A major medical equipment supplier, whose owners have spent millions of dollars helping elect Democrats nationwide, is under criminal investigation for its foreign sale of medical devices after already being tied to a kickback scheme involving U.S. doctors, public records show.
A subsidiary of Stryker Corp. of Kalamazoo, Mich., last year signed an agreement to avoid prosecution and cooperate in the probe involving consulting contracts, trips and gifts to U.S. doctors.
But it recently informed investors in a Securities and Exchange Commission filing that the Justice Department’s Criminal Division is investigating the company for “possible violations of the Foreign Corrupt Practices Act.” That law prohibits U.S. companies from paying bribes overseas.
The company, founded in 1941 by Dr. Homer Stryker, an orthopedic surgeon, is partly owned by his three grandchildren, Jon, Pat and Rhonda Stryker. Not including other stock holdings, the siblings control a trust that owns nearly one-fourth of the $6 billion company.
Jon Stryker alone has given at least $6 million to federal and state political campaigns since 2004. According to the nonpartisan Center for Responsive Politics, he and his sister, Pat, rank among the nation’s top individual donors by giving hundreds of thousands of dollars to “soft money” special interest political groups in 2006 on top of their donations to candidates and political parties.
For instance, Pat Stryker separately contributed $500,000 to the Michigan Coalition for Progress, which successfully helped return Democrats to control of the state legislature in the last election.
Stryker Corp. officials said that while the company is partly owned by the Stryker siblings, the family has no hand in running the daily affairs of the business.
“They are owners of the company, but they do not have management experience,” said Stryker Corp. spokesman J. Patrick Anderson, adding that any contributions by the company’s executives and the Stryker siblings are made independently. “There would be no direct ties at all.”
In 2006, the company found itself in the cross hairs of Republican state leaders in Colorado and Michigan, where Jon Stryker, who founded the Michigan Coalition, and Pat Stryker have donated millions of dollars to help Democratic candidates and causes.
“Jon Stryker bought a legislative majority in the statehouse for the Democrats in 2006,” said Bill Nowling, director of communications and research for the state’s Republican Party.
A spokeswoman for Mr. Stryker declined to comment, saying only that his political activities have no relationship to the company.
Stryker Corp. owned one of five companies that agreed last year to settle a criminal investigation by U.S. Attorney Christopher J. Christie in New Jersey that focused on their payments to U.S. surgeons.
Stryker Orthopedics Inc., the Mahwah, N.J., subsidiary of the Stryker Corp.; Zimmer Holdings Inc.; Depuy Orthopaedics Inc.; Biomet Inc.; and Smith & Nephew Inc. together supplied nearly 95 percent of the lucrative worldwide market in hip and knee surgical implants.
According to a report last month from Sen. Herb Kohl, Wisconsin Democrat and chairman of the Senate Special Committee on Aging, the five companies together spent $230 million on payments to physicians. He accused the companies and physicians of putting their financial interests ahead of patients.
“These types of unethical payments are not anecdotal, but rather have been pervasive and industrywide for far too long,” Mr. Kohl said. “The physicians who take their money are equal participants and equally culpable.”
Stryker Corp. disclosed the Justice Department investigation in its annual report, filed with the SEC last month. The company said the department requested documents from Jan. 1, 2000, to the present, regarding possible violations of federal criminal and antitrust laws.
Prosecutors said financial inducements were offered to the U.S. physicians in the form of consulting agreements and were entered into with hundreds of surgeons, who did little or no work in return but did agree to exclusively use the paying company’s products.
The physicians, prosecutors said, also failed to disclose the existence of the relationships with the companies to the hospitals where the surgeries were performed and to the patients they treated. More than 700,000 hip and knee replacement surgeries are performed in the U.S. each year, about two-thirds of which are for patients covered by Medicare.
Mr. Christie’s decision to appoint his former boss, Attorney General John Ashcroft, as the compliance monitor for one of the companies, Zimmer Holdings, has made him of target of Rep. John Conyers Jr., Michigan Democrat and chairman of the House Judiciary Committee, who has asked the Government Accountability Office to investigate “if political or personal favoritism played a role” in the selection of the monitors.
The House Judiciary subcommittee on commercial and administrative law meets today to discuss the settlements in the Christie investigation and whether the appointment of the monitors was appropriate.
Questions to Mr. Conyers’ office were referred to the House Judiciary Committee, which referred inquiries to the subcommittee on commercial and administrative law, which referred questions to the subcommittee’s chairman, Rep. Linda T. Sanchez, California Democrat, whose chief of staff did not return calls.
