Medical Devices – April 2007 Litigation Update (Part I)

Evelyn Pringle April 5, 2007

There is certainly no shortage of lawsuits against medical device makers in the US these days and the future’s not looking too bright as far as that situation changing anytime soon.

The majority of lawsuits allege that the pharmaceutical companies promoted the devices off-label meaning they implanted the products in patients for uses not approved by the FDA. Once a device is approved for one type of patient or procedure, doctors are allowed to implant it in patients for off-label uses if they feel it would benefit a patient but its against the law for device makers to promote the sale of their products for unapproved uses.

The Charite artificial spinal replacement disc, manufactured by DePuy Spine, a Johnson & Johnson subsidiary, was approved for sale in the US in October 2004, as an alternative to spinal fusion surgery for specific types of patients. Yet as soon it was approved, doctors immediately started implanting the device off-label for unapproved conditions and within 2 years the FDA had received over 130 reports of serious adverse events.

Considering that the FDA admits that only between 1% and 10% of adverse events ever get reported to the agency, the actual number of injuries is bound to be in the thousands.

The Charite disc is meant to last a lifetime but many patients are now having to undergo life-threatening revision surgeries when they fail. John Peloza, a spine surgeon in Dallas, told the, that he has personally removed a Charite with “pits, abrasions and cracks in the surface” after only 2 years of use.

The Houston law firm of Pulaski and Middleman, leads a group of firms that represent over 350 injured patients, and according the on June 5, 2006, a Chicago law firm has more than 200 Charite clients who have developed complications.

Attorney Pete Flowers says he is handling cases where two discs were replaced with a Charite even though the FDA has approved single-level replacements only. “We have a lot of clients with these double-level disc replacements,” he told the Street. He also said the device maker knows this is happening stating:

“DePuy may claim it can’t control rogue doctors. But it’s not like the doctors have 20 discs in their office. They call DePuy — and there’s a DePuy rep there [during the operation] — so DePuy clearly knows what’s going on.”

Medical experts say they are expecting a surge of patients with complications in the not to distant future and warn that disc removal surgery can be more dangerous than the implant procedure itself.

Lawsuits are also on the rise against spine surgeons. On December 30, 2006, the New York Times ran an article titled, “The Spine as a Profit Center,” and reported that one patient who was already suing her surgeon for malpractice learned during the discovery process that the surgeon had a financial interest in the maker of the artificial disk he implanted in her spine.

The patient, Patricia Kennedy, had disk-replacement surgery in September 2002, performed by Dr Richard Balderston, a Philadelphia surgeon, and told the Times the surgery was unsuccessful and her condition is even worse now.

She is also suing the maker of the disk, Spine Solutions, and says she did not fully understand that the disk was experimental and only found out later that Dr Balderston was an investor in a venture capital fund that owned Spine Solutions at the time of the surgery.

The company and the doctor “failed to disclose that Dr. Balderston had a significant financial interest in the outcome of the experiment,” the lawsuit alleges.

“I’ve really been guinea pigged and betrayed,” Ms Kennedy told the Times in an interview.

Spinal surgery is one of the most lucrative fields of medicine with and estimated half-million operations in 2006 bringing in billions of dollars a year for hospitals and doctors.

For years questions have been raised about whether spine surgery actually helps or whether the hefty fees were motivating surgeons to overuse the procedure. However, the concerns are growing since the disclosure that many surgeons are also profiting by investing in companies that make the products used during the surgery. According to the Times, a single screw sells for about $1,000, or at least 10 times the cost of making it.

One of the fastest growing companies is Allez Spine, founded on a business model that called for 120 investor doctors to serve as “its customer base,” according to a lawsuit filed by a former chief executive. The doctors pay $50,000 or more to become investors and own two-thirds of the company, according to lawsuit.

Selling the company’s screws to its “investor-doctors” was a way to “generate more profits for the company,” according to another lawsuit involving the former executive.

