The 2007 Hip and Knee Implant Cases: When the Consultant Chose the Implant

In the 2007 orthopedic implant kickback settlements, the Justice Department announced $311 million in civil agreements over allegations that manufacturers paid surgeons to choose their hip and knee implants. Four companies agreed to pay to resolve claims under the False Claims Act and the Anti-Kickback Statute. A fifth, Stryker Orthopedics, entered a different agreement. If you handled consultant contracts, surgeon payments or implant sales, the question behind these cases will sound familiar: what work did the company buy, and what business did it get?

The U.S. Attorney’s Office for the District of New Jersey announced the resolutions on September 27, 2007. The Department of Health and Human Services’ Office of Inspector General, through its New York Regional Office, investigated alongside the U.S. Postal Inspection Service and the FBI. The government’s criminal complaints accused Zimmer, DePuy Orthopaedics, Smith & Nephew and Biomet of using consulting agreements to induce surgeons to choose their products, describing conduct from at least 2002 through 2006.

The inspector general’s office later reported that four manufacturers paid physician consultants over $800 million under roughly 6,500 consulting agreements from 2002 through 2006. That puts the civil settlement beside a much larger consulting business. The investigation examined arrangements in which the companies received little beyond increased implant sales.

How Does Reimbursement Work for Medical Devices?

Medicare generally pays the hospital for the procedure or inpatient stay that includes an implanted device. The surgeon can choose or strongly influence the implant, while the hospital buys it and submits the claim. That split explains why a manufacturer would pay attention to the surgeon’s preferences even though the hospital is its customer.

The commercial relationship reaches into the operating room. Manufacturer representatives help supply implants and instruments, stock and restock inventory, and support the use of their company’s products. Under a consignment arrangement, the manufacturer may retain ownership until implantation. The operation can therefore trigger the device sale as well as the hospital’s claim for the patient’s care.

In its testimony on the hip and knee investigation, the inspector general’s office described the government’s civil allegation directly: the manufacturers’ inducements caused hospitals to seek and obtain Medicare reimbursement. The alleged chain ran from a company payment to the surgeon’s product choice and then to the hospital’s claim. The hospital could submit that claim without being a party to the financial arrangement between manufacturer and surgeon.

For someone inside the business, this puts the consulting ledger and the record of implant use in the same story. The hospital’s procedure claim completes the connection. Medicare’s packaged payment makes the procedure or stay the place to follow the money.

What Are Some Examples of Kickbacks in Healthcare?

The government’s allegations in these cases included consulting fees for little or no work, expensive trips and agreements to use the paying company’s implants exclusively. The Justice Department also reported that physician consultants failed to disclose those financial relationships to their hospitals and patients.

The inspector general’s February 2008 testimony described what investigators found across the hip and knee investigation when they examined the work supposedly supporting the payments.

The Sales Representative Wrote the Consultant’s Report

Some consulting reports lacked the information the agreement required. Others were written by sales representatives rather than the physicians being paid. That gives a sales employee an unusually direct view of the arrangement: the person helping sell the implant may also know who produced the paperwork supporting the surgeon’s consulting fee.

The testimony described a separate payment for quarterly reports on market trends, operating-room activity and product issues, typically $5,000 per report. Investigators found cursory descriptions, reports duplicated from quarter to quarter, and work of little or no value to the company. We see a very expensive way to buy the same advice again.

A Resort Presentation Counted as a Day’s Work

The testimony also described consultant panels at resorts. Some physicians spoke for as few as 10 minutes, with the rest of the day available for company-paid recreation. The companies paid the consultants for a full day of work.

A Short Training Session Became a Full Workday

The testimony described operating-room training sessions lasting one to two hours, for which consultants billed an eight- to ten-hour workday. Some of the supposed trainees were experienced sales representatives already servicing those surgeons and already required to attend their procedures.

The representative’s ordinary presence in the room matters here. The government’s account described companies paying a surgeon for training someone whose regular job already put them beside that surgeon. The schedule, the representative’s experience and the hours billed give that payment its meaning.

Product Development Paid People Who Did Little Development

The testimony also described royalty agreements that could pay for up to 20 years and design teams that included physicians added after projects were more than halfway complete. Companies often did not measure individual contributions, and some team members appeared to have performed little or no work.

That is a different documentary trail from a consulting timesheet. The product-development history can show when the physician joined, what the physician contributed and how the company decided to pay. A royalty agreement gives the relationship a name. The work behind it tells the more useful story.

Why Is Kickback Illegal?

The Anti-Kickback Statute prohibits knowingly and willfully paying or receiving benefits to induce federal health care program business. In a device arrangement, that can mean paying for a surgeon’s recommendation or implant choice.

The inspector general’s office told Congress that such payments can increase health care costs and give the paying manufacturer an unfair competitive advantage, regardless of its product’s therapeutic value. The surgeon’s financial interest can displace the patient’s interest in the choice of implant. That is what the consulting paperwork can conceal.

What Each Company Agreed to Pay

The Justice Department said the differences in the companies’ settlement amounts reflected market share and other business factors during the relevant period, rather than relative blame. The individual payments listed below total $310 million, which differs from the announced total.

