J&J Said to Weigh $3 Billion Settlement of Its Hip Implant Cases

Photographer: Patrick T. Fallon/Bloomberg

Michael Kelly, attorney for plaintiff Loren Kransky, holds up an ASR XL hip implant made by Johnson & Johnson during his opening statement to the jury at the trial of Kransky v. DePuy, at the California Superior Court in Los Angeles, on Jan. 25, 2013. Close

Michael Kelly, attorney for plaintiff Loren Kransky, holds up an ASR XL hip implant... Read More

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Photographer: Patrick T. Fallon/Bloomberg

Michael Kelly, attorney for plaintiff Loren Kransky, holds up an ASR XL hip implant made by Johnson & Johnson during his opening statement to the jury at the trial of Kransky v. DePuy, at the California Superior Court in Los Angeles, on Jan. 25, 2013.

Johnson & Johnson (JNJ), the world’s biggest seller of health-care products, has discussed paying more than $3 billion to settle lawsuits over its recalled hip implants, according to five people familiar with the matter.

J&J seeks to resolve as many as 11,500 lawsuits in the U.S. and has considered paying more than $300,000 per case, according to the people. Such a settlement would exceed $3 billion if most plaintiffs accept the terms, an amount 50 percent larger than that proposed in previous discussions.

A $3 billion settlement would dwarf a 2001 accord Sulzer (SUN) AG reached with patients who claimed that company’s hip and knee implants were defective. Sulzer, a Winterthur, Switzerland-based pump maker, agreed to pay $1 billion to resolve those suits, then the largest settlement involving hip implants.

Any accord would be affected by the outcome of seven product-liability trials between September and January, according to the people, who aren’t authorized to make the negotiations public.

“It’s going to be a fascinating case to watch settle because of the level of complexity of the injuries and the amount of money that will be involved,” said Bruce Cranner, a medical device defense lawyer not involved in the case. “You don’t see a lot of mass-tort implant cases settle for a substantial amount of money.”

Replacement Surgeries

The company is pushing to resolve U.S. cases by early next year, according to the people. J&J’s DePuy unit recalled 93,000 implants in 2010, including 37,000 in the U.S., after more than 12 percent failed within five years. That rate is climbing, along with suits by patients blaming the chromium and cobalt devices for pain, metal debris and replacement surgeries.

J&J, based in New Brunswick, New Jersey, has spent about $993 million on medical costs and informing patients and surgeons about the ASR recall, Lorie Gawreluk, a spokeswoman for DePuy, said in an e-mail. J&J set aside an undisclosed amount for litigation, which it increased before June 30, she said.

“The company also continues to support ASR patients with a reimbursement program to address recall-related testing and treatment costs,” she said. “Reports about a possible resolution of the litigation are premature and speculative, including any estimates of resolution amounts.”

Steven Skikos, a plaintiffs’ lawyer leading efforts to prepare lawsuits against DePuy, said his group is preparing for jury trials, which include the first case in federal court.

‘Dangerous Guess’

“With the trials rapidly approaching, and our continuing efforts to obtain more information and data about the patients, it’s easy to speculate about settlement,” Skikos said in an e-mail. “However, any comment relating to settlement that does not come from the plaintiff’s leadership, the court, or from the company itself remains premature, uninformed and a dangerous guess.”

J&J lost an $8.3 million verdict in the first trial over the ASR device and won the second. In the first case, a California jury in March awarded damages to a retired Montana prison guard. The panel also ruled the device was defectively designed, that DePuy properly warned of the risks, and that the company didn’t owe punitive damages. DePuy is appealing.

A Chicago jury ruled six weeks later for DePuy in rejecting a defective design claim by an Illinois nurse.

Other Trials

Seven other trials of lawsuits by plaintiffs blaming the ASR hips for injuries will help lawyers for both sides frame questions over liability and damages. The first is scheduled to begin Sept. 9 in federal court in Cleveland. U.S. District Judge David Katz is overseeing that lawsuit by Ann McCracken, 58, a resident of Rochester, New York, who needed two replacement surgeries known as revisions after her ASR implant.

