late 1990's, our industry began to change
and certain abuses emerged as the use of consultants became
more of a marketing tool. Stryker did not change its business
model and instead adhered to the traditional approach to
contracting with surgeons. We required our business leaders--
excuse me--to have clearly defined procedures, systems and
controls in place to ensure compliance with our business model.
In March 2005, the United States Attorney for New Jersey
issued subpoenas to five orthopedic companies, including
Stryker, as it began its investigation into the relationship
between these companies and surgeons. The September 2007
settlements related to this investigation have provided our
industry with a level playing field so that each company will
play by the same set of rules regarding contracting with health
care professionals.
Surgeons who are absolutely crucial to product design,
development and clinical studies will be paid fair market value
for their services. Other surgeons who are great teachers will
be paid fair market value to train their fellow health care
professionals about the features and benefits of the products
that we sell. Stryker firmly believes that all the competitors
in our industry can and should compete on a level playing
field. The recent settlements with the U.S. Attorney provide a
strong framework to ensure that this occurs, and Stryker
intends to honor its commitments to the U.S. Attorney in both
spirit and principle.
In the years ahead, we look forward to competing on the
basis of how our products and services meet the demands of
surgeons and patients. We look forward to continuing to
interact with consulting surgeons who have so much to offer in
terms of enhancements to treatments for patients everywhere.
These collaborations will continue to bring innovation and
improvements in patient care.
Thank you for the opportunity to express Stryker's views,
and I look forward to any questions that you may have.
[The prepared statement of Mr. Lipes follows:]
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The Chairman. Thank you, Mr. Lipes.
Mr. Phipps.
STATEMENT OF CHAD PHIPPS, SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY, ZIMMER HOLDINGS, INC., WARSAW, IN
Mr. Phipps. Mr. Chairman and members of the Committee, my
name is Chad Phipps, and I am senior vice president and general
counsel of Zimmer Holdings, based in Warsaw, IN. I am pleased
to testify today on behalf of our company. Your Committee has
taken a real leadership role on this important issue, and it is
a privilege to be able to provide our insights and to describe
our strong support for the chairman's legislation. I will make
brief, summary comments in this oral statement and ask that my
written testimony be included in the record.
We at Zimmer are proud of our 80-year record as a worldwide
leader in providing orthopedic and other medical devices. We
serve millions of patients who suffer from debilitating
conditions, and we contribute to health care systems in over
100 countries.
The subject of this hearing--the relationships between
physicians and the medical device industry--warrants some
historical context.
The industry has transformed patients' lives through a
combination of clinical knowledge and engineering. This
combination brings the insights of highly skilled physicians
who work directly with patients together with the technical
knowledge of engineers who design and build safe and effective
devices. Surgeon training on the use of products has also been
central to the significant benefits that patients have
experienced with these devices.
Over the years, as devices and procedures expanded in
number, complexity and impact, so too did the industry's
investment in the collaboration that made them possible.
Despite what were then regarded by industry as appropriate
programs to manage these circumstances, with hindsight it now
appears that as industry expanded to meet patient needs, the
use of consultants may have been excessive at times. Such
excesses fostered a degree of mistrust and invited the
understandable scrutiny of the government and other
stakeholders.
The historical model for collaborative relationships
requires change to inspire confidence and trust, while
preserving the best of the collaboration that drives
innovation.
Zimmer's continuous consideration of our own compliance
standards, combined with measures taken beginning in 2003 by
the HHS I.G. and AdvaMed, prompted Zimmer that year to
reevaluate our model for the management of conflicts of
interest and led to the implementation of our enhanced 2005
corporate compliance program. Now, as we buildupon that
foundation, we are applying further discipline to ensure we
align collaboration strictly with necessity.
In September 2007, Zimmer and four other orthopedic
companies signed agreements with the Federal Government to
resolve a DOJ investigation that began in March 2005 pertaining
to past consulting relationships with health care
professionals.
Under the resolution, Zimmer entered into a deferred
prosecution agreement, without admitting any liability. We
agreed to pay a civil monetary sum and to be subject to
oversight for 18 months by a federally appointed monitor. The
U.S. Attorney's Office acknowledged that the agreement does not
allege that our company's conduct adversely affected patient
health or patient care. As part of the settlement, Zimmer also
entered into a 5-year corporate integrity agreement with the
HHS I.G. We are taking our obligations under these resolution
agreements extremely seriously, and they are a top priority for
our company.
Zimmer welcomes the opportunity to outline the additional
progress we have made since signing these agreements. We also
wish to express our commitment to go beyond their requirements,
to set a new industry standard that will meet the needs of both
patients and the health care system.
Our broader commitment includes fundamental changes in
product development, marketing, surgeon training, educational
and research funding, and transparency. Let me share just a few
examples of the changes we are putting in place while we
continue to define the full scope of Zimmer's program.
First, our sales and distribution teams, and individuals
with daily responsibility for sales support, will have no
involvement with physician consultants concerning agreements,
services and payments.
Second, we are reviewing our existing royalty-bearing hip
and knee development agreements to ensure that they are
consistent with the fair market value principles of our
corporate compliance program.
Third, with respect to Zimmer's future funding of medical
fellowships, residencies and general educational programs, we
plan to make cash donations to independent, third-party
institutions. They will choose the programs that will receive
Zimmer funding globally, and we will have no influence over the
selection of the recipients.
Fourth, Zimmer's future charitable activities will include
product donations to independent, third-party charitable
institutions. They will distribute the donated products in
areas of the world with great medical need. Again, Zimmer will
have no control over their distribution and no influence over
who receives them.
Finally, while the industry code of ethics currently allows
certain educational, practice-related or branded company gifts
to health care professionals, Zimmer restricted such gifts as
part of our 2005 compliance program, and we will now move to
prohibit them altogether.
As we continually improve our compliance program, we will
implement the changes globally across our entire business,
which also goes beyond the requirements of our resolution
agreements with the government.