Mr. Christie is not scheduled to testify, although the Justice Department will be represented by David Nahmias, U.S. attorney in the Northern District of Georgia. Mr. Ashcroft agreed to testify after Mr. Conyers said the committee would consider issuing a subpoena.
The hearing was prompted, in part, by complaints from two New Jersey Democratic congressmen, Reps. Frank Pallone Jr. and Bill Pascrell Jr., after Mr. Christie awarded the $27 million, no-bid contract to Mr. Ashcroft.
Mr. Ashcroft is expected to tell the committee his goal as a monitor will be to “ensure that the alleged illegal kickbacks to health care professionals would be eradicated industry-wide, saving American taxpayers millions of dollars,” according to a copy of his testimony.
“Physicians who make decisions about which hip or knee replacement is implanted in patients should make those decisions solely based on what is in the best interests of those patients,” he said. “A surgeon who makes decisions based on the receipt of illegal kickbacks violates his responsibility to patients, breaches the public trust, and breaks the law.”
Mr. Ashcroft also will note that 100 percent of the fees paid to the monitors comes from the companies, adding that the system “has been designed to place the cost of compliance onto the defendant company rather than further burdening American taxpayers with the cost of rectifying any improper, fraudulent or illegal activity.”
Mr. Stryker, said by Forbes magazine in October to be worth an estimated $2.1 billion, gave $4.6 million to the Michigan Coalition and Pat Stryker, whose financial fortune was set by Forbes at $1.8 billion, donated an additional $500,000.
Since 2003, Mr. Stryker has given $40,000 to the Democratic Senatorial Campaign Committee and more than $180,000 to the Democratic National Committee. He also has contributed to three members of the House Judiciary Committee, according to the Federal Election Commission.
That includes $2,100 to Mr. Conyers; $23,000 to Rep. Tammy Baldwin, Wisconsin Democrat, to her campaign and her political action committee, the People’s House PAC; and $2,100 to Rep. Maxine Waters, California Democrat.
The Stryker family also has donated millions to other causes, including the Gay and Lesbian Victory Fund; against state constitutional amendments against same-sex marriages; People for the American Way, a liberal advocacy group; Emily’s List, which supports pro-choice female candidates; initiatives calling for increases on cigarette taxes; and various environmental issues.
John W. Brown, chairman of the Stryker Corp.’s board of directors, has given $72,000 to the Democratic Senatorial Campaign Committee, the Democratic Congressional Campaign Committee and the Michigan Democratic State Central Committee since 2000. His donations included a $10,000 donation to the DSCC on Dec. 31, about three months after his company signed the nonprosecution agreement.
Despite the New Jersey investigation and the SEC probe, none of the Democrats who has received money from the Strykers has sought to return it, unlike the clamor raised over donations made by fundraiser Norman Hsu to Sen. Hillary Rodham Clinton’s presidential campaign.
According to its SEC filing last month, Stryker Corp. disclosed that the SEC had made an informal inquiry of the company regarding possible violations of the Foreign Corrupt Practices Act in connection with the sale of medical devices in certain foreign countries and that was followed by a subpoena from the Justice Department.
The filing said Stryker “is fully cooperating” with the Justice Department and the SEC. Stryker Corp.’s most recent SEC filing shows it makes 64 percent of its money in the United States and the rest from overseas.
In the Christie agreement, Zimmer, Depuy Orthopaedics, Biomet and Smith & Nephew executed Deferred Prosecution Agreements (DPAs), which expire in 18 months if they meet all of their respective reform requirements. Criminal complaints also were filed against the four charging them with conspiring to violate the federal anti-kickback statute. The complaints will be dismissed at the conclusion of the DPAs if the companies comply with their terms.
Criminal complaints against the four companies said that beginning in 2002 and continuing through 2006 they used consulting agreements with orthopedic surgeons as inducements to use specific artificial hip and knee reconstruction and replacement products. The surgeons were paid for consulting contracts that required little or no work and were often lavished with trips and other expensive perquisites, according to prosecutors.
The four reached civil settlements with the Justice Department and U.S. Department of Health and Human Services, agreeing to pay $311 million.
Stryker Orthopedics cooperated with prosecutors, signing a nonprosecution agreement that required it to implement all the reforms imposed on the other companies, including 18 months of federal monitoring. It did not enter into any civil settlement with the Justice Department or Health and Human Services, and has not been given any release from civil liability nor any release from HHS.