This article focuses on current events and risks in the growing orthopedic and spine devicemaker industry.1 Orthopedic and spine procedures can be very profitable for surgery centers, as confirmed by the increasing number of centers performing these procedures. Reimbursement is solid for orthopedic procedures, and demand for implants is increasing as the Baby Boomer generation is aging. More implant and spine cases are being performed at ambulatory surgery centers than ever before.
This article focuses on current events and risks in the growing orthopedic and spine devicemaker industry.1 Orthopedic and spine procedures can be very profitable for surgery centers, as confirmed by the increasing number of centers performing these procedures. Reimbursement is solid for orthopedic procedures, and demand for implants is increasing as the Baby Boomer generation is aging. More implant and spine cases are being performed at ambulatory surgery centers than ever before.
Current issues raised by new devices — gender-specific implants, minimally invasive surgery and new spine devices
A significant development in the orthopedic implant industry is the increased number of products available. In particular, gender-specific devices, or devices designed with the female anatomy in mind, are in-vogue since the first such device, a knee implant designed specifically for the female anatomy, was approved by the FDA in 2006. The demand for gender-specific knee implants in particular is high and expected to increase. Over 400,000 knee replacements are performed in the United States each year and two-thirds of knee replacement patients are women. Although knee replacements are the first foray into gender-specific devices, it is expected that orthopedic devices for hips, shoulders and other parts will continue to be developed and marketed.
Devicemakers searching for a market niche have touted gender-specific products. The ability of a manufacturer to market directly to patients, combined with the proliferation of information available via the Internet, has had a big impact on patients’ perspectives. As noted by Laura Quigley, APN, clinical nurse specialist for Rush Hospital’s joint replacement program in Chicago, service providers now have the challenge of helping educate and guide the patient regarding the appropriate use of resources and devices.
The core distinction in gender-specific devices is that the size of the implant is generally slightly different to reflect different sizes in bones between genders. It may also provide for a narrower shape, a thinner shape and an increased groove angle. The hope is this will lead to better function and longer durability. Many orthopedic physicians will tell you that implants already come in different sizes so that the concept of gender-specific is really a marketing term and not a real change.
Additionally, new approaches to joint replacement are publicized as superior because they are minimally invasive. Minimally invasive, in simple terms, means making an incision that is much smaller than those made in traditional joint replacement surgery, usually measured as one-half the traditional size incision or less. While minimally invasive procedures are generally desirable, this marketing claim raises certain issues.
The purported core positives to minimally invasive procedures are that they can lead to better cosmetics, less discomfort and less blood loss. On the negative side, such techniques can impair the surgeon’s visual field, provide for limited implant and device choices and lead to certain other challenges. There are also other longer-term uncertainties that are still being explored.
The growth in the number of different implant products available also has increased costs, as noted by John Barnard, MD, of the Orthopedic Center of Central Virginia. Physicians have to sift through an increased volume of information to determine the optimal approach for their patients, and this learning curve takes time. With the competition among the devicemakers and the anticipated growth in demand for implants, this trend is likely to continue.
Another trend is that patients receiving implants have a wider range in age; younger and older people are undergoing joint replacement surgeries to improve their mobility. Over the last five years in particular, the number of knee replacements is outnumbering the number of hip replacements, and, according to Ms. Quigley, the growth in knee replacements shows no signs of slowing down.
Arthrocare, in an effort to capitalize on the minimally invasive market, has recently been touting its single use “spine wand.” Approximately 400,000 lumbar micro discectomies are performed each year. The concept of the spine wand is to use this device in connection with smaller incision spine surgery and coblation technology. Instead of a 6mm access point, this is intended to be used with a 2.5mm access point. The spine wand is used with coblation to dissolve soft tissue. Another ongoing discussion involves the debate over whether disc replacement is superior to inter-body infusion approaches. Here, device manufacturers such as Medtronic assert that total disc replacement, using, for example, Medtronic’s Maverick metal on metal prosthesis, is superior to fusion technologies.
Business issues
Devicemakers are capitalizing on the demand for joint replacements through an increased number of initial public offerings. Last year was a record year for IPOs for healthcare providers, devicemakers and technology companies. From January to November 2007, eleven device companies filed plans for IPOs. MedAssets was the latest example in December 2007.
Anti-kickback and related conflict of issues
Several well-publicized legal cases highlight the risks devicemakers face. Although these manufacturers must necessarily market their products to physicians who decide which devices to use, the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b)(1)(B), constrains the manufacturers’ business practices in trying to promote their products.
