More Trouble in Medtronic Heartland

Evelyn Pringle May 16, 2007

Minnesota based Medtronic is one of the world’s largest suppliers of defibrillators through its Cardiac Rhythm Disease Management division and its top selling products are pacemakers and defibrillators. CRDM net sales for the 3 and 9 months ended January 26, 2007 were $1.291 billion and $3.904 billion, according to the firm’s latest SEC filing.

In the Form 10-Q filing for the period ending January 27, 2007, the company predicts a profitable future for defibrillators stating, “the U.S. and worldwide implantable cardioverter defibrillators (ICDs), markets are greatly under-penetrated and represent a solid and sustainable growth opportunity.”

A defibrillator is a device implanted in patients with abnormal heart rhythms to shock the heart back into a normal rhythm when necessary.

“The need for sudden cardiac arrest protection and heart failure treatment,” Medtronic says, “is significant in the U.S. and even larger internationally.”

The firm estimates the US market to have “a total prevalence pool of 1.3 million patients,” and “the penetration level to be between 30 to 35%, leaving approximately 880,000 patients in the prevalence pool.”

Medtronic also estimates that about 250,000 new patients enter the pool each year. 250,000 implants each year translates into huge profits. According to Dr Timothy Shinn, of the Michigan Heart and Vascular Institute, the cost of the surgery and life-time battery replacements for a defibrillator runs about $80,000 per patient.

However, there is a growing debate over whether defibrillators are being implanted in patients for profit. In January 2007, the Journal of the American College of Cardiology reported that researchers at the University of Michigan Medical Center, followed over 750 patients who were implanted with defibrillators between March 2001 and June 2004, and determined that as many as one third were unnecessary and that the elimination of the unnecessary procedures would result in savings of $690 to Medicare alone.

For patients, implanting defibrillators when they are not needed can lead to a life-time of worry, discomfort and health care costs. A recent study published in the May 2007, issue of Circulation found that the rate of failure for defibrillators increases over time and occurs with all models. The researchers found that one in 5 fails to work properly after 10 years and the risk was highest for women and healthier patients who are most likely to live for years.

According to the study, the electrical wires that connect the defibrillators to the heart are the source of the problem. The researchers found that the malfunctioning wires, called leads, sometimes cause the devices to fail when the heart begins to beat abnormally or stops completely. And at other times, the defibrillator shocks the heart for no reason.

Patients say the adverse events caused by the defective devices are uncomfortable and frightening. On September 30, 2005, one woman who was implanted with several defibrillators dating back to 1993, filed an adverse event report with the FDA’s Manufacturer and User Facility Device Experience Database (MAUDE), and said the problem is serious and “these shocks nearly knock one off their feet with no warning.”

In 1995, she said, a wire from the device that leads to the heart broke and rendered the defibrillator inoperable but the malfunction was only found during a periodic check-up after which the unit had to be replaced.

The woman said she had one device replaced in 2001 because the batteries were low and yet on September 13, 2001, when she was feeling fine, she received a shock treatment with no warning. The same month, when she was again feeling fine, she said she received 2 more major shocks in “rapid order.”

After the woman spent a night in the hospital, it was concluded that something was wrong with the defibrillator so the device was turned off and she had to undergo another implant.

The woman noted in her complaint that Medtronic claims that the failure is to be expected at the end of equipment life, “like your chevy is out of warranty.”

“To me this unacceptable,” she said, “there must be some way of warning of a failure short of a shock.”

The US Department of Justice is investigating Medtronic’s marketing practices for devices used with heart disease patients. The US Attorney for the District of Massachusetts has served Medtronic with a subpoena requesting documents related to defibrillators, pacemakers, and related components; monitoring equipment and services; and the provision of benefits to persons in a position to recommend the purchase of such devices; as well as training and compliance materials relating to the fraud and abuse and the federal Anti-Kickback statutes.

In its SEC filing, Medtronic says the company “is cooperating fully with the investigation, and has begun to produce documents on a schedule requested by the United States Attorney.”

However, a point worth noting is that when the firm claims it is “cooperating fully” and “has begun to produce documents,” Medtronic is actually responding to a subpoena with a request for these documents that was issued way back on October 24, 2005.