Mr. Phipps. In closing, we acknowledge that initiating
change is often difficult. Nevertheless, we will carry these
initiatives forward because it is the right thing to do for
patients, our company and the industry as a whole.
Mr. Chairman, we appreciate the committee's consideration
of our views, and I look forward to your questions.
[The prepared statement of Mr. Phipps follows.]
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The Chairman. Thanks a lot, Mr. Phipps.
Mr. White.
STATEMENT OF CHRISTOPHER WHITE, EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND ASSISTANT SECRETARY, ADVAMED, WASHINGTON,
DC
Mr. White. Thank you very much, Mr. Chairman. My name again
is Christopher White. I am the executive vice president,
general counsel and secretary of AdvaMed, the Advanced Medical
Technology Association. AdvaMed represents more than 1,600 of
the world's leading medical technology innovators and
manufacturers. These are companies that together produce the
most advanced technologies, improving health outcomes across
the entire continuum of care, from wound care to diagnostics to
orthopedics, cardiovascular and beyond.
However, over 70 percent of our member companies are
relatively small, with annual sales of less than $30 million
per year. But taken together, our member companies' constant
innovation in the United States leads the world in cutting-edge
medical technologies.
Mr. Chairman, I wish to be clear. AdvaMed supports the
appropriate disclosure of relationships between medical
technology companies and physicians. We recognize that strong
ethical standards are critical to ensuring the valuable
collaboration between the medical device industry and health
care professionals. We have been very pleased to work with you,
Mr. Chairman, your staff, Senator Grassley and the Physician
Payments Sunshine Act, and we thank you very much for your
openness to our recommendations.
This morning, I would like to highlight three points
specific to the legislation and its relation to the medical
device industry. One, I would like to further highlight
industry's unique interactions with physicians. Two, I would
like to highlight our commitment to compliance. Three, I would
like to provide some thoughts relative to the legislation
itself.
First, as you have heard today and on the earlier panel,
medical device companies develop ongoing relationships with
physicians. These relationships are essential to developing new
treatments and ensuring medical technology can be used safely
and effectively. In short, physicians are inventors of new
medical technologies. They are skilled advisers to medical
device companies in improving existing technologies. They are
researchers. They are trainers of other health care
professionals. They are trainees themselves by companies who
develop new, breakthrough technologies requiring sophisticated
deployment or activation.
Of course, physicians are also our member companies'
customers. In short, physicians play a central role in our
health care delivery system. They wear many hats in their
interactions with medical device companies. As the Congress
examines these relationships, we urge the Committee to approach
the matter with surgical precision to avoid any inadvertent
harm to the many beneficial collaborations detailed further in
my written testimony.
Second, while the close and ongoing collaboration is
necessary to develop new medical technologies, we recognize and
respect the need for health care professionals to render
independent decisionmaking relative to product selection. That
is why we developed a code of ethics to help distinguish those
interactions that contribute to the advancement of medical
technology from those that could be viewed as influencing the
medical decisionmaking process inappropriately.
Let me assure you that this is not merely lip service. Our
industry's commitment does not stop with the code of ethics
itself. We have taken aggressive steps to educate the health
care industry about the code. We will be presenting before
medical specialty societies in the very near future, including
next week. We have engaged in outreach on a sustained basis
over time. It is a continued priority as we move ahead on this
issue and in this area.
Sometimes we present alongside enforcement agencies to
underscore that adherence to the code of ethics is beneficial
to all stakeholders. Recently, our industry has adopted a code
logo program to ensure that the code of ethics is not merely
words on paper but rather to ensure that companies institute
effective and lively compliance controls to implement the code
of ethics. This is consistent with guidance from the OIG and
its compliance effectiveness documents. In short, compliance is
an ongoing process. It is a priority for our association, for
our industry and for our member companies.
Finally, Mr. Chairman, we understand and we appreciate your
desire to increase public understanding of industry
relationships with physicians, and we, too, wish to ensure that
patients get clear and meaningful information about how these
relationships improve patient care.
In closing, I would like to highlight our four top
priorities as we move forward.
First, we believe that the legislation should specifically
preempt State laws requiring disclosure of relationships with
physicians. Simply put, a patchwork of 50 laws all with
different standards, different definitions of payments,
different details, different contexts required in different
formats on different systems on different Web sites will only
cloud the transparency we all seek to promote. Instead, we
support one comprehensive Federal standard so that patients
will have clear information available on reportable payments
from one source.
Preemption in the case of a new, strong Federal reporting
standard, such as the one envisioned by this legislation, makes
eminent sense, and it is not new. In fact, it is consistent
with the preemptive effect of a similar national requirement to
report the results of clinical trials overwhelmingly approved
by the Congress last year in the FDA Act amendments.
Second, we are concerned, Mr. Chairman, that your
legislation requires disclosure only from companies that exceed
$100 million in annual revenues. We believe the goals of your
legislation would be better served by adopting a threshold tied
to a company's annual level of physician payments, regardless
of company size. We advocate a metric requiring companies
making $250,000 in reportable physician payments annually to
participate in the disclosure program. This would provide an
important level of transparency while still meeting your goal
of exempting smaller companies that make relatively few
payments to physicians.
Third, as outlined in our correspondence to the Office of
the Inspector General and as discussed in the earlier panel,
the emergence of physician-owned entities raises very important
legal and policy questions regarding the potential effect on
clinical decisions by physicians. As opposed to the
collaborations addressed in our testimony among physicians and
industry, which yield important advances in medical technology,
these arrangements simply seek instead to leverage device
purchasing into income-generating opportunities for physicians.
The Office of the Inspector General, as you heard last year, in
correspondence to AdvaMed stated that these arrangements should
be closely scrutinized under the fraud and abuse laws, and the
disclosure program proposed in your legislation should apply to
these physician-owned entities as well, regardless of their
size.
