Zimmer’s Corporate Compliance Program—History and Overview

The historical underpinnings of Zimmer’s current Corporate Compliance Program date back to the early 2000s.  Most recently, in 2004, Zimmer focused intensely on enhancing our existing compliance practices.  The work culminated in the formation of the current Corporate Compliance Program which became effective in early 2005.  Zimmer’s Corporate Compliance Program already addresses many of the compliance related requirements and procedures that are contained in the resolution agreements executed by Zimmer and four other major orthopaedic companies in September 2007.  Practices that have been identified by the U.S. Department of Justice, such as an annual consulting needs assessment, are very consistent with Zimmer’s pre-existing Corporate Compliance Program and the manner in which we have been running our business for the past few years.

What follows is a brief history of the development of Zimmer’s current Corporate Compliance Program, as well as the role of Zimmer’s Compliance Office.  While our Compliance Office is staffed by dedicated full-time employees worldwide, at Zimmer, “Compliance is Everyone’s Business.”  All of Zimmer’s employees have the responsibility to engage in ethical business practices and the Corporate Compliance Program is ingrained in our culture.

Milestones in the Zimmer Corporate Compliance Program

2004

  • On February 9, 2004, Zimmer formally endorsed and adopted the AdvaMed Code of Ethics for Interactions with Health Care Professionals (the “AdvaMed Code”). 
  • Zimmer’s public company Board of Directors approved a Corporate Compliance Charter, forming the basis of many of Zimmer’s best practices.
  • We initiated development of Zimmer’s current Corporate Compliance Program, utilizing the services of a nationally known law firm and a “Big Four” accounting firm with health care specialization. 
  • Zimmer expressly incorporated the AdvaMed Code into our Corporate Compliance Program, as well as pertinent guidance from the Office of Inspector General.

2005

  • The Corporate Compliance Program became effective in the Americas in early 2005 and applies to all of our business divisions (e.g., Zimmer Spine, Zimmer Dental, etc.), not just our joint replacement business. 
  • Zimmer hired an experienced attorney to serve as our Chief Compliance Officer to monitor the operation of our Corporate Compliance Program and other compliance related matters.
  • In late 2005, the Corporate Compliance Program became effective for our operations outside of the U.S.
  • In December, Zimmer’s compliance efforts resulted in national recognition—the Health Ethics Trust recognized Zimmer’s program as constituting Best Practices in Vendor Relationships.

2006

  • In November, in order to demonstrate our continued commitment to best practices in compliance, Zimmer became an early adopter of the AdvaMed Code and certified that we were already complying with the best practices set forth in the AdvaMed Code, as required by the logo usage license agreement.
  • We formed a regional consulting group organization, and dedicated employees to work exclusively and directly with company consultants to assure compliance.

2007

  • Our new engagement order process (“EOP”) (which was developed in 2006) was implemented on January 1, 2007.  Through the EOP, the engagement order is “pre-approved” by the Compliance Office before the consultant is engaged to perform the service.
  • The results of Zimmer’s extensive training efforts over the previous 15 months were realized, as over 7,000 participants were trained in live and e-learning sessions on, among other things, our Corporate Compliance Program, our Code of Business Conduct, and the Anti-Kickback Statute.

 Hallmarks of Zimmer’s Corporate Compliance Program

Zimmer’s pre-existing Corporate Compliance Program addresses many of the compliance related elements that have been incorporated into the terms of the Deferred Prosecution Agreements (DPAs) executed by Zimmer and other major orthopaedic companies.  Highlights of our Corporate Compliance Program attributes (and the corresponding references to the DPA) are as follows: 

  • Compliance Office/Chief Compliance Officer:  In 2005, Zimmer created a stand-alone Compliance Office.  Also in 2005, Zimmer appointed a dedicated Chief Compliance Officer who became responsible for monitoring our day-to-day compliance activities.  Zimmer’s Chief Compliance Officer has been and is currently a member of our Operating Committee and reports directly to the Chief Executive Officer.  On no less than a quarterly basis, the Chief Compliance Officer has delivered, and continues to deliver, comprehensive presentations to our public company Board of Directors concerning Corporate Compliance Program matters.  (see DPA ¶21) 
  • Annual Needs Assessment:  In 2005, Zimmer established our current, disciplined Annual Needs Assessment (“ANA”) process.  The ANA identifies and quantifies the services needed within each discrete service category and provides written support for the needs.  It defines and limits consulting services for the year.  The Compliance Office and an Oversight Committee consisting of senior-level executives have been responsible for oversight, evaluation and approval of the ANA.  (see DPA ¶¶27-29)   
  • ANA Recording/Reporting Capabilities:  For the past few years, Zimmer has maintained the ANA and other data related to consulting agreements in a customized database controlled and managed by the Compliance Office.  In the database, Zimmer maintains a record of the consulting services provided under the ANA.  Reports are provided to senior executives which summarize the services provided and those remaining to be provided for the balance of the year.  (see DPA ¶30)
  • Compliance Office Approval of Services and Payments:  Since 2005, Zimmer’s Compliance Office has approved hourly payments for consulting services.  In 2006, Zimmer developed a process for reviewing hourly services, which we refer to as the Engagement Order Process (“EOP”).  The EOP became effective on January 1, 2007.  The EOP is automated, auditable, and draws from the services set forth in the ANA.  The Compliance Office approves the engagement orders.  After the consultant completes the service identified in an engagement order, the consultant records the hours incurred in performing the service and signs a certification on the engagement order to initiate the payment process.  Additionally, at a minimum, the requestor of the service, a corporate Vice President responsible for the area requesting the service, and the Compliance Office must approve the payment.  (see DPA ¶¶24 and 35) 
  • Consulting Agreements:  Since before 2005, Zimmer has required written requests for consulting agreements.  Beginning in 2005, each request must contain a detailed matrix of the services by category and must be approved and certified by the requestor of the agreement, responsible executive management, the Oversight Committee, the Compliance Office, and the Legal Department.  Consulting agreements involving payments above a certain threshold must also be approved by the Chief Executive Officer.  All new consultant requests must meet an unfilled, bona fide, Zimmer commercial need and must be approved by the Compliance Office and Oversight Committee.  (see DPA ¶¶31 and 33-34) 
  • Management of Consulting Agreements:  In 2006, Zimmer recruited for and placed non-marketing/non-sales personnel in a newly formed Regional Consulting Group.  Led by a Director, Regional Consulting, who reports directly to the Legal Department, the Regional Consulting Managers (RCMs) interface directly with consultants on the terms of their consulting agreements, as well as issues relating to payments.  The RCMs are also responsible for communication and education of consultants on Corporate Compliance Program initiatives.  (see DPA ¶25) 
  •  Payments to Consultants:  In addition to the process described above, Zimmer’s payments to consultants are made at a fair market value rate of no more than $500 per hour for time actually expended by the consultant.  A nationally known, independent organization with expertise in valuation conducted an analysis for payment of $500 per hour.  For those few consultants receiving remuneration in excess of $500 per hour, Zimmer obtained an additional fair market value analysis from the independent organization to support the higher hourly fair market value rates.  (see DPA ¶36)  

  • Product Development Team Consultants:  Product development team consultants are compensated at a fair market value rate of $500 per hour (or a rate otherwise calculated and supported by an independent organization) for pre-product launch development time, and these consultants may also receive royalty payments with regard to the product the team develops.  Zimmer’s current royalty payment ranges were calculated and analyzed by a reputable independent organization.  A company employee serving on or supporting the development team must certify product development team payments.  (see DPA ¶¶37 and 38)