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(article concerning conflicts of interest within the medical
profession--this time orthopedics)
http://www.nytimes.com/2005/09/22/business/22devices.html?pagewanted=4
Possible Conflicts for Doctors Are Seen on Medical Devices
By REED ABELSON
Published: September 22, 2005
As an assistant professor at the Louisiana State University Health
Sciences Center in Shreveport, Dr. William Overdyke oversaw operations
to replace worn-down knees. From 2000 through the middle of 2001,
whenever a patient needed an artificial knee, he or the residents he
supervised implanted one made by Sulzer Medical, state documents show.
The Economics of Replacement Parts Dr. Overdyke has said that he used
the Sulzer implant because it was the best available. But Louisiana
state officials say he had another incentive as well: the $175,000 a
year that he stood to make from contracts with the company. The
contracts called for him to consult on product design and "promote and
educate other surgeons" on the virtues of Sulzer products.
Before signing with Sulzer, Dr. Overdyke said, he had never used the
company's artificial knee. Earlier he had a contract with another
company, Wright Medical. And during that time, he and his residents
largely used Wright's artificial knees.
Dr. Overdyke paid $10,000 in fines after investigators determined that
his consulting arrangements with Sulzer were an improper conflict of
interest under the state ethics code. Hospital officials said they had
been unaware of his relationship with the company.
Yet in a variety of ways, many doctors have unusually close, if largely
unseen, ties to device makers. And those relationships are a central
issue on an emerging battleground in the health care wars: the upward
cost spiral of implantable medical devices.
Countless patients have been helped by these new technologies -
artificial knees that allow aging weekend athletes to play on, stents
that help keep once-clogged arteries clear, defibrillators that correct
potentially fatal heart arrhythmias.
But the rising cost of the devices and the relationships between
doctors and manufacturers are causing profound concern among hospital
executives, health care economists and other experts, mirroring recent
reactions to the way pharmaceuticals are marketed. In the last two
years, Medicare payments to hospitals for implant surgery have risen
about 40 percent, from $10 billion to $14 billion, according to an
analysis of Medicare records. And federal prosecutors have begun to
investigate some device makers' deals with doctors, trying to determine
if they amount to payoffs for using a product.
Among the loudest objectors have been hospitals, which buy the devices
and most immediately feel the pain. But health care economists stress
that consumers and insurers are also hurt by the rising cost of medical
technology, including implantable devices.
"We're paying for it, but no one can see it," said Paul Ginsburg,
president of the Center for Studying Health System Change, a research
group in Washington.
The device companies occupy a privileged corner of the medical economy,
where many of the checks and balances that have come to govern health
care costs simply do not apply. Hospital officials and health care
experts say the companies have used their relationships with doctors
and a climate of secrecy to ensure that their products remain unusually
profitable.
Central to this equation are the surgeons, who typically decide which
devices are used yet bear no financial burden for their costs.
Hospitals, which do bear that burden, have been reluctant to challenge
doctors about their choices and are mostly in the dark about the inner
workings of the marketplace. One large device company, Guidant, has
even sued two hospital consultants because they divulged pricing
information to competing hospitals.
Prices paid by hospitals vary widely, yet information is so scarce that
hospitals say they are often unaware if they are overpaying, and
impotent to negotiate a better price. Many hospital executives say some
orthopedic and cardiovascular operations, once a major profit center,
have become a marginal, even money-losing, endeavor.
Nor do the hospitals generally know which of their doctors have
relationships with the device companies and if so, the details of those
arrangements. In addition to six-figure consulting agreements that also
pay doctors to promote a given device, companies pay royalties on new
devices, send doctors to educational conferences, sponsor fellowships
and provide unrestricted grants.
The device companies' trade association, AdvaMed, says the industry is
highly competitive and spends heavily on innovation. As for the
consulting contracts and other benefits, the companies and doctors say
they are intended not to buy loyalty but to pay for research and
training and for the help doctors provide in designing these
sophisticated devices.
