Christie Diverted Ortho $ to Cronies
Zimmer said it was “shocked” by John Ashcroft's $52 million proposed fee agreement to act as a monitor following the deferred prosecution agreements.
In response, former prosecutor Christie said “serious revelations” about Zimmer brought to his attention by the monitor's team needed to be resolved in short order.
An attorney for Stryker told the prosecutor that his client felt the "industry was broken, was part of the problem, and offered to help fix it."
Members of that lawyers’ law firm later made campaign contributions to Christie’s campaign.
Those are just some of the revelations surfacing as the governor’s race in New Jersey sheds light on the settlements with hip and knee makers and the subsequent multimillion-dollar no-bid monitoring contracts awarded by the prosecutor to former colleagues.
Christie for Governor
Christopher Christie, the former U.S. Attorney, jolted the world of orthopedics in 2005 when he threatened to prosecute five hip and knee manufacturers and physicians for kickbacks and sham consulting agreements. He’s now running for governor of New Jersey.
The prosecutor leveled serious criminal charges against physicians and companies (Biomet, Zimmer, Smith & Nephew, DePuy and Stryker). However, a settlement between the government and the device companies resulted in moderate fines, temporary federal monitoring, permanent disclosure of physician consulting agreements, and promises to behave in the future. Industry and surgeon relationships were disrupted, resulting in a dramatic decline of payments to physicians. Some companies, like Zimmer, appear to have lost market share as a result of that disruption.
Two things that the settlements did not do were to make public the evidence that Christie claimed he had against physicians and companies, nor did anyone accused by the prosecutor have to admit to any wrongdoing.
Now that Christie, a Republican, is running for governor and has to explain the huge $52 million no-bid contract, among others, awarded to his former boss John Ashcroft to monitor the device companies, he's talking about the investigation and monitoring contracts.
At the urging of Democratic congressmen from New Jersey, the U.S. House of Representatives has held hearings about the propriety of the government's use of deferred prosecution agreements (DPAs) in general and Christie's use of them while he was the U.S. Attorney in New Jersey.
During a hearing before Congress on June 25, Christie gave his most extensive account to date of the settlement with the device companies.
Punishment Without Collateral Damage
Christie told a House committee that the Department of Justice (DOJ) was looking for a way to punish corporate wrongdoing, short of an indictment, that would bring real cultural change to the offending corporation but not result in the loss of thousands of jobs and billions in shareholder value.
He cited the example of the federal indictment of Arthur Andersen during the Enron scandal. He said that indictment put Arthur Andersen out of business and nearly 75, 000 innocent people lost their jobs and equity in the firm. While initially convicted, Arthur Andersen prevailed on appeal to the U.S. Supreme Court. But the damage had been done.
Christie told Congress that when he opened his investigation of the hip and knee makers, there were allegations that the companies were violating the federal anti-kickback statute, the Stark Act and other criminal laws by paying orthopedic surgeons kickbacks disguised as consulting fees in order to obtain the exclusive use of their products.
Over the course of the next two and a half years, said Christie, a massive investigation was undertaken of all five companies. In May 2007, he opened negotiations with all five companies regarding resolution of these matters by way of DPAs or NPAs (nonprosecution agreements).
By this time, said Christie, Stryker was cooperating with the DOJ in the investigation into the four other companies. He said the remaining four companies vigorously contested the allegations being made by the DOJ.
"The companies employ 47, 000 people in the United States and accounted for nearly the entire production market in these vital medical products. If the [U.S. Attorney’s] Office sought an indictment from a federal grand jury which was ultimately returned and announced, it is certain that these companies would have been suspended and debarred from the Medicare programs. That exclusion would have certainly caused each of the five companies to go out of business with the resulting loss of 47, 000 American jobs and cutting-edge devices which improve the lives of millions of Americans, " said Christie.
Given those circumstances, Christie said his office wanted to reach an agreement with the companies that sufficiently punished them for their "bad acts, mandated changes in corporate culture, and did not result in collateral damage to innocent parties."
All the companies insisted that they would only agree to DPAs if all five companies had to operate under the same rules moving forward.