Who knows how many document-shedding parties occurred over the past year and a half while Medtronic was “cooperating fully with the investigation.”

The firm’s track record for illegal marketing practices is far from spotless. Its not even been a year since it coughed up $40 million to settle charges with the DOJ after the firm was caught paying kickbacks to doctors to the increase sale of the company’s spinal products. And we’re not talking chump change. In that case, Medtronic paid a surgeon in Wisconsin $400,000 for a documented work schedule that amounted to less than 8 days that year.

Over the past several years, there have been a steady stream of recalls for Medtronic’s defibrillators. In April 2004, the firm issued a recall for certain defibrillator models after they were linked to 4 deaths and one serious injury with about 1,800 of those devices in use at that time. The lawsuits that followed produced documents that showed Medtronic had continued to sell the defective products for at least 2 years after learning that there was a problem.

On February 3, 2005, the FDA web site posted a Class I recall for LIFEPAK 500 automated external defibrillators and said the action affected 1,924 devices manufactured in 1997. The reason given for the recall was that the affected devices might display a “Connect Electrodes” message and then will not defibrillate the patient, even when the electrodes are properly connected.

The LIFEPAK is used by first responders such as firefighters, police and others trained in CPR who are often first to arrive at the scene of a cardiac incident but do not have significant medical training.

A Class I recall is defined by the FDA as “a situation in which there is reasonable probability that the use of or exposure to the product will cause serious adverse health consequences or death.”

On February 11, 2005, the FDA announced the possibility of a specific battery shorting mechanism in another subset of Medtronic defibrillators and reported that approximately 75% of the devices were implanted in the US with the number of patients that could be at risk listed as 87,000 at the time. On February 24, 2005, the FDA issued a Class I recall for these devices.

On February 25, 2005, Medtronic issued a press release saying the firm had received 54 incident reports on the LIFEPAK devices, including 8 where it may have prevented patient resuscitation. “In addition,” it stated, “a recently completed theoretical engineering analysis estimates that this issue may occur on up to 8 percent of patients.”

Less than 2 months later, Medtronic announced that it had identified an additional 396 LIFEPAK defibrillators to be added to the original recall.

There have been numerous recalls since that date; too many to list separately in fact.

Medtronic is also mired down with other regulatory issues. On December 4, 2006, it announced an intention to pursue a spin-off of Physio-Control, a subsidiary that markets external defibrillation and emergency response systems, data management solutions and support services used by hospitals and emergency response personnel, into an independent, publicly traded company.

However, on January 15, 2007, Medtronic was forced to suspend US shipments of Physio-Control products manufactured at its facility in Redmond, Washington after the FDA found quality system issues.

Medtronic claims it is discussing what corrective actions need to be taken with the FDA before shipping can resume. But according to its SEC filing, the firm expects “the suspension of U.S. shipments to continue into fiscal year 2008.”

The company is also facing massive litigation over the defective defibrillators. In the SEC filing, Medtronic states: “While the number of cases filed changes continually, as of this writing there were approximately 910 federal court cases and approximately 65 state court cases, reflecting a total of approximately 975 individual product liability cases.”

“In addition,” it advises, “five purported class action personal injury suits have been filed in Canada.”

Lawsuits have also been filed by third party payors claiming an entitlement to reimbursement for payments made on behalf of patients for the defective defibrillators.

All the Federal lawsuits have been consolidated for pretrial proceedings with a judge in the US District of Minnesota pursuant to the MultiDistrict Litigation rules, and separate master complaints have been filed in the MDL for the personal injury and third-party payor cases.

On November 28, 2006, Medtronic took a major hit when the Minnesota Court denied its motion to dismiss several hundred personal injury lawsuits in which Medtronic argued that the FDA’s approval of the defibrillators preempted the lawsuits.

However, the court disagreed and Medtronic immediately made it clear that the company planned to appeal the ruling.

As of right now, it looks like some victims might actually get their cases heard before a jury; a rare event for any American consumer who goes up against the pharmaceutical industry. But on February 8, 2007, the Minnesota court issued a scheduling order for the MDL cases, and set the remainder of the year 2007 for discovery and pretrial motions, and “a ready for trial date for bellwether cases of January 2008,” according to Medtronic’s SEC filing.

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