The New York Times

The New York Times, Jan 24, 2006 pC1(L)

Whistle-Blower Suit Says Device Maker Generously Rewards Doctors. (Business/Financial Desk)(Medtronic) Reed Abelson.

A prominent surgeon in Wisconsin was paid $400,000 a year by Medtronic for a consulting contract requiring him to work just eight days. Another doctor in Virginia received nearly $700,000 in consulting fees from Medtronic for the first nine months of 2005.

These doctors work in a growing field, complex back surgery, and this makes them particularly valuable to the spinal-implant division of Medtronic. In recent years, the company has spent tens of millions of dollars on consulting contracts and other types of payments to them and numerous other prominent surgeons, according to papers filed as part of a whistle-blower lawsuit. The suit contends that some of these payments were made to attract or retain the doctors' business.

Medtronic, based in Minneapolis, is one of the country's largest medical device makers, with $10 billion in annual sales.

The documents shed new light on a matter that has troubled the medical device industry for years: the assertion that companies employ a variety of financial ruses to pay doctors who use their devices, a practice that medical and legal experts say is unethical and possibly illegal. But despite industry efforts to clean up such practices, the documents and accusations made by former Medtronic employees suggest that the problem persists and may have gotten worse.

The lawsuit, filed in United States District Court in Memphis two years ago and since amended, was brought by the whistle-blower, a former Medtronic employee. The Justice Department, which has the right to intervene in the case but has not yet done so, is seeking to recover Medicare funds. According to legal filings, it proposes that Medtronic settle the matter by paying $40 million.

The suit, which was sealed until Jan. 13, accuses Medtronic of giving spine surgeons ''excessive remuneration, unlawful perquisites and bribes in other forms for purchasing goods and medical devices.''

The plaintiff, Jacqueline Kay Poteet, a senior manager of travel services for Medtronic until 2003, has also accused the company in a supplemental complaint of continuing these improper payments in 2004 and 2005. Her lawyer, Andrew R. Carr Jr. of the firm of Bateman Gibson in Memphis, has objected to the proposed settlement offer as too low. Whistle-blowers typically receive a share of any settlement. A Justice Department spokesman declined to comment.

All the doctors involved in the lawsuit who were reached for comment said that the payments to them were appropriate and fair compensation for work done for Medtronic.

The company, which said it continues to cooperate fully with the government to resolve the case, declined to comment directly on the accusations, saying they remained the subject of litigation.

In a written response, a spokesman, Rob Clark, said, ''We take these allegations very seriously and we do not tolerate conduct that is illegal or unethical.'' Consulting arrangements with doctors to improve devices, he said, ''are critical, in our view, to the delivery of state-of-the-art health care and are perfectly legal.''

Medical device makers, with billions in sales at stake, have for years actively courted physicians who prescribe their products and recommend them to other doctors. Companies frequently compensate doctors through generous consulting fees and speaking honorariums, or by underwriting their trips to attend medical conferences, former employees and industry consultants say.

The internal Medtronic documents filed as part of the suit offer an unusually detailed glimpse of the intense campaign that device makers wage to win doctors' loyalty. They show that Medtronic spent at least $50 million on payments to doctors over some four years, through June or later in 2005.

Both doctors and device companies defend the financial relationships they have as essential for the development of what are often life-saving products. But critics contend that these financial ties exert too much influence on medical decisions, and that the payments are rarely, if ever, disclosed to patients.

The payments become illegal when they are linked to a doctor's use of a particular device and violate the federal law against kickbacks, which says that payments and other benefits cannot be provided to doctors if the payments are intended to induce them to use the company's products.

But even if the payments are within the law -- and Medtronic has not been found guilty of any illegal activity -- the increasing amounts being given to doctors distort their judgment, said Arthur Caplan, a medical ethicist at the University of Pennsylvania, who said such industry payments were ''too damn lucrative to believe anyone can resist.''

In addition to consulting fees and other payments, the lawsuit said, Medtronic played host at medical conferences where the ''principal objective'' was to ''induce the physician, through any financial means necessary'' to use its devices. According to the Medtronic documents, the company closely tracked the use of its devices by the doctors who attended the conferences, choosing some for ''special attention.''

Ms. Poteet, the whistle-blower, worked for Medtronic until an injury forced her to leave in 2003. She was also involved in a legal dispute with Medtronic over her disability benefits; it has since been resolved. At Medtronic, she arranged trips for doctors to the company's conferences and became familiar with attempts to win the doctors' favor.

Because the devices are so profitable, the money being spent by Medtronic ''is peanuts,'' said a former employee who still works in the industry and insisted on not being identified for fear of retaliation. Sales representatives earn generous commissions, so they will work hard to satisfy the doctors' demands, the employee said, adding, ''You're going to make sure you do whatever he wants, whatever it is.''

In recent years, the device makers have become a big source of additional income for surgeons, many of whom are increasingly reliant on their generosity. ''The amount of money is astronomical,'' said Dr. James Herndon, a former president of the American Academy of Orthopedic Surgeons. The device makers, he said, ''know the volumes these surgeons have.''

''They seek them out, and they seek relationships with them.''

Such financial relationships have attracted government attention, and United States attorneys in Boston and Newark issued subpoenas last year to eight major manufacturers, including Medtronic, as part of a wide-ranging investigation into the relationships between doctors and device makers. Medtronic is also the target of another whistle-blower lawsuit in Memphis, where its spine division is based; that suit also accuses it of making improper payments to doctors.