Critics say, having significant ownership in companies that make parts used in spinal surgery provides an undeniable incentive for doctors to recommend surgery. “It may be one of the most distinct examples yet,” the Times states, “of the way monetary considerations can play a role in the way doctors practice medicine.”

In January 2007, a class action lawsuit was filed against Dr Patrick Chan, an Arkansas neurosurgeon who allegedly performed unnecessary surgeries in exchange for kickbacks and commissions from medical supply companies, on behalf of Scotty and Linda Foster, and includes the companies, Orthofix, Osteotech, Alphatec, and Signus, as defendants

According the Fosters, Dr Chan did four fusions on Mr Foster’s neck and they later learned that only one disc was in need of repair. According to the complaint, the other operations were unnecessary, and they left Mr Foster totally disabled, immobile and in a constant state of pain.

The Fosters allege that Dr Chan entered into a conspiracy with the companies to split commissions on each sale of equipment and the suppliers knew the operations were not needed and were conducted solely for the enrichment of Dr Chan and the suppliers.

The lawsuit’s complaint is supported by an affidavit by Dr Jim J Moore, a neurosurgeon with 40 years experience, who states that he reviewed Mr Foster’s medical records and concluded the surgery was unnecessary.

When Boston Scientific won the bidding with Johnson & Johnson for the heart device maker Guidant, Boston thought adding pacemakers and defibrillators to its product list for patients with heart disease would not only improve its position with hospitals and cardiologists, but Guidant also had Xience, a drug eluting stent in development, and a technology called “Rapid Exchange,” for implanting stents.

The two companies had every reason to believe that they were bidding on a goldmine. Defibrillators are $30,000 devices that are wired directly to the heart to send electric shocks when abnormal heart rhythms are detected, and pacemakers, used to speed up hearts that beat too slowly, cost between $4,000 and $20,000 per each unit, according to Bloomberg News on June 26, 2006.

A market analysis in the January-February 2006, issue of Medical Device Link, reported that in 2005, the US market alone for cardiovascular devices was expected to reach approximately $14 billion, and by the year 2014, it was predicted to exceed $25 billion.

“Industry analysts estimate that drug-eluting stents and cardiac rhythm management devices account for nearly two-thirds of the total market,” Device Link noted, “which is growing at an annual pace of 16%.”

The cardiac rhythm management sector alone, it said, was growing at an annual rate of 20% and the US constituted about 62% of the global market, valued at around $22.3 billion.

On January 8, 2006, Boston announced an official bid of $72 a share, that topped J&J’s bid by $9. The two companies went back and forth with new bids for about a week longer, until January 17, 2006, when Boston announced the winning bid of $80 per share, and agreed to pay 52% in cash and 48% in stock, for a total of $27 billion.

However, a little more than a year later, according to Boston’s latest SEC filings, the company is facing over 75 class action lawsuits and 1,100 individual lawsuits involving Guidant’s defective defibrillators and pacemakers. The number of cases was previously listed as 842 in the company’s quarterly SEC filings in November 2006.

The Federal cases have been consolidated in Multidistrict Litigation in Minnesota, and a trial is set to begin July 16, 2007.

As of December 31, 2006, the company reports that it has set aside $485 million for legal matters, a $100 million increase from the $384 million reported in September 2006.

Another memo that turned up was drafted in early 2004, for their sales reps to explain why Guidant was asking them to return all the unsold Contak Renewals, but that memo was never sent either.

Other documents show that Guidant even went to the trouble of evaluating the risks to patients and weighed them against the potential loss of profits and apparently decided profits were more important. One document reveals that Guidant figured out that the company would lose about $9 million if it had to remove the defective Contak Renewal units and parts from the company’s inventory.

The lead counsel for many plaintiffs in Texas, Robert Hilliard, of Hilliard & Munoz, told Lawyers Weekly USA, that the documents that were unsealed prove that Guidant knew about problems with its devices as early as April 2002, but failed to warn doctors and patients for 3 years.

“They knew they were going to kill people based on this defect,” he said.

A report released in March 2006, by an independent panel appointed to review the recalls says that Guidant allowed about 4,000 potentially defective defibrillators to be implanted in patients after the company found a flaw in 2002 that caused a malfunction.