Negotiating Monitoring Agreements
Negotiating these agreements was akin to landing five airplanes on the same runway at the same time, noted Christie. On September 27, 2007, the four "non-cooperating" companies executed DPAs and Stryker executed an NPA with the DOJ.
One of the elements of the DPAs was the hiring of DPA monitors agreeable to the U.S. Attorney’s Office and the companies to ensure that all the companies were complying with the same rules.
Christie said that two weeks before the execution of the agreements, his office began discussions with the companies on monitor identification and recommendation. Christie wanted monitors who had experience with corporate fraud and monitors with whom his office had worked before. He came up with a list of names to recommend to each company. He said he made it clear to the companies that they were to interview the recommended monitor prior to execution of the DPAs. He said it was also made clear that if the companies had serious objection to their proposed monitor after the interview process, they could raise that objection with his office and a new monitor would be recommended.
All five companies accepted the proposed monitors, said Christie, and it was then left to the companies and the monitors to negotiate a fee structure. He said his office would only intervene if the company and the monitor were at a genuine impasse in fee negotiations, and no such impasse occurred, said Christie.
That assertion would later be challenged by one of the New Jersey congressmen who cited leaked emails involving Zimmer lawyers. More on that below.
Christie noted during the hearing that the results of the DPAs on the device industry have been "truly extraordinary."
Christie says nearly half a billion dollars have been restored to the public through the $311 million fine and more than $150 million in reduced payments to physicians. He says the physician payments would have been passed on to consumers. He noted that the total number of physicians receiving payments dropped by more than 1, 000. We've previously reported that, in effect, the physicians have paid the device company's fines.
Christie said that the DPAs reformed a "previously corrupt corporate culture" and that the companies, "after initially reluctantly admitting their conduct, have come full circle in their appreciation of the results."
These accomplishments, said Christie, are in addition to the fact that there was no loss of products critical to the health of senior citizens in the United States and globally. "Also, no harm was done to the shareholders in this $80 billion industry."
“An Offer They Couldn’t Refuse”
After Christie’s testimony, Rep. Steve Cohen (D-Tenn.) asked Christie if Zimmer had turned down Christie’s recommendation of Ashcroft as a monitor.
“No, in fact sir, the complete answer to that…, ” Christie began.
“That’s the complete answer to that, ” Cohen interrupted.
“No, no it’s not, sir, it really isn’t, ” replied Christie.
Christie said Zimmer wanted to avoid a “big New York law firm” and that Ashcroft, from Missouri, offered the “Midwestern sensibilities” the company was seeking.
Cohen pushed on.
“You made an offer they couldn’t refuse, ” Cohen said.
Christie objected, and they began to talk over each other until Cohen said loudly: “I’ve got the microphone.”
“Sir, you said that I made them an offer they couldn’t refuse, ” Christie said, earning a “That’s right” from Cohen.
“First of all, it’s an ethnically insensitive comment by you, first of all, to an Italian-American and secondly…”
Cohen interjected, “I had no idea you were Italian-American…”
Christie again cut him off. “And secondly, sir, you were not in the room when those negotiations took place, sir, ” Christie said. “I was.”
Then Christie abruptly walked out to catch a train, over the protests of Cohen.
Following the hearing, the Democratic National Committee issued a statement saying, "Chris Christie's testimony to Congress leaves too many unanswered questions about tens of millions of dollars in no-bid contracts that appear to have gone to friends and political cronies like John Ashcroft.” It's clear that as U.S. Attorney Christie used his position to help his friends, and now those very friends are helping him fill his campaign coffers."
New Jersey Congressman Frank Pallone wrote Christie a day after his testimony and offered the former prosecutor a chance to clarify "a series of discrepancies and apparent contradiction" between his testimony and documents that came to light 30 minutes before the hearing.
Specifically, Pallone noted Christie's statement that the companies did not object to the monitors’ compensation. Pallone wrote, "Frederick Robinson, the attorney for Zimmer Holdings, had emailed your First Assistant U.S. Attorney, Michelle Brown, to say the company and its lawyers were 'shocked' by Ashcroft's 'proposed fee agreement.' Further, in your prepared statement to the committee you said there was no 'impasse' over fees awarded to federal monitors and those companies granted DPAs."