Two years ago, AdvaMed approved a voluntary code of ethics that
recommends limiting the value of company gifts to under $100 and hiring
consulting doctors for their expertise, rather than their abilities to
generate the most business.
The Economics of Replacement Parts "If there have been inappropriate
payments made, I think companies regret that, and that's why they have
been aggressive in implementing this code of ethics," said Blair
Childs, an AdvaMed executive vice president.
The president of the American Academy of Orthopedic Surgeons, Dr.
Stuart L. Weinstein, says that since doctors are responsible for most
of the innovations in medical devices, "There have to be these close
relationships between surgeons and industry." What is important, he
adds, is that these relationships are aboveboard and disclosed to the
patient, and that the doctor chooses the best device for that patient.
In March, the United States attorney in Newark issued subpoenas to five
orthopedic implant companies, asking them about their consulting
agreements and other arrangements with doctors. "A number of
investigations are under way," said Lewis Morris, chief counsel to the
inspector general for the Department of Health and Human Services.
The question for investigators, he said, is whether the companies and
the doctors have crossed a line from legitimate compensation for
valuable services rendered in the development of the devices to
unethical payoffs for securing competitive advantage in a crowded
marketplace.
"The potential for inappropriately steering medical decisions is always
at play, and there is always the risk that doctors will prescribe a
particular device because of their own financial interest and not the
interest of the patient," Mr. Morris said.
A Potential Conflict
In the modern health care marketplace, prices and fees are increasingly
determined by negotiation. Yet when it comes to implantable devices,
that dynamic often barely exists. Even though the Lee Memorial Health
System in Florida is one of the nation's busiest joint replacement
centers, James R. Nathan, the system's chief executive, says he has
little leverage negotiating discounts. The marketplace, he says,
"doesn't work."
Part of the blame lies with the hospitals, which often seem to lack the
financial sophistication needed to negotiate lower prices for these
devices. While hospitals have been successful at cutting costs for
standard supplies like light bulbs and bandages, many hospitals'
accounting systems are so inadequate that they have little idea what
they actually pay for more complex devices, said Dr. John Cherf, a knee
surgeon with a business degree who consults with hospitals and health
care businesses.
With manufacturers guarding pricing information closely, the price of a
given device can vary by thousands of dollars from one hospital to the
next. One hospital in the New York area, for example, paid $8,000 more
for a DePuy hip than a competitor, according to a recent survey by the
Greater New York Hospital Association.
"It's almost been a black box around it, what people pay," said Timothy
Glennon, an executive with the association, which is now examining
prices for cardiac implants.
Prices are soaring. A defibrillator now runs as much as $35,000; the
price of the latest artificial knee approaches $10,000. A single screw
used in spinal surgery can cost as much as $1,600. In all, in the last
two years alone, spending on implant surgeries by Medicare, the federal
insurer for the elderly, increased twice as fast as the program's
spending over all, according to the Medicare analysis by Orthopedic
Network News, an industry newsletter.
Rising prices have made device companies unusually profitable:
according to an analysis by Medicare, they enjoyed net profit margins
of nearly 20 percent at the end of 2003, more than twice the average
for the Standard & Poor's index of 500 companies.
The hospitals, though, say they are finding themselves squeezed, as
rising costs outstrip any increases in reimbursement. While the average
price paid for a hip or knee implant has climbed by about two thirds
since 1995, according to estimates by Orthopedic Network News,
reimbursement from Medicare, which pays for the bulk of these
operations, has not increased.
Hospital officials also argue that the constant introduction of new,
and more expensive, models can have less to do with innovation than
with the appearance of innovation. While some higher prices are a
result of clear improvements, like a drug-coated stent that helps
reduce scarring that can block an artery, hospitals say many new models
offer no significant upgrades and sometimes are too sophisticated for
patients who get them.
Skip to next paragraph
The Economics of Replacement Parts Dr. Calvin Weisberger, a
cardiologist for the California health plan Kaiser Permanente, says an
enhanced single chamber defibrillator costs $5,000 to $8,000 more than
a basic model. "The average patient does not need all of the bells and
whistles," said Dr. Weisberger, who helps the plan's doctors and
hospitals evaluate new devices.