One recent example of this legal risk is the indictment of Arkansas neurosurgeon Patrick Chan, MD, for violation of the federal Anti-Kickback Statute. The four-count indictment was filed in the United States District Court for the Eastern District of Arkansas in October 2006. The indictment charged that from January 2004 until June 28, 2006, Dr. Chan demanded that distributors for four medical supply companies pay him 50 percent of their commissions on the sales of any products he used in his neurosurgery practice. The indictment alleges that Dr. Chan received approximately $7,000 to $8,000 per month for two-and-a-half years. On Jan. 3, Dr. Chan pled guilty to one count of violating the Anti-Kickback Statute and is awaiting sentencing. Dr. Chan also faces a civil qui tam suit brought by the whistleblower who disclosed his kickbacks to the government, and civil medical malpractice claims by patients claiming he prescribed unnecessary procedures in order to sell more products and receive the kickback payments.
Another well-publicized legal problem relates to the ongoing federal and state investigations into devicemakers’ consulting payments and other transfers of value to physicians which may constitute illegal inducement or bribes in violation of federal and state Anti-Kickback statutes. The spinal and cardiac devicemaker Medtronic has recently announced that it is undergoing investigation by the United States Justice Department, the Senate Finance Committee, the United States Attorney in Philadelphia and the Securities and Exchange Commission concerning payments it has made to doctors. The SEC has jurisdiction to investigate payments by publicly held companies to foreign doctors under the Foreign Corrupt Practices Act, which generally prohibits foreign bribes.
Similarly, orthopedic devicemakers Biomet, DePuy, Smith & Nephew, Stryker and Zimmer have recently settled federal investigations into their business practices by agreeing to eighteen months of federal monitoring and paying a combined total fine of $311 million. Stryker, it should be noted, did not have to pay any fine as it voluntarily cooperated with prosecutors before the other devicemakers and executed a non-prosecution agreement with the government. None of these devicemakers admitted to any liability in this settlement.
In the ASC industry in particular, as the number of joint-ventures between hospitals and physicians grows, there is likely to be increased scrutiny on the potential conflict of interest involving the use of specific devices. In particular, a conflict of interest can occur when doctors direct hospitals to buy devices from companies from which the doctors receive royalties. For example, Jay Yadav, MD, is suing the Cleveland Clinic because he was fired regarding a stent he helped develop and for which he receives royalties from the stent-maker. The Cleveland Clinic claims that the doctor failed to disclose the financial relationship, resulting in his dismissal.
In addition to the federal investigations, state regulators are beginning to exercise their oversight authority. In February 2008, the New Jersey Attorney General announced that it is investigating devicemaker Synthes Spine, which manufactures an artificial spine disk called ProDisc. Synthes Spine has touted the ProDisc based on the results of a study that concluded that the disk works better for patients than standard spinal-fusion surgery, but apparently many of the physicians involved in the study had agreements with Synthes Spine under which they would profit if ProDisc became successful. The attorney general is investigating whether Synthes Spine properly disclosed the financial interest of the physicians involved in the study and has subpoenaed documents from the company, as well as the venture capital firm that provided the initial funding to develop the ProDisc. The FDA is also investigating whether the physicians’ investments in ProDisc were properly disclosed.
Additionally, recent reports question the efficacy of the ProDisc device and evidence supporting the marketing claims, indicating that some patients have had difficulties with the device. There is likely to be additional scrutiny of claims that particular devices achieve results in clinical studies. Indeed, the Association for Ethics in Spine Surgery, a recently formed organization of spine surgeons, states that it is dedicated to promote “evidence-based medicine” and to educate the public about “the detrimental and pervasive financial influence of industry on many health care providers and patients.”2
Other legal issues
Devicemakers caught a significant break when the United States Supreme Court ruled in favor of manufacturer Medtronic during the closely watched product liability case, Riegel v. Medtronic. Charles Riegel had sued Medtronic over an allegedly faulty catheter which had received approval by the FDA. The court upheld Medtronic’s argument that once the FDA approves a drug or medical device, no patient should be allowed to file a claim in state court alleging that the product has a defect. The industry argued that FDA approval should bar such claims and not simply be part of a defense, as the plaintiff proposed. The plaintiff also contended that FDA review is not as rigorous as the industry claimed. The Supreme Court based its ruling on the interpretation of Congress’s intent in the FDA statute, so Congress now has the power to disagree with that interpretation and enact a new law to clarify its intent. Because the current administration sided with the industry in Riegel, the upcoming election could affect this issue if there is a change in power in Washington.
Contact Scott Becker at sbecker@mcguirewoods.com ; contact Nancy Temple at nancytemple@sbcglobal.net .
1 We appreciate the assistance of professionals who have contributed to this article, including Dr. John Barnard of the Orthopedic Center of Central Virginia in Lynchburg, Va.; Dr. Philip Davidson of the Tampa Bay Orthopaedic Specialists; Rick Ferguson of the Oklahoma Orthopedic Hospital in Tulsa, Ok.; and Laura Quigley, APN, and Margaret Hickey, APN, of the Rush University Medical Center’s Department of Orthopedic Surgery in Chicago.
2 See the AESS website at www.ethicalspinesurgeon.org .