Finally, Mr. Chairman, I described the many hats that
physicians wear in their interactions with medical device
companies. We think that any legislation creating a public data
base should give companies the opportunity to provide the
context of those payments. If Sunshine is going to work, then
patients need to understand what they are looking at and what
it means. The absence of any context could serve as a
disincentive for physicians to participate in the development
and improvement of medical technology.
We believe that these recommendations together--creating an
alternative threshold, including physician-owned entities,
providing context to patients and preempting State laws to
create a strong, central, Federal reporting standard--are all
essential ingredients that must be included if the disclosure
program is to meet the needs of patients and to be one that the
medical technology industry can support. In addition, we have
provided a number of more technical suggestions to the
Committee that we have discussed with your staff. They have
been attached to my written testimony and submitted for
inclusion in the record.
Mr. Chairman, AdvaMed and our member companies want to
stress again that we support appropriate disclosure of
relationships between medical technology companies and
physicians. We believe that the positions and recommendations
set out in our testimony are constructive, reasonable and
designed to make a Federal disclosure program work well for
patients, for industry and to protect the essential
collaboration that you have heard this morning.
Thank you very much for your openness to our
recommendations. We look forward to continuing to work with
you, your staff and Senator Grassley as this legislation moves
ahead.
[The prepared statement of Mr. White follows:]
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The Chairman. Thank you very much.
Mr. Lipes, in the agreement Stryker entered into with the
Department of Justice it is mandated that your company adhere
to the AdvaMed code of ethics on interactions with health care
professionals, as you know. Was the company not complying with
this code prior to entering into its non-prosecution agreement?
Mr. Lipes. No, sir, the company was complying, both the
spirit and the intent of the AdvaMed guidelines from the time
that they were issued.
The Chairman. Based on information Stryker provided to the
Committee, it appears that your company provides very large
payments for clinical trials. In fact, you reported $3.4
million in total clinical trial payments on your Web site. This
is quite disproportionate to what other companies provide for
clinical trials. One of your competitors only spends roughly
$127,000 on clinical trial payments. Can you explain to us the
discrepancy between your large payments for clinical trials and
what appears to be typical industry practice?
Mr. Lipes. We are confused by that as well, Senator. We
have asked the U.S. Attorney's Office to help us understand how
other companies may have accounted for their clinical studies.
Because for us, clinical studies are a vital part of us
determining how well our products are performing. We are
required to do clinical studies for the approval of some of our
products, whether it is through a 510(k) or through the PMA
process. The PMA requires that we continue to follow those
patients after the product has been approved.
We make every effort to perform some type of clinical study
on all of the products that we have developed so that we have
some context for understanding how well that product is
performing in patients and whether or not we have achieved the
clinical or the design goals that we set out. So I am very
surprised at the discrepancy, and I think that further
understanding of how different companies have accounted for
that will clear up the discrepancy.
The Chairman. Good.
Mr. Phipps, in its written statement, the HHS OIG outlined
a wide variety of specific violations of law and unethical
practices it uncovered prior to the settlements entered into by
your company with the Department of Justice. Throughout an
interview with Committee staff, you maintained that Zimmer had
little if any specific knowledge of the evidence or charges
that the U.S. Attorney might bring against your company. So I
find it surprising that Zimmer still agreed to pay the
government $170 million in its deferred prosecution agreement.
Is it still your view that you were largely unaware of what
specific wrongdoing had been discovered? If so, why did you
agree to pay $170 million?
Mr. Phipps. Yes, Mr. Chairman, that is true that we did not
receive any facts from Mr. Christie's investigation at the time
of the settlement or since. He has never provided any facts to
our company as to what they uncovered in the course of their 2-
year investigation.
As far as why we settled, it starts with, as a public
company, first and foremost what is in the best interest of our
shareholders and also what is in the best interest of employees
and patients. We deemed that the settlement was in the best
interest of these stakeholders. We negotiated a settlement that
allows us to continuously strengthen our compliance practices
while still allowing us to move forward with necessary and
appropriate collaboration, and we felt that it is important
that we have the ability to continue to do that in a proper
manner.
The resolution agreement also incorporates many of the
features of Zimmer's corporate compliance program, which was
important to us, and the U.S. Attorney imposed requirements of
Zimmer's program across our industry through these agreements.
The fact that we were able to settle without admitting to any
wrongdoing--and if we comply with the DPA for 18 months, then
we will have a Federal release. Those are all important
factors.
Then the flipside of that is what if we didn't settle?
Maybe that is even more important when you are in our shoes at
that point. It would have been a long, drawn-out investigation
taking multiple years most likely. We would not want to be in a
situation where we are the only company of the five that did
not settle. There would be a cloud of uncertainty hanging over
our company and our stock for a long period of time.
The ultimate risk for a company in our position is that if
you face prosecution and ultimately do not prevail in your
defense, you may be excluded from participation in the Federal
health care reimbursement system, which is in effect a death
penalty for a company such as ours. Then finally, the U.S.
Attorney looked me in the eye and said, I have a case that I
can prove against your company beyond a reasonable doubt. I had
to take him for his word on that, even though I don't have
their facts----
The Chairman. All right.
Mr. White, as you have testified, your association created
a voluntary list of ethical guidelines to address the
questionable practices that we have been discussing today. As
part of its settlement with five of the orthopedic device
manufacturers, Justice Department mandated that companies
follow the AdvaMed code of ethics. Why would it take the
government's legal intervention to force compliance with your
code by some of the industry's largest companies?
Mr. White. The AdvaMed code of ethics is a voluntary code,
however it does have meaning in our industry. It has been
replicated internationally by other trade associations abroad.
It has been borrowed from and adopted by medical trade
associations.
As a voluntary trade association, we lack the resources and
don't have the ability to enforce the code itself. However, we
do have a sustained outreach and a real commitment to bring the
words to life within organizations, and we have implemented a
number of programs including the code logo program that I have
described to you to ensure that the code of ethics has meaning
within our member companies and within our industry.