Asked about the range of prices, the companies say it reflects a
variety of business considerations, including volume. And Mr. Childs,
the executive with the device-makers' trade group AdvaMed, argues that
the hospitals' overall costs have not gone up significantly, because
improvements in these devices let doctors operate faster and patients
go home sooner. Medicare payments largely reflect the hospitals'
overall costs, he said.
Doctors, Mr. Childs says, do consider price when choosing implants.
"Physicians are a very discriminating customer," he said. "It's not
like you're selling to a bunch of stooges."
Financial Ties
For the device companies, the most important relationship is with the
doctors, and they spend considerable money and energy nurturing it.
"The vendors work hard at these relationships," said Ed Epperson, chief
executive of Carson-Tahoe Hospital in Nevada. The extent and precise
nature of the relationships remain largely hidden. The companies and
doctors are unwilling to discuss specific arrangements. Hospitals are
often unaware of them, because the doctors using their operating rooms
and admitting patients are usually not employees. Even academic medical
centers may require the disclosure of financial ties only if a doctor
is conducting a clinical trial.
Even so, a range of relationships begins to emerge from a review of
published research, court papers and other government documents. And
perhaps the clearest available view comes from the case of Dr. Overdyke
in Louisiana.
Dr. Overdyke had been a consultant for Wright Medical, which paid him
$150,000 to $200,000 annually, according to his deposition. His
arrangement ended in 1998, and he soon became involved with Sulzer; at
about the same time, a distributor to the hospital, MD Medical, also
changed its representation to Sulzer. A founder of MD Medical later
became Dr. Overdyke's wife.
The contract with Sulzer paid Dr. Overdyke $75,000 a year to consult on
the design of two products, including a refinement on one of its Apollo
knee systems, and to "promote and educate other surgeons on the
benefits" of these devices. He also signed two royalty agreements in
2001, each providing advances of $50,000 a year on products not yet
being marketed.
Over two years, the state university spent nearly $200,000 on Sulzer
orthopedic products. Dr. Overdyke said he never told the residents
which brand to use. Asked why the residents chose Sulzer, he replied,
"You'll have to ask them."
Dr. Overdyke was never accused of directly profiting from using Sulzer
implants. But the hospital says his ties to Sulzer represented a clear
conflict of interest under Louisiana ethics laws, which forbid state
employees from doing business with companies with which they have
financial ties. He left the hospital in 2001; the hospital says it did
not renew his contract for reasons unrelated to his relationship with
Sulzer.
Dr. Overdyke and his wife declined to discuss the case, their lawyer
said; Zimmer, which has since bought Sulzer's business, also declined
to comment. But the counsel for the state ethics board, R. Gray Sexton,
said the case "involved conditions routinely tolerated" in private
hospitals across the nation.
Mr. Epperson, the Nevada hospital executive, says he sees some
parallels to the practices employed by pharmaceutical companies, which
have been criticized by consumer groups and regulators for trying to
influence doctors with a variety of benefits.
In addition to consulting and royalty agreements, the device companies
send doctors to educational conferences about their latest models. They
provide financing to medical associations. DePuy, a unit of Johnson &
Johnson, paid for a one-year foot and ankle fellowship at the
University of Virginia Health System and financed a Web site for an
orthopedic surgeon in Tulsa, Okla.
Hospital officials also argue that the constant introduction of new,
and more expensive, models can have less to do with innovation than
with the appearance of innovation. While some higher prices are a
result of clear improvements, like a drug-coated stent that helps
reduce scarring that can block an artery, hospitals say many new models
offer no significant upgrades and sometimes are too sophisticated for
patients who get them.
Skip to next paragraph
The Economics of Replacement Parts Dr. Calvin Weisberger, a
cardiologist for the California health plan Kaiser Permanente, says an
enhanced single chamber defibrillator costs $5,000 to $8,000 more than
a basic model. "The average patient does not need all of the bells and
whistles," said Dr. Weisberger, who helps the plan's doctors and
hospitals evaluate new devices.
