Biomet, DePuy Orthopaedics-a Johnson & Johnson Co. and Zimmer Holdings have received subpoenas from the U.S. Department of Justice through the U.S. Attorney for the District of New Jersey.

The subpoenas request documents related to any consulting and professional service agreements with orthopedic surgeons using or considering the use of hip or knee implants. The companies said they intend to fully cooperate with the Department of Justice inquiry.

Subpoenas also were received by two other major orthopedic companies, Stryker Corp., Kalamazoo, Mich., and Smith & Nephew Orthopedics, Memphis, Tenn.

The requested documents cover any agreement beginning January 2002 through the present pertaining to consulting contracts, professional service agreements and other agreements by which the companies may provide remuneration to orthopedic surgeons. In Stryker's case, the request also covered arrangements with medical students in orthopedic training.

It's a violation of federal law for companies to pay physicians for referrals or to pay extra fees for use of their products under anti-kickback rules.

According to the New York Times, David Cassak, publisher of InVivo, a newsletter that tracks medical devices, said, "Speculation that the Justice Department might take such a step has been swirling through the industry for months. Similar investigations into relations between drug makers and doctors that they work with to promote their products have resulted in large settlements."

Cassak added, "As venture capitalists got into the field and encouraged surgeons to start up conpanies, more of them began looking to the manufacturers for payments for their contributions to product development. Frequently, there has been a hazy line between payments to surgeons, because they are making crucial contributions, and payments to others."

Merrill Lynch expects it likely will be a protracted process given the volumes of material expected from multiple companies that are part of the subpoenas.

Analyst Katherine Martinelli wrote in a research note, "Beyond a hefty cash payment, we view the greatest downside risk tied to buying into the weakness as the prohibition by the [Justice Department] of the use of consulting agreements."

Martinelli noted that stocks in the sector are trading at or near five-year historic lows, suggesting concerns regarding the investigation.

Orthopedics manufacturers and other device makers have become more restrictive in the practices they follow for payments to surgeons in the last year, following guidelines adopted by Advamed the medical device industry's largest trade group.

The three companies headquartered in Warsaw declined to comment further on any details associated with the investigation. [[In-content Ad]]