The Chairman. Thank you.
Senator Corker. Then Senator McCaskill.
Senator Corker. Mr. Chairman, again thank you for a great
panel. It appears to me that you have created a piece of
legislation that is addressing a need. It appears to me that
people on both sides of the equation agree generally with it.
It appears to me that Mr. White in his four points has
addressed some things we might want to look at in making the
legislation even better. I would have to say this has been an
excellent hearing.
You know, I am aware that we live in a world that if you
can make a little money doing something a little bit, you can
make a whole lot more doing something a whole lot. That is
obviously what we have seen in our credit markets right now. We
are seeing a lot of corrections take place throughout our
country, and it is going to take some time for that to settle
out.
I guess, you know, seeing that both industry and those
proponents of stronger ethics agree on this legislation, I just
would like to ask the two industry folks who are here, will
this legislation, in your opinion, truly be time tested and
will it, in fact, solve the problem of over-utilization and
zealous sales, if you will, as it relates to consulting
arrangements? Do you think this will adequately address the
problem for the long term, or are there other things we ought
to look at in this regard?
Mr. Lipes. Senator, I believe that the proposed
legislation, with the amendments Mr. White spoke about in
combination with the AdvaMed guidelines and in combination with
the changes that all the companies have made in the orthopedics
industry as a result of this Department of Justice
investigation, will result in a significant reduction if not
elimination of the kinds of abuses that we have seen in the
past.
Mr. Phipps. Yes, we have a unique experience here because
we have been posting, as you know, under our deferred
prosecution agreement, our hip and knee consulting payments as
part of that agreement since October. I think the reaction to
that has been mixed, but I think it is a positive. I think most
surgeons understand it. We understand it. It has been a good
way for us to take a look at our business and where we are
spending money and using consultants.
I do think one thing I would suggest, and it is in our
letter, Mr. Chairman, to you, that we think is important is
that there not be exemptions for companies that are smaller. We
think that if there is going to be transparency, it needs to be
across the board. There should not be an exemption, we don't
think, for companies based on not having large revenues or not
using consultants as much. It should be fully transparent
across the industry. That is important for us, and we wanted to
put that on the record as well.
Senator Corker. Mr. Chairman, I would just like to make a
comment. I know that we will be able to work with your staff
privately in this regard, but I would have to agree. I think
one of the comments yesterday in just going through your
legislation, which it seems to me that truly you have done
something here that needs to be done, and it looks like
something that we ought to pass through with unanimous consent
in the Senate. I am sure that will happen very quickly.
But it does seem to me that, ``being able to abuse your way
to a certain level and then have to comply in a different way
doesn't make a lot of sense.''
It seems to me that we ought to have transparency at all
levels, and that does make a lot of sense to me, and I hope
that we will be able to work with you in that regard.
I want to thank you again for what I think has been an
excellent hearing that has vetted your piece of legislation,
which it seems to me is most needed. I want to thank you for
addressing that need. Thank you, sir.
The Chairman. Thank you very much, Senator Corker.
Senator McCaskill.
Senator McCaskill. Thank you, and I meant to tell you, I
think one of you all is responsible for something that is in my
right knee, and some days--I am glad I don't know which one of
you it is, because some days I would like to say thank you.
Today is a day I would not say thank you to you, so it is a
good thing that I don't know which one of you is responsible
for the device that was my complete knee replacement that I had
about a year ago.
I am a little incredulous about some of this. I don't mean
to pick on you, Mr. Phipps, but I am going to talk a little bit
about your company. Based on the testimony that you just gave
the chairman, what you are basically saying is that your
company thought it was a good deal to pay $170 million to the
government even though you have done nothing wrong?
Mr. Phipps. Senator McCaskill, I did not say we did nothing
wrong. What I said in response to the question was that the
U.S. Attorney never provided us any facts for what they
uncovered under their investigation. We have done our own
reviews and investigations internally over the years. We have
made significant improvements as we have had experiences and
learned more information.
In 2003, for example, we learned that these inherent
conflicts of interest, where you have customer, vendor--
consultant being the same people, that this is an area that is
subject to abuse. We put in place a very robust compliance
program that was implemented in 2005. This investigation, it is
important to note, covered 2002 through 2006. Our compliance
program came into place in 2005.
So in the past we think there were excesses, and frankly,
we have found some of those excesses and addressed them with
our program. We are using this settlement phase of our
investigation to turn the dial up another couple of notches and
to continuously improve. It has been an evolution.
But there were excesses in the past; there were abuses in
the past, not unique to Zimmer, but across our industry. I
believe all companies that face that inherent conflict of
interest are subject to the same problems, and I think people
that say that there weren't excess have had their head in the
sand, frankly, and it was a problem. We feel like we have
addressed it.
Senator McCaskill. So the issue wasn't that there weren't
facts there. The issue was that you all found the facts
yourself that indicated that prosecution was a real problem,
and somebody could maybe go to jail, and therefore it wasn't
necessary for your company to demand the facts? Because, I
mean, I have spent a lot of time as a prosecutor in my life. I
can't imagine getting a defendant to pay $170 million without
producing anything to convince them that they have done
something they might go to jail for. So what you are saying is
that you all didn't demand those facts from the U.S. Attorney
because you had done the internal investigation and conceded
that there could be potential criminal liability for what you
all had done.
Mr. Phipps. We did respectfully request those facts, both
before we settled as well as we have done that since. Because
in my position, I would like to know if they found things that
may involve individuals still with our company or relationships
with doctors that we still have; I would want to know that.
They have declined in each instance to provide that
statement of facts. I am not sure if it exists or not, but they
have not provided it. But we believe, based on our own reviews
that we have done, that there were excesses in the past and we
feel that it was important to settle this investigation.