Katz is overseeing about 8,000 federal cases consolidated before him for the pre-trial collection of evidence. About 2,000 cases are pending in the California Judicial Council Coordinated Proceeding before Judge Richard Kramer in San Francisco.

Trials also are scheduled in state courts in San Francisco in October; in Hackensack, New Jersey, in October and January; in West Palm Beach, Florida, in November; in Chicago in December; and in Los Angeles in January.

“DePuy believes the evidence to be presented at trial will show the company acted appropriately and responsibly,” Gawreluk said. “The ASR hip system was properly designed, physicians were properly informed of the product’s risks, and DePuy’s actions concerning the product were appropriate.”

Broad Outline

Lawyers for hip recipients are still reviewing more than 50 million pages of J&J documents and conducting pre-trial interviews of company officials and experts to prepare for those cases, Skikos said.

While settlement talks continue, J&J and lawyers for hip claimants have agreed on the broad outline of a so-called “global settlement” covering all U.S. cases, the people said.

In January, five people familiar with the talks had said J&J officials were willing to pay about $2 billion to resolve the cases. Lawyers for plaintiffs rejected that amount as too little, the people said.

Any overall accord would compensate patients based on such factors as age, extent of injuries and whether they had one or more surgeries to replace defective implants, according to the people. Negotiators would likely rank those and other factors on a matrix or grid, the people said.

“J&J’s strategy will be to find a way to negotiate a grid to settle each of the claims based on five or six variables that could be plugged in and changed up or down to determine the value of any claim,” said Cranner, a lawyer with the New Orleans-based law firm of Frilot LLC. He is past chairman of the Medical Liability and Health Care Law Committee of DRI, an organization of lawyers who represent corporations and insurers.

Obstacles Remain

Several obstacles to a final settlement still must be overcome, the people said. One includes the number of years that J&J may potentially have to pay future claims. Another is whether the settlement would include reimbursing Medicare for claims paid. A third is the amount of compensation for extreme medical cases, which include dual hip surgeries or cases where infection prompted long hospital stays, the people added.

“There are a significant subset of clients who got very badly hurt by the device, and their injuries are much more than a simple revision,” said Matthew Davis, a lawyer at Walkup Melodia Kelly & Schoenberger in San Francisco whose firm represents 270 ASR clients.

“If those cases went to trial and there was a finding of liability, a jury would award them general damages in the seven figures,” said Davis, who isn’t involved in the negotiations.

Alloy Used

The J&J hips were made from a cobalt-and-chromium alloy used in two related models -- the ASR XL Acetabular System, and the ASR Hip Resurfacing System. In announcing its recall, J&J cited unpublished data from the U.K. showing that within five years, 13 percent of ASR XL hips failed and needed revisions, and 12 percent of the ASR Hip Resurfacing System failed.

At the first trial in Los Angeles, lawyers for plaintiff Loren Kransky argued DePuy failed to test the device adequately before selling it in the U.S. in 2005, buried surgeon complaints of mounting failures, and studied a redesign of the ASR before scrapping that effort in 2008.

Lawyers for patients claim that debris from the metal ball sliding against the metal cup causes tissue death around the joint and may increase the amount of metal ions in the bloodstream to harmful levels.

J&J set up a help line for patients that is “available in dozens of countries and has served tens of thousands of callers,” Gawreluk said. J&J runs a worldwide reimbursement program resulting in “thousands of payments to patients for testing and treatment of other out-of-pocket expenses.”

The McCracken DePuy case is McCracken v. DePuy, 11-dp-20485, U.S. District Court, Northern District of Ohio (Toledo). The consolidated federal case is In re DePuy Orthopedics Inc., ASR Hip Implant Products Liability Litigation, 10-MD-2197, U.S. District Court, Northern District of Ohio (Toledo).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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