Pallone said that an email sent by Robinson to the prosecutor’s office on October 17, 2007, stated:
"Chris, as you know, Zimmer has been in discussion with the Ashcroft Consulting Group ("ACG") regarding certain provisions of the Monitor Agreement, most of which concern the financial arrangements between the parties. Although everyone has approached these negotiations in the utmost good faith, it appears that the parties have reached an impasse on certain key issues."
According to Pallone, Christie responded two days later with this email:
"...I am telling you that I expect your client to return to this issue directly with the Monitor with an eye towards resolving this issue yourselves in short order. We have a great deal of work to do at Zimmer. I fear the serious revelations brought to my attention yesterday by the Monitor's team are just an example of the significant issues that Zimmer and the Monitor are going to need to address and resolve together in short order. We cannot afford to be distracted by anything other than bringing Zimmer into compliance with the DPA and federal law. Take another stab at resolving the substantive issues raised in your email directly with the Monitor."
More Monitoring Agreements
According to a June 25 AP story, in addition to the monitoring agreement granted to Ashcroft, other monitoring agreements making their way into the governor's race included:
David Kelley. A former U.S. attorney in Manhattan, Kelley investigated a stock fraud case involving Christie's younger brother, Todd, but declined to prosecute him. Kelley was later picked to monitor Biomet Orthopedics Inc.
David Samson. A former New Jersey Republican attorney general and party fundraiser, Samson was a monitor of medical device maker Smith & Nephew. His firm is now on Christie's payroll for legal work: the candidate's pre-election finance report last month listed expenditures of $9, 439.40 in legal fees/rent and $18, 439.40 still owed to Wolff & Samson of West Orange, New Jersey.
Debra Wong Yang. Like Kelley, Yang, a former U.S. attorney in Los Angeles, is a former Christie colleague. The Republican-connected prosecutor and Gibson, Dunn & Crutcher partner, who had ties to former Attorney General Alberto Gonzales, was chosen to monitor DePuy Orthopaedics Inc.
John Carley. A former Cendant Corp. vice president and Federal Trade Commission lawyer under President Reagan, Carley was on Sen. John McCain's 2008 New York fundraising team. He oversaw a nonprosecution agreement involving Stryker Orthopedics.
Herbert Stern. Christie mentor Stern got a $10 million contract to monitor University of Medicine & Dentistry of New Jersey, which was accused of double-billing for services covered by Medicare. Christie close friend and fundraiser, John Inglesino, a partner in Stern's law firm, was paid $325 per hour for his work as counsel on the monitorship. Stern, Inglesino, another partner and their wives later gave $23, 800 in donations to Christie's campaign for governor. The donations were matched, 2-1, under New Jersey's campaign finance laws, bringing the total amount to $71, 400.
Stryker Lawyer: “Industry Broken”
Stern was also reportedly involved in Stryker’s decision to cooperate with Christie. According to an October 17, 2007, article in the New Jersey Law Journal, Christie said he sent subpoenas to all five companies in March 2005. Soon after, Stryker's attorney, Herbert Stern, told Christie his client felt the "industry was broken, it was part of the problem, and offered to help fix it, " Christie said, adding that it was "a stark difference from the approach the other four companies took" and greatly aided the investigation.
Stryker declined to comment to OTW regarding this assertion.
Two months after Stryker signed a nonprosecution agreement with the DOJ, Christie appointed Stern as the monitor of the University of Medicine & Dentistry of New Jersey. Christie said the appointment posed no conflict because the type of cooperation Stryker was willing to give merited the treatment it got.
Voters, Orthopedics and Right to Know
Christopher Christie has a safe lead in the polls over the Democratic incumbent. But if Democrats have their way, orthopedics will remain on voters’ minds through the rest of the summer and into the fall.
Perhaps this partisan brawl in New Jersey will continue to shed light on an era of orthopedics that is still hiding under the rug. Physicians, patients, payers, and the public have a right to know what went wrong during a time of alleged misbehavior by companies and some physician consultants.