Senator McCaskill. I guess it is possible they may be
holding their version of what they have found because this is a
deferred prosecution agreement. There has been no agreement;
there has been no dismissal with prejudice of any criminal
charges. This is merely agreement that says--it is kind of
like, you know, what we call probation. When somebody robs a
bank, they get probation. When it is sometimes a big company,
they get deferred prosecution, as opposed to actually having to
establish that you have to plead guilty to something. Is that a
fair----
Mr. Phipps. That is fair. There were three other companies.
All four of us had a criminal complaint filed against us. If
you look at that complaint, you will see it is very bare bones.
There are no facts alleged in that complaint whatsoever, but--
--
Senator McCaskill. OK. Let me ask you this. There is $170
million that you are paying out of your company, and I know
your stockholders are aware of that. Aren't you also paying
tens of millions of dollars to former Attorney General Ashcroft
for monitoring this?
Mr. Phipps. Over the course of the 18 months, we do expect
to pay tens of millions, yes.
Senator McCaskill. How much do you think--what have you
told your shareholders that you are going to have to pay? It is
my understanding this was not a competitively bid contract, and
that your company is on the hook for it. What are you
estimating that you are going to have to pay former Attorney
General Ashcroft for monitoring your company?
Mr. Phipps. Based on the estimates that they provided to
us, which is $1.55 million to $2.9 million per month, that ends
up being in the range of $28 million to $52 million over the
course of 18 months.
Senator McCaskill. I have looked at some of your
disclosures for 2007. That seems to me much higher than any of
the money you are paying any of the doctors, correct?
Mr. Phipps. That is correct. On an hourly basis, we pay
surgeons $500 per hour. I am not sure what it equates to with
our monitor.
Senator McCaskill. You know, the reason that this is
obviously a concern to us is because we deal with constituents
all the time that can't get health insurance, that can't afford
health insurance, and we know that Medicare is one of the most
incredible train wrecks that is coming in terms of our
entitlements in our Federal budget, that Medicare costs are
escalating, and obviously the taxpayers are on the line for
that. I understand that this $170 million and between $30 and
$50 million you are going to pay Attorney General Ashcroft for
a year and a half is not taxpayer money, but it all ends up
getting into the mix because obviously the costs of your
company are passed on, in terms of the cost of what you sell to
the people that are performing these surgeries.
I want to focus for a minute on your disclosures. It seems
to me if you have avoided prosecution by saying, ``We are going
to fully disclose,'' that it is really incumbent upon you all
to decide you are really going to disclose. Now, here is what
is confusing to me. I am looking at the document where you are
admirably disclosing and what this law is going to require you
to disclose, that for example you paid in 2007 a doctor in
Deerfield, IL, $1.875 million. Now, I am assuming that that is
for some kind of consulting. That is not for him doing--he is
getting paid for doing the surgeries, too, correct?
Mr. Phipps. Yes, 75 percent of our disclosure is for
royalties that people receive from being a developer of a
product. So when you see our posting, about 75 percent in the
aggregate is royalties. We have nothing to do with what he is
being paid by his hospital or anyone else for procedures, if
that is your question.
Senator McCaskill. So these big numbers are people who have
been involved in the development of the product?
Mr. Phipps. Seventy-five percent of the total. If you tell
me a particular doctor's name, I can----
Senator McCaskill. Well, like all the ones that are over a
million and a half dollars?
Mr. Phipps. Yes, there may be some there that have also
done, you know, training, so that would be a standard
consulting fee. But in the aggregate, 75 percent roughly is for
royalties.
Senator McCaskill. I would like to focus on the plane
flights. What kind of corporate plane do you have?
Mr. Phipps. We have a Challenger and a Hawker.
Senator McCaskill. They are both jets?
Mr. Phipps. They are jets. We lease----
Senator McCaskill. Now----
Mr. Phipps. We lease at least one of them, maybe both.
Senator McCaskill. OK, we have spent a lot of time talking
about the cost of private corporate jet travel around here as
we passed the ethics bill, because some of us who just got here
were really frustrated that some folks used to be able to hop
on one of these corporate jets and travel around for pennies on
the dollar as United States Senators and as Members of
Congress. So we have now changed that, and now you must pay
charter rate. So I am aware what it costs to fly one of these.
Could you explain to me how a jet flight, a private jet flight,
from San Diego to Indiana, is disclosed at $138?
Mr. Phipps. Yes, that is based on the IRS's standard
industry fare level or the SIFL rate. I do not know anything
about that area other than that is the normal way to calculate
those rates using the IRS's standards.
Senator McCaskill. Well, you know, I don't get the word
normal. I mean, to me that ought to be in quotes. This is about
full disclosure. This is about the public understanding. I
mean, if this is your idea of full disclosure--there is no
requirement that you disclose the IRS rate. It seems to me you
ought to let people know.
You can't park a jet at an airport for $138, much less fly
it across country. We are talking about tens and thousands of
dollars per flight. I bet that flight from Indiana to San Diego
cost between $20,000 and $30,000 easily. You know, wouldn't you
want to fully disclose what you are actually paying as a
corporation for the benefit of these doctors? Isn't that the
idea behind this disclosure?
Mr. Phipps. Yes, none of those flights are for the doctors'
benefit. Those are all for the company's benefit. They perform
services on our behalf. They are taking time out of the O.R. to
do a service that we need for training or for development, and
it is not compensation to them. This is the first time we have
disclosed any of that information. It is not 1099-type income
to them.
Senator McCaskill. I understand--all the more reason not to
use the IRS number. That is what that figure is for. That is an
IRS number for purposes of computing income. But this is about
public disclosure. I understand--you can make the argument that
every single thing you pay to these doctors is not for the
benefit of the doctors but rather it is for the benefit of
getting their time and expertise.
