Smith & Nephew pays $29m in US kick-back settlement

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The Independent Online

Smith & Nephew, the FTSE 100 company that makes artificial hips and knees, has agreed to pay $28.9m (£14.3m) and submit to five years of ethics monitoring by the US government after being accused of paying kick-backs to surgeons to get them to use its products.

The company was one of four that paid a total of $311m yesterday to settle an investigation by the US Department of Justice. Zimmer, the world's biggest orthopaedics company, agreed to pay $170m. Two other US firms, Biomet and Johnson & Johnson, will also make multimillion-dollar payments.

S&N and the other three companies – as well as rival Stryker, which was first to agree to co-operate with the investigation – are accused of paying tens or hundreds of thousands of dollars to individual surgeons and lavishing them with trips away and other perks. The firms between them control 95 per cent of the market for implants such as artificial hips and knees.

The orthopaedics industry says it needs to pay for the expertise of surgeons, who give important advice and test new products. But the US attorney in New Jersey, Christopher Christie, began an investigation into whether the surgeons were in effect in the pocket of particular companies, and whether market competition was being distorted.

The investigation revealed instances in which physicians did little or no work for the financial inducements, merely agreeing to exclusively use the paying company's products. By stymieing competition, the arrangements in effect defrauded the US taxpayer, since two-thirds of the 700,000 annual hip and knee operations in America are paid for by federal health insurance.

"This industry routinely violated the anti-kickback statute by paying physicians for the purpose of exclusively using their products," Mr Christie said. "Prior to our investigation, many orthopaedic surgeons in this country made decisions predicated on how much money they could make – choosing which device to implant by going to the highest bidder. With these agreements in place, we expect doctors to make decisions based on what is in the best interests of their patients – not the best interests of their bank accounts."

None of the firms admitted wrongdoing yesterday, but all agreed to submit to the appointment of federal overseers to monitor their ethics policies for the next five years, and to submit to an even tougher regime for the first 18 months, where any breaches could trigger prosecution. S&N pointed out that its financial settlement was significantly lower than that of Zimmer and Biomet, and said it had abided by an internal code of conduct at all times.