Zimmer

Zimmer agreed to pay $169.5 million to resolve the civil claims. The government alleged that consulting agreements and other benefits induced surgeons to use Zimmer’s hip and knee products.

The announcement also credited Zimmer’s existing corporate compliance program with supplying many of the requirements in the new agreements. A company whose consulting relationships were under investigation already had a program the government used to help set the industry’s new standard. We would want to understand how the payment decisions worked beneath that program.

DePuy Orthopaedics

DePuy Orthopaedics, then identified as a Johnson & Johnson subsidiary, agreed to pay $84.7 million. The announcement described the company’s healthcare compliance training for employees and its independent sales force.

A device company’s relationship with surgeons can run through people outside its employee roster. Those representatives may know how consultant selection and product sales met in practice.

Smith & Nephew

Smith & Nephew agreed to pay $28.9 million.

Biomet Orthopedics

Biomet Orthopedics agreed to pay $26.9 million.

Stryker Orthopedics

Stryker Orthopedics entered a non-prosecution agreement after voluntarily cooperating before the other companies. It agreed to implement the reforms imposed on the others. Stryker made no civil settlement in this announcement.

The other four companies entered deferred prosecution agreements alongside their civil settlements.

Consulting Needs and Public Payment Disclosure

The agreements required the companies to establish a need for educational consulting and new product development consultants, and to disclose financial relationships to patients and the public.

Under the deferred and non-prosecution agreements described in the original announcement, each company had to conduct a needs assessment. New consulting agreements had to require physicians to disclose their financial engagements to patients. The companies had to publish each consultant’s name and payment on their own websites.

The four civil-settlement companies also entered five-year Corporate Integrity Agreements with the inspector general’s office. As the agency explained in its testimony, these separate agreements required compliance systems, independent review and periodic reporting. The company-site disclosures predated the 2010 law behind Open Payments.

The needs assessment and the payment disclosure sit at opposite ends of the relationship. One asks why the company wanted the service. The other shows whom it paid and how much. Between them are the selection decision, promised work, actual contribution and approval of the bill. That is where someone inside sales, medical education, product development or finance may know something the public payment entry cannot explain.

What Evidence Is Needed to Prove Fraud?

The useful evidence connects the reason for paying the surgeon, the work actually performed, the implant choice and the government claim. The hip and knee investigation shows why those connections matter: investigators examined reports, training sessions and design work, then alleged that the inducements caused hospitals to obtain Medicare reimbursement.

The consulting agreement identifies the promised service. A needs assessment explains why the company wanted it. Reports, meeting agendas, training schedules and product-development work show what followed. The payment approval and ledger show what the company accepted and paid for. Those records become more revealing when someone can explain who selected the consultant and who decided the work was sufficient.

A 2020 paper in the Journal of Forensic and Investigative Accounting, A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud, examines written service terms, payments set in advance at fair market value, and services proportionate to a reasonable business purpose. Applied to the historical allegations here, those considerations point back to the actual assignment and the basis for its price. The value of advice and the value of a surgeon’s implant orders are very different things to be buying.

The commercial records supply the next connection. An implant order, consignment record or record of use identifies the product that reached the procedure. The hospital’s corresponding claim shows the reimbursement sought. A sales representative may know the product and surgeon relationship. A hospital employee may know the implant and billing records. We work with insiders to connect those views of the same transaction.

Later Cases Put Consulting Payments Beside Implant Use Again

Later cases describe similar payment mechanisms with their own allegations and outcomes. In 2020, the government joined whistleblower cases against SpineFrontier and filed its own civil complaint. It alleged that the company paid surgeons through Impartial Medical Experts for consulting on a per-surgery basis, regardless of the time spent consulting.

The government’s complaint stated the alleged formula plainly:

The same announcement reported that five settling physicians admitted receiving payments for consulting work they had not performed. They also admitted receiving instructions to bill consulting hours for every surgery using a SpineFrontier device. The admission came from the people who submitted the hours.

In a separate 2024 settlement, Innovasis and two senior executives agreed to pay $12 million. The government alleged that consulting fees, intellectual-property payments, registry payments, performance shares and resort travel induced surgeons to use its spinal devices in Medicare procedures. Some consulting work allegedly never happened. Some intellectual property allegedly lacked a valuation before purchase and was never used for meaningful product development afterward.

A former regional sales director brought the Innovasis whistleblower case. The comparison returns to the same practical question: what did the company receive for the money? An insider who knows the assignment, the sales relationship or the unused work may be able to explain what the payment description leaves out.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Your knowledge of how a consulting relationship actually worked is worth discussing with our whistleblower experts.

When You Know What the Consulting Fee Bought

If you know how surgeon payments were tied to implant business, speak with our medical device whistleblower experts about what those payments bought. We build the case strategy with you and bring in medical device fraud whistleblower lawyers who understand consulting arrangements and the hospital claims they can influence. From the first account of the payments through the decisions ahead, we stay on your side of the table to build your strongest medical device whistleblower case.