The whole purpose of this disclosure and the whole purpose
of the law we are proposing is so the public can get a true
picture of the kind of money that is being put out in
connection with these doctors so they can draw their
independent judgment as to whether or not there is a conflict
of interest. Will you all make a commitment that you will begin
disclosing the actual costs of private jet flights for these
doctors in the future?
Mr. Phipps. I will take that back and we will consider it.
I personally am not an expert in that area, but I will take
that under advisement and go back and talk to our people, yes.
Senator McCaskill. Mr. White.
Mr. White. I represent AdvaMed, the Advanced Medical
Technology Association, and speaking on behalf of industry, we
have communicated our views that it is critical to have the
context surrounding these disclosures described. The companies
are in the best position to provide that description, and for
that reason we have offered our recommendations to this
legislation that would provide the context, so that you are not
only looking at a physician name and address and a dollar
amount but the context of that payment.
Senator McCaskill. You know, nothing is keeping any of your
members from disclosing a whole lot right now. I mean, if you
really want the public to understand what is going on, all you
have got to do is tell them. It doesn't take an act of
Congress, candidly. It shouldn't take a threatening criminal
prosecution.
I mean, the disclosure that we are talking about today,
frankly, it is kind of discouraging that we even have to get
government involved. It ought to be something that you ought to
see as the right thing to do in terms of the public fully
understanding this relationship because of the allegations that
are naturally going to rise up from this kind of relationship.
What about your company, Stryker, are they willing to
disclose the actual cost to the company of these jet flights
that these doctors are taking?
Mr. Lipes. From 1989 till 2003, when I ran the orthopedics
business at Stryker, I am not aware of a single time when we
flew a surgeon on a private jet.
Senator McCaskill. OK, I think you all understand the point
I am making. If you are worried about context, you know, they
can context right now to their hearts' content. They can get on
their Web site and they can start telling the public exactly
what they are paying, who they are paying, how much and for
what. There is nothing we are going to do to stop you.
So I think it is kind of ironic that you are worried about
this legislation not having context. You can provide context
without a government mandate, and we would hope that you would.
I thank you, Mr. Phipps, for taking back to your company
the fact that I think it is a little disingenuous to call a
private flight less than 100 bucks when the cost is many, many,
many times that. I hope your company will consider doing the
right thing in that regard.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator McCaskill.
Senator Coleman.
Senator Coleman. Thank you, Mr. Chairman.
First, let me thank you and Senator Smith for holding this
hearing. Let me also thank you for your leadership on this
issue. I think as a Ranking Member on the Permanent
Subcommittee on Investigations, we have focused on rooting out
waste, fraud and abuse in our health care system. We have a
hearing coming up on Medicare fraud in a very short period of
time. So I just want to personally thank the chairman for his
leadership here.
I am a firm believer that sunshine transparency is the best
disinfectant, and certainly this hearing is about that. Today,
the Physician Payments Sunshine Act may be a good place to
start but should be improved in ways that will actually provide
greater transparency and greater oversight. So I look forward
to working with you and my other colleagues, Mr. Chairman, on
this issue.
In terms of transparency, Mr. White, AdvaMed has a code of
ethics, but clearly there has been discussion today that says
we have got to go beyond that. As you reflect on the code of
ethics, are there areas now where you think you may want to
kind of push further than where you are at today?
Mr. White. Absolutely, I agree with the comments expressed
earlier that the code of ethics needs to be more than words on
paper, and we share the concerns and will rise to the challenge
of ensuring that the code of ethics is more than words on
paper. I think in the context of the deferred prosecution
agreements, we have seen those agreements break new ground on
the legal front. There are arrangements that are addressed in
those agreements that are not addressed in any other legal
authority, specifically royalties, and I think that is an area
that is potentially ripe for inclusion in the AdvaMed code of
ethics.
As I indicated earlier, we have a dedication to the code of
ethics. We have a three-part infrastructure within our
association that brings together CEOs, lawyers and compliance
officers within 2 weeks of the deferred prosecution agreements.
We convene meetings of our compliance officers to discuss
seriously next steps in this area, and we would look forward to
advising you, your staff and the Committee as we move forward.
Senator Coleman. I think it would be extremely helpful to
kind of look beyond royalties as one area, but I think that
is--you may have stated this before; I may have missed it--but
in terms of adherence to code of ethics or enforcement of code
of ethics, what sort of powers do you have there? Then how do
you actually ensure that members comply with codes of ethics?
Mr. White. Well, quite frankly, we are limited in that
area. We are a trade association. We are bound by the antitrust
laws and other authorities, and so we don't have specific legal
authority or we are not deputized as an enforcement agency to
undertake specific enforcement actions. Instead, we educate, we
provide outreach and we have implemented the code logo program
to ensure that there is a commitment of the top-level
executives of our member companies to the code of ethics to
ensure that there is robust training and education, auditing
and monitoring and so forth.
So we believe that the code of ethics together with these
other procedures to make it come to life within organizations
is an important step forward. Can we do more? We can, and we
pledge to work with you.
Senator Coleman. One of the things that I have noticed here
is if you don't do it yourself, government may tell you how to
do it. So it becomes critically important to make sure that
there is a very robust and broad code of ethics with
transparency, including many of the issues that have been
raised today, or certainly we may find the need to require
that, and then it becomes a whole different process.
There is no question, though, that collaboration is
important, as my concern on so many of the things is you get a
few bad actors and then you have a reaction to that--doctors
reluctant to collaborate with device manufacturers to improve
product and patient care. My State medical device industry is
one of the giants. We pride ourselves on being the center of
medical technology, and a lot of the tremendous enhancements in
quality of life have come about because of innovation.
Talk to me a little bit about the other side. Perhaps this
is Mr. Phipps and Mr. Lipes. Are one of the unintended
consequences of some of the problems we have been raising now
and the concerns being raised--are we looking at a decrease in
critical collaboration? Are we seeing any impact to that, Mr.
Lipes?