Asked about the range of prices, the companies say it reflects a
variety of business considerations, including volume. And Mr. Childs,
the executive with the device-makers' trade group AdvaMed, argues that
the hospitals' overall costs have not gone up significantly, because
improvements in these devices let doctors operate faster and patients
go home sooner. Medicare payments largely reflect the hospitals'
overall costs, he said.
Doctors, Mr. Childs says, do consider price when choosing implants.
"Physicians are a very discriminating customer," he said. "It's not
like you're selling to a bunch of stooges."
Financial Ties
For the device companies, the most important relationship is with the
doctors, and they spend considerable money and energy nurturing it.
"The vendors work hard at these relationships," said Ed Epperson, chief
executive of Carson-Tahoe Hospital in Nevada. The extent and precise
nature of the relationships remain largely hidden. The companies and
doctors are unwilling to discuss specific arrangements. Hospitals are
often unaware of them, because the doctors using their operating rooms
and admitting patients are usually not employees. Even academic medical
centers may require the disclosure of financial ties only if a doctor
is conducting a clinical trial.
Even so, a range of relationships begins to emerge from a review of
published research, court papers and other government documents. And
perhaps the clearest available view comes from the case of Dr. Overdyke
in Louisiana.
Dr. Overdyke had been a consultant for Wright Medical, which paid him
$150,000 to $200,000 annually, according to his deposition. His
arrangement ended in 1998, and he soon became involved with Sulzer; at
about the same time, a distributor to the hospital, MD Medical, also
changed its representation to Sulzer. A founder of MD Medical later
became Dr. Overdyke's wife.
The contract with Sulzer paid Dr. Overdyke $75,000 a year to consult on
the design of two products, including a refinement on one of its Apollo
knee systems, and to "promote and educate other surgeons on the
benefits" of these devices. He also signed two royalty agreements in
2001, each providing advances of $50,000 a year on products not yet
being marketed.
Over two years, the state university spent nearly $200,000 on Sulzer
orthopedic products. Dr. Overdyke said he never told the residents
which brand to use. Asked why the residents chose Sulzer, he replied,
"You'll have to ask them."
Dr. Overdyke was never accused of directly profiting from using Sulzer
implants. But the hospital says his ties to Sulzer represented a clear
conflict of interest under Louisiana ethics laws, which forbid state
employees from doing business with companies with which they have
financial ties. He left the hospital in 2001; the hospital says it did
not renew his contract for reasons unrelated to his relationship with
Sulzer.
Dr. Overdyke and his wife declined to discuss the case, their lawyer
said; Zimmer, which has since bought Sulzer's business, also declined
to comment. But the counsel for the state ethics board, R. Gray Sexton,
said the case "involved conditions routinely tolerated" in private
hospitals across the nation.
Mr. Epperson, the Nevada hospital executive, says he sees some
parallels to the practices employed by pharmaceutical companies, which
have been criticized by consumer groups and regulators for trying to
influence doctors with a variety of benefits.
In addition to consulting and royalty agreements, the device companies
send doctors to educational conferences about their latest models. They
provide financing to medical associations. DePuy, a unit of Johnson &
Johnson, paid for a one-year foot and ankle fellowship at the
University of Virginia Health System and financed a Web site for an
orthopedic surgeon in Tulsa, Okla.
DePuy spokeswoman said these payments helped educate surgeons and
patients. Indeed, the device companies say their relationships with
doctors differ from the drug makers' because the surgeons are
intimately involved in perfecting new devices and techniques. The
companies finance much of the clinical research in the field. And while
a general practitioner may not need to go to Europe for a meeting on
the latest painkiller, a surgeon using an artificial spinal disk for
the first time may need training in how to implant it.
Skip to next paragraph
The Economics of Replacement Parts Still, hospitals say that the
closeness of these relationships makes it almost impossible to enlist
the physicians in the battle for better prices. Dr. Cherf, the knee
surgeon, says the device industry has "done a brilliant job" exploiting
the erosion of the traditional alliance between hospital and doctor. At
the same time, hospital administrators and consultants say hospitals
often hesitate to question surgeons' decisions, since the doctors are a
main source of patients and revenue.