In the summer of 2005, when Guidant began its recall, the firm said no more than 292 units were likely to fail. However, on June 23, 2006, the Pioneer Press reported that, “Guidant’s implantable heart devices may fail about 10 times more often than the company had projected last year, according to a U.S. Food and Drug Administration analysis released in a Texas lawsuit.”

Unfortunately for many surviving family members, medical experts say the actual number victims will likely never be known because a heart device is seldom examined after a death to determine if it had been working properly at the time of the patient’s death.

And here once again, reports are starting to emerge that show many defibrillators were implanted for profit not need. The January 2007 Journal of the American College of Cardiology, reported that a study conducted by the University of Michigan Medical Center, found as many as one third of defibrillators implanted for irregular heartbeats were unnecessary.

The study followed 768 patients who were implanted with defibrillators between March 2001 and June 2004, and the researchers concluded that up to a third of the patients receive minimal benefits from the device.

A startling fact to say the least when considering that the cost of the implant surgery and battery replacements over a lifetime is about $80,000, which in many cases is paid by public health care programs like Medicare, according Dr Timothy Shinn, an electrophysiologist at the Michigan Heart and Vascular Institute.

The researchers say eliminating the unnecessary implants could lead to saving of as much as $690 million in Medicare costs alone.

Minneapolis based Medtronic, Inc is one of the nation’s largest device makers and in mid-July 2006, the company agreed to pay a $40 million fine to settle charges that it paid kickbacks to doctors to get them to use the company’s spinal products, which accounted for 20% of the company’s $11.3 billion in sales in 2005.

The “consultant” contract with Dr Thomas Zdeblick, a surgeon and professor at the University of Wisconsin School of Medicine, required the surgeon to work as little as 8 days a year for which he was paid $400,000 a year.

By the time that case was settled, Medtronic already had plenty of legal problems involving its defibrillator division. In April 2004, the company recalled two defibrillators which had been linked to four deaths and a serious injury and about 1,800 of the units were thought to be in use at the time.

Less than a year later in February 2005, Medtronic announced another recall and said these defibrillators could fail in 87,000 patients. Needless to say, many lawsuits followed the recall, but with this device, company documents showed that Medtronic knew about the flaw back in 2003, and continued to sell the devices for two more years.

In November 2006, US District Court Judge James Rosenbaum denied a motion filed by Medtronic for summary judgment to dismiss the approximately 300 cases pending in Multidistrict Litigation in Minnesota.

In its motion, Medtronic claimed the lawsuits are baseless, or preempted, because the defibrillator had passed the FDA approval process. However, Judge Rosenbaum disagreed stating, “If the court adopted Medtronic’s view, once a medical device manufacturer obtains (FDA) approval, it would be insulated from liability even if it chose to conceal data from the FDA.”

In his opinion, Judge Rosenbaum noted that the plaintiffs’ attorneys had developed “credible evidence” that Medtronic continued to sell the devices with defective batteries after the company had knowledge about the defect.

“From this evidence,” he wrote, “a reasonable trier of fact could find Medtronic knew of this defect for a substantial period prior to advising the FDA of the defect.”

Defibrillator sales are still down so Medtronic is now attempting to jump-start sales by embarking on a year-long advertising campaign and says it will spend about $35 million out of $100 million budget, on print, internet and TV ads to reach a target audience of people 50 years or older, and will run commercials on the History Channel, CNN, the Golf Channel and morning news programs

One TV ad starts with a still young looking blond woman kissing her graying husband and then shows her hugging a young woman, presumably her daughter, and second later, she’s seen kissing a chubby-cheeked baby. The images all flow out of a silvery object pictured in the background.

“If you’ve had a heart attack or heart failure,” the narrator says, “inside this little device you just might find 10,000 more kisses, snow, 200 more football wins.”

“This is an implantable cardiac defibrillator,” the voice continues, “a device that is always there for you, close to your heart, with the power to restart it in case of sudden cardiac arrest.”

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