Mr. Lipes. Well, one of the requirements we have in our
non-prosecution agreement going forward is that we establish a
formal comprehensive needs assessment each year that is
approved by our compliance officer and approved by our monitor
and the U.S. Attorney that lays out exactly what our
relationships are going to be with our consulting surgeons, how
we are going to use them, and then all payments that will be
made will be compared against that needs assessment.
Our needs assessment has just been approved this week. So
for the past month and a half, we have had very little activity
with surgeons, as we have waited until that needs assessment is
done. I am optimistic that the needs assessment reflects what
our business requirements are for input from consulting
surgeons, and it will continue to be a very, very productive
and fruitful relationship.
Senator Coleman. Mr. Phipps.
Mr. Phipps. Yes, Mr. Lipes is correct that the annual needs
assessment is the key. Again, that came from Zimmer in 2005, so
we have been doing that for several years now. But really what
we are doing is making sure that when we consult with health
care professionals, it is to address one of three things and
only one of three things. That is, patient safety, improved
outcomes and addressing unmet clinical needs.
So we define that needs assessment at the beginning of the
year, and it needs to be very buttoned down, as far as there is
little room for adding things throughout the year. So I think
those excesses that we talked about before will no longer be an
issue. But, as we have gotten up to speed with our monitor
these last 4 or 5 months, there has been a big slow down, but I
think we are now starting to get to a point where we are going
to get into a groove with our monitor and be able to perform
services pursuant to that approved needs assessment.
Senator Coleman. I think if there were clear codes of
ethics, clear understanding compliance with what would
hopefully be a Physician Payments Sunshine Act, that you would
have more clarity of mind in terms of physicians and others
understanding how they can operate without fear of action
against them. I think you need to have that in place because
clearly it is cloudy today, and clearly there are concerns that
are out there. This has not all been--we have not played this
out to the final step.
Just one last question. Assuming, then, we enact the
Physician Sunshine Payments Act and we gather data, I would be
interested in your assessment of how the public would actually
use this data when shopping around for health care services? Is
there something in place or a sense that in fact it could be
usable? Does it have to be in a certain form to be usable? How
would folks actually make use of what we are trying to gather
here of this greater transparency?
Mr. Lipes.
Mr. Lipes. Well, I think in the last 10 years, we have seen
a dramatic shift in the kinds of information that patients
bring into their surgeons' offices. Where as before they came
in basically because the surgeon had been recommended to them,
now they come in on average with stacks of information that
they have taken off the Internet. So they do extensive amounts
of research in advance before they go in to talk to that
surgeon, asking about different types of procedures and
technologies. I believe that if this information is available
on the Internet, it will be another piece of information that
that patient will have at their disposal when they walk in to
the surgeon asking for some relief to the pain that they have.
Senator Coleman. Mr. Phipps.
Mr. Phipps. I think the onus should be on the surgeon and
on his institution or practice to make sure that when those
patients come in that they are getting that information
provided to them and that there is full disclosure between
physician and patient so that the patient can make an informed
decision. I think Senator Corker's right, that it is probably
not going to change the mind of many patients, but they have a
right to know.
Senator Coleman. So, White, from an industry perspective?
Mr. White. We have given a great deal of thought to that
question, Senator, and I think that it comes down to a few
things. One, it is critical that we have preemption. We have
one Federal Web site where patients can access this information
rather than a series of company-specific or State-specific Web
sites. That will only further cloud this question. If we are
looking to deliver clear information to patients, it is better
to have it on one Federal Web site as I indicated earlier.
Also, it is critical to have context. As we described in
our testimony, medical device companies have multiple
relationships with physicians, and it is important to provide
the context for each of those patients so that there can be no
misunderstanding that might diminish collaboration or diminish
some of these important relationships. Finally, we think the
full range of relevant relationships should be reported on the
Web site, including equity investments by physicians and M.D.-
owned entities.
Senator Coleman. Mr. White, I am a great believer in
public-private partnership, and this should be an area where we
should be collaborating so we can move the chairman's
legislation forward. This is an area where I would welcome the
collaboration of the industry and of AdvaMed. We have a good
relationship that would be helpful in making sure we do it the
right way.
Mr. White. Thank you, we would be happy to help.
Senator Coleman. Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Coleman. It has
been a really good hearing. I think that we have shed light on
an issue that is really important in our society. I think we
all agree, and apparently we all see a path toward affecting
some considerable improvement. It is something that doesn't
occur at every hearing around here. So we thank you for being
here with us, and thank you for helping us really advance the
cause of something that is considered to be very important.
This hearing is closed.
[Whereupon, at 12:16 p.m., the Committee was adjourned.]
A P P E N D I X
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Senator Clinton's Questions for Gregory Demske
Question. Of those OIG's inspections of the medical device
industry wherein you found industry payments to be kickbacks
designed to influence the physicians' medical decision making,
how frequently do physicians made payment claims for these
devices to private insurance, and how many make claims to the
federal government?
Answer. In general, a high proportion of medical device
usage and billing is related to Medicare patients. In the New
Jersey investigation of 5 manufacturers of hip and knee
reconstruction and replacement devices, physicians we
interviewed reported that often 80% or more of their patients
receiving the devices were Medicare beneficiaries. It is
important to note that most medical devices are reimbursed by
Medicare (and, for private patients, by their insurers) through
payments to hospitals for the procedures in which the devices
are implanted. Therefore, the physician is usually not
submitting a claim directly for the device. We have found,
however, that the hospital almost always uses the device that
the physician recommends. Therefore, with respect to Medicare
patients, there is a potential kickback violation because of
the physician's ability to influence the use of a particular
manufacturer's device.
Question. What steps can the government take to address
concerns regarding claims made to both public and private
insurance?
