Device makers under scrutiny in international bribery beef

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Federal investigators are looking into payments to foreign physicians by at least three major medical device makers and several pharmaceutical firms, examining whether the practice runs afoul of the Foreign Corrupt Practices Act.

G-men want the skinny on consulting arrangements by companies including Medtronic Inc. (NYSE:MDT), Zimmer Holdings (NYSE:ZMH) and Johnson & Johnson (NYSE:JNJ) with doctors overseas, according to regulatory filings.

Fridley, Minn.-based Medtronic said in an annual filing with the Securities & Exchange Commission that the SEC is expanding an investigation begun in 2007 into “potential violations of the U.S.Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries,” adding Turkey, Italy and Malaysia to a list that already included Greece, Poland and Germany. The SEC is seeking “any information concerning certain types of payments made directly or indirectly to government-employed doctors,” according to the filing.

Johnson & Johnson, based in New Brunswick, N.J., also revealed a federal probe into its overseas practices, saying it blew the whistle on itself in February 2007, informing the SEC and the U.S. Dept. of Justice that “subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries, which payments may fall within the jurisdiction of the Foreign Corrupt Practices Act,” according to aregulatory filing. Other countries are getting into the act as well, according to JNJ, pursuing the company’s disclosures to the American agencies.

And Zimmer came clean in a filing of its own over a federal probe into its foreign sales operations, as well as a pair of investigations by two state attorneys general.

Kirk Ogrosky, a one-time federal prosecutor who’s now in private practice representing device and drug makers, told the New York Times that the feds are especially concerned about payments to physicians overseeing clinical trials abroad and whether those payments influenced the trials’ outcomes.

“At the Justice Department, investigations that involve allegations of patient harm rise straight to the top and will attract the immediate attention of the F.B.I.,” said Ogrosky, who started and managed the Medicare Fraud Strike Force during his tenure as deputy chief of the DOJ’s criminal fraud division.

Payments and gifts to doctors from the medical device and pharmaceutical industries in the U.S. has been under increasing scrutiny in recent years, with a roster of institutions and states jumping on the so-called “gift ban” bandwagon.

Harvard Medical School became the latest to institute a ban in July, following Johns Hopkins University, which enacted its own rules last April. Boston University School of Medicine is revising its rules and Stanford University School of Medicine and UMass Memorial Medical Center both have strict policies.

Healthcare providers are also getting in on the act. Partners Healthcare, which runs hospitals including Boston’s Brigham and Women’s, Mass. General and the Spaulding Rehabilitation Hospital Network, instituted its own ban in April 2009 and tightened those rules earlier this year.

And states including MassachusettsVermont and Minnesota have their own, strict rules; otherstates are also mulling bans. On the federal level, the healthcare reform act also contains provisions governing industry contact with physicians.

Doctors themselves, however, take a less-dim view of industry-sponsored meals and other “small gifts related to clinical practice,” according to a survey of 600 physicians published in the Archives of Surgery earlier this month.

In Massachusetts, a move to roll back the gift ban died on the vine earlier this month, failing to make it into a final omnibus economic development bill on Beacon Hill.

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