This heightened scrutiny has caused some companies to scale back their efforts, industry consultants, lawyers and former employees say. In addition, the industry trade group AdvaMed has issued voluntary ethical guidelines for companies; the guidelines, for example, disapprove of serving as hosts to conferences at luxury resorts.

''Over the last couple of years, companies are saying no'' more often to doctors, the former Medtronic employee said.

But the lawsuit asserted that any changes by Medtronic might have been only temporary. Its ''bribery program,'' as it was described in the suit, ''has not only failed to cease, but continues unabated with increased payments made to many physicians,'' the suit said.

While payments to some doctors slowed during 2004, when the company was first under investigation, they rebounded last year, it said. A doctor in Virginia, Hallett Mathews, for example, made $300,000 in consulting fees in 2003 but only $75,000 in 2004. Last year, the company paid him nearly $700,000 for his consulting work through September.

Dr. Mathews, who was not named as a defendant in the suit, said the spike in payments was a result of a change in how he was paid, requiring him to document his work before he received any money and therefore increasing the amount he received last year. The consulting fees he gets from Medtronic, he said, are compensation for his time spent away from his family and his practice.

Spinal implants are used in complex back surgery, known as spinal fusion, to help make a patient's spine more stable. The cost of the components involved in typical fusion surgery for the lower back is around $13,000, according to Orthopedic Network News, an industry newsletter in Ann Arbor, Mich., and the overall United States market has grown to about $4 billion a year.

Medtronic's overtures to doctors often began when the surgeons were still in training, Ms. Poteet said. The company commonly paid for doctors to attend any of 200 professional meetings a year. If the doctors wanted to go snorkeling or play golf, the sales representatives or Medtronic employees almost invariably paid for the expense, she said.

When the doctors visited Memphis, she said, Medtronic employees would take them to a local strip club, PlatinumPlus, disguising the expenses as an evening at the ballet.

A Medtronic lawyer, Todd N. Sheldon, raised concerns in 2003 about whether the company should pay to take doctors sailing or fishing, or ask for contributions, according to a company e-mail message that is part of the legal filings. ''When we are sending scores of doctors to a nice resort like this under the guise of training and education on our products,'' he said, ''I think we need to be more careful and stick to the limits of our rules as best we can.''

Medtronic said it had been a leader in pursuing industry ethical guidelines that suggest that device companies provide only ''modest meals and receptions'' and not pay for costly leisure activities.

A spreadsheet compiled by Medtronic for a June 2003 meeting in Dana Point, Calif., indicated what Medtronic hoped to accomplish with each doctor attending an event, Ms. Poteet said. This list of 230 or so doctors included an estimate of the dollar value of the devices each doctor used in surgery, including the value of the devices made by Medtronic. One doctor is described as ''a 100 percent compliant M.S.D. customer,'' while others were cited for ''special attention.'' M.S.D. referred to Medtronic Sofamor Danek, the largest competitor in the spinal device market.

A surgeon in Phoenix, who used an estimated $400,000 in devices, favored a rival maker, Spinal Concepts, the spreadsheet said. Company representatives were urged to make overtures to him. ''M.S.D. corporate involvement at this program,'' it said, ''would help us earn a bigger share of his business on a grand scale.''

In the case of an orthopedic surgeon, Jesse Butler, Medtronic was competing with a spine company, Acromed, now part of a Johnson & Johnson unit. Acromed had previously asked Dr. Butler to take part in a research study of one of its devices ''to buy his business,'' the spreadsheet notes said. The sales representative wanted Dr. Butler to use more Medtronic implants. ''He has a consulting agreement for this, yet has not done much in the way of it,'' the notes said.

Johnson & Johnson declined to comment on the matter.

Dr. Butler, who was not named as a defendant in the lawsuit, said his participation in the study had nothing to do with a preference for Johnson & Johnson devices. ''We don't make any money off these studies,'' he said.

Companies are eager for his business because he is a busy surgeon, but Medtronic ''never did anything inappropriate,'' he said. The consulting arrangement ''didn't really go anywhere,'' he added.

The notes for one doctor suggested an expectation that those offered an arrangement where they helped design a device would become loyal users. For example, K. Daniel Riew, an orthopedic surgeon in St. Louis, who is named as a defendant in the lawsuit, was described in the spreadsheet as using a substantial dollar amount of competing devices in his surgery. ''He will be designing a new plate with M.S.D.,'' the notes say, ''so all of his business will gravitate our way in the near future.'' Dr. Riew could not be reached for comment.

Many doctors were paid consulting fees far higher than the $3,000 a day a surgeon might typically expect, documents from the legal filing suggested. Dr. Thomas A. Zdeblick, the Wisconsin surgeon, signed a 10-year contract in 1998 that required him to consult with the company for two days every three months, a total of eight days, for which he would be paid $400,000 a year, according to a copy of his contract. Those payments stopped in 2004.

Dr. Zdeblick, who is a defendant in the lawsuit but who said he was unaware of the accusations against him, said he worked much more than what was required, as many as three or four days a month.

''I was working like crazy in those years,'' he said, and was being paid at market value for his work. He now does a minimum amount of consulting for Medtronic and is being paid per diem, he said.

CAPTION(S):

Photos: Part of an e-mail message from a lawyer for Medtronic in 2003 warning about activities sponsored for doctors. (pg. C1); Jacqueline Kay Poteet, formerly a senior travel manager for Medtronic, arranged doctors' trips to conferences. (Photo by Kate Medley for The New York Times)(pg. C10)