Answer. With respect to Federal health care programs, OIG
addresses concerns about financial relationships between the
medical device industry and physicians through enforcement,
guidance, and outreach to stakeholders. Working with the
Department of Justice, OIG investigates device manufacturers
and physicians for possible violations of the Federal anti-
kickback statute and False Claims Act. Criminal, civil, and
administrative sanctions can provide a meaningful deterrent to
illegal conduct. In addition to enforcement, OIG provides
guidance to industry and physicians through compliance program
guidance, fraud alerts, and widely distributed correspondence
relevant to physician-industry financial relationships.
Furthermore, OIG has reached out to stakeholders through
presentations at conferences sponsored by non-profit groups
such as AdvaMed and the American Academy of Orthopedic
Surgeons.
The anti-kickback statute, which is the primary basis for
government enforcement in this area, only applies to conduct
related to Federal health care programs, including Medicare and
Medicaid. Therefore, payments intended to induce the referral
of privatee insurance business does not violate this statute.
Similarly, the False Claims Act, the government's primary civil
enforcement tool to combat fraud, only addresses fraud on the
Federal Government and is therefore not implicated by improper
claims to private insurance companies. Although kickbacks
related to private insurance may raise antitrust concerns or
potentially violate state laws, OIG does not have jurisdiction
to investigate such matters.
------
Senator Clinton's Questions for Charles Rosen
Question.You recommend that the exact dollar amount of any
type of industry compensation from all companies to surgeons,
particularly those who are writing papers and running
professional organizations, should be available for all to see.
Who, in your opinion, should be responsible for obtaining,
monitoring and publicizing this information?
Answer. There could be a number of entities responsible for
obtaining, monitoring, and publicizing complete financial
disclosures of doctors receiving industrial compensation.
The companies themselves should have the legally mandated
responsibility to obtain and disclose on their website in a
readily available way the information every quarter. There
should be significant penalties for non-compliance.
The FDA should require that this information be submitted
to them so that it can be in one location on their website and
encompass all the companies involved. The non-profit
organization of the Association for Ethics in Spine Surgery as
a watchdog group could also serve this role since it is the
only such organization without industrial ties and is dedicated
to full disclosure for the public good. The actions of both the
FDA and AESS would go towards both monitoring and publicizing.
Perhaps the appropriate national medical societies could be
required to put the information on their website.
Finally, intermittent and random auditing by the OIG should
also be part of the monitoring and enforcement process.
Question. How many professional organizations exist that
are similar to yours, in requiring that their members do not
accept compensation from industry?
Answer. I know of no other professional organizations such
as the Association for Ethics in Spine Surgery that requires
their members to not have any compensation from industry.
------
Senator Clinton's Question for Edward Lipes
Question. As a condition of your settlement with the
federal government, you are participating in 18 months of
federal supervision, which you claim helps to ``level the
playing field'' in the medical device industry. Given that
voluntary compliance mechanisms were not sufficient in your
particular case, how do you suggest that industry improve its
ethical standards without federal oversight like that you are
currently receiving?
Answer. From the time I became President of Stryker
Orthopedics in 1989, we have required our business leaders to
follow certain procedures, systems, and controls to guard
against abuse. Stryker has paid relatively low per diem rates
to its surgeon consultants; had only a small number of royalty
relationships; required its consultants to document their
interaction with and on behalf of the company; and refused to
engage more surgeon consultants than the company needs.
Post-settlement, the majority of our business practices
have not changed because we were already complying with the
terms of the settlement when actions were voluntary. I expect
such practices to continue when the monitor's term ends.
The voluntary guidelines of the AdvaMed Code of Ethics and
the terms of the settlement agreements signed by the five major
competitors in our industry provide very strong standards that
we believe will ensure a level playing field where all
companies are working with surgeon consultants in a legal and
ethical fashion.
Additionally, we are committed to work to seek reforms to
put better controls in place across industry as necessary.
------
Senator Clinton's Questions for Christopher White
Question. How are you working with physician groups to
improve cooperation with your new ethical standards? Why do you
think some physician groups have adopted this Code but not
others?
Answer. Even prior to our revised Code's effective date of
January 1, 2004, AdvaMed engaged in extensive outreach
activities, both to individual physicians and to physician
specialty societies. We've been able to communicate the
importance of the Code through individual letters to physician
society executives, articles in medical journals, and
presentations to physicians societies, among other outreach
activities. We remain committed to working with physicians to
foster widespread awareness and adoption of the Code. I speak
about the Code regularly at society meetings--including, most
recently, at the annual meeting of the American Academy of
Orthopedic Surgeons in early March. On March 13, we formally
shared, through verbal and written testimony, our perspectives
on ethical interactions between industry and physicians with
the Institute of Medicine's Committee on Conflicts of Interest
in Medical Research, Education, and Practice. While we cannot
control whether a particular physician group will officially
adopt our Code, we are encouraged by the progress made both in
industry and among health care professionals since the Code
became effective.
Question. You suggest that any public database that reports
payments to physicians should give companies the opportunity to
provide context of those payments. Allowing companies to
describe the nature of these relationships, however, has the
potential to unethically construe and obfuscate the ethical
shortcomings. Can you please expand on what type of context you
mean, and how you would suggest maintaining consistent
standards for payment reporting?
Answer. It is important to ensure that patients receive
useful information and do not mistakenly form the opinion that
all payments to physicians are suspect. This risk exists when
there is no opportunity for a reporting company to give
meaningful context to the reason for a reportable ``transfer of
value.'' For example, companies should be allowed to specify
that payments are made for education and training--that is, to
ensure that physicians are able to use medical technology
safely and effectively. Simply listing a physician's name next
to a payment amount does not give patients the opportunity to
make informed decisions about the nature of the payment.
Moreover, to create and maintain consistent reporting
standards, the legislation should authorize sufficient
appropriations to create and maintain a centralized database
and disclosure program, and should only require the disclosure
of certain enumerated types of payments. This will standardize
both the disclosure of payments by companies and the reporting
of date to patients.
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