One hospital that did protest was Grant Medical Center in Columbus,
Ohio, which in 2003 sued Biomet and one of its distributors, saying the
distributor had tried to take advantage of an important orthopedic
surgeon's insistence on using Biomet's implants.
The surgeon, Dr. Adolph V. Lombardi Jr., performed about 1,200 joint
replacements a year at the hospital, according to the lawsuit. Grant
Medical said the distributor had offered an ultimatum: pay 35 percent
more or purchase a service agreement worth several hundred thousand
dollars.
While the lawsuit noted that Dr. Lombardi was conducting a clinical
trial for Biomet, he also has financial ties to the company. He was a
consultant and received royalties from Biomet, according to a 2004
disclosure statement. The foundation for a new hospital that he helped
start owned $318,000 in Biomet stock, the foundation's 2003 public
filing showed.
The case was settled; Dr. Lombardi, the hospital, company and
distributor all declined to comment.
There is another central figure helping cement the company-doctor
relationship: the sales representative. Because hospitals cannot afford
to purchase the devices ahead of time, the representatives are often
present during operations, sometimes helping the surgeon decide which
implant to use.
Many hospital executives see that operating-room role as a potential
conflict of interest, since the representative has every incentive to
push the most sophisticated, and expensive, device. The representatives
work on commission - as much as 10 to 20 percent - and can make as
much, if not more, from an operation than the surgeon, industry
consultants say. Representatives frequently make several hundred
thousand dollars a year.
One former salesman said that to encourage a surgeon's loyalty, he used
to pay the doctor's assistant $200 a case. "It was a bonus they didn't
have to pay with their money," said the representative, who insisted on
not being identified because he still works in the industry and fears
retribution.
The Justice Department's investigation is seeking to determine if some
of the companies' agreements violate federal laws barring doctors from
being paid directly by device makers for using a certain implant.
People in the industry said they believed that prosecutors were
assessing whether doctors who were paid most under these arrangements
were also the heaviest users of a company's implants.
Federal authorities had already been looking into sales practices at
Medtronic's Sofamor Danek unit, which sells spinal implants. Now the
inquiry has broadened to much of the orthopedic-implant industry, with
the subpoenas to Stryker, Johnson & Johnson's DePuy unit, Zimmer,
Biomet and Smith & Nephew. The companies say they are cooperating.
A Rebellion Develops
A rebellion has begun on several fronts.
Some hospitals are trying to align their interests more closely with
those of their doctors. Some have begun meeting with doctors to decide
which devices to buy. Others are discussing sharing savings from more
efficient purchasing; HCA, the nation's largest for-profit hospital
chain, is seeking federal approval for a plan to give its orthopedic
surgeons 10 percent to 20 percent of such savings.
The device companies oppose this kind of arrangement, saying it could
present an improper financial incentive to choose a certain device. "I
want to know my doctor is my advocate," said Mr. Childs, the trade
association executive.
The hospital industry says that one essential factor for ending the
cost spiral is the free exchange of information about prices. Some
hospitals are relying on consultants like Amerinet and MedAssets, which
provide information about what other hospitals are paying.
"These are life-saving devices; America needs them," said John A.
Bardis, MedAssets' chief executive. "But we don't need the business
practices, which prevent transparency and true price competition."
These efforts at transparency are drawing fierce resistance. A major
device maker, Guidant, has sued two consultants, including a unit of
MedAssets, accusing them of sharing confidential price information.
MedAssets countersued, saying Guidant has tried to buy doctors' loyalty
through consulting agreements and other inducements.
Each has denied the other's charges. The suit against the second
consultant, Byrne Healthcare, has been settled.
With the Justice Department's inquiry looming, some people in the
industry say change is inevitable. "It's a broken system," said DeNene
Cofield, the administrator who oversees surgical services for Medical
Center East in Birmingham, Ala. "And at some point, it will fall
apart."
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