Johnson & Johnson, which could face billions of dollars in costs over an artificial hip recall, is taking an unusual approach to managing the crisis -- one that could limit its financial exposure, legal experts say.

J&J's DePuy Orthopaedics Inc unit recalled its metal ASR hip system a year ago after it failed at a higher-than-expected rate, with some patients experiencing pain, swelling, joint dislocation and sometimes systemic damage to the central nervous system, thyroid and heart.

The company now faces more than 2,000 lawsuits in state and federal court in the United States.

In a highly unusual move, DePuy has hired a third party -- Broadspire Services Inc, which manages workers compensation and other medical claims on behalf of insurance companies and employers -- to administer patient claims for out-of-pocket medical costs associated with the recall.

The move has prompted debate among industry and legal experts. Some see it as an efficient way to outsource a process that is unrelated to making artificial hips. Others see it as a way for J&J to limit payments while gaining control of medical records and other material that could be used against patients in court.

In general, companies and their lawyers handle recalls directly. They answer patient queries and pay claims for reimbursement. Typically, companies accept a treating physician's recommendation when it comes to determining if a device should be removed or replaced.

In DePuy's case, it is Broadspire's physicians, not the patient's own doctor, who, in effect, make the final decision on whether a patient's hip should be replaced. While Broadspire physicians cannot directly override a patient's doctor in terms of treatment, they make the decision on whether to pay. That can effectively rule out surgery for patients who cannot pay.

Doctors who are evaluating these cases are being paid indirectly by DePuy, and research suggests that even when we are very well-intentioned we can be influenced by conflicts of interest, said Kristin Smith-Crowe, associate professor of management at the University of Utah, who specializes in business ethics. This is a bit of a red flag in terms of the way this situation is set up.

Lorie Gawreluk, a spokeswoman for DePuy, said Broadspire's role is entirely benign. The company conducts its own reviews to ensure that a patient's hip problems are the result of the recall, and not some other cause, such as a fall.

Similar to the process insurance companies use to evaluate claims from subscribers, medical records are collected by Broadspire if a patient requests financial assistance, she said in an email. Broadspire requires no more information than a typical insurance provider would request, and like an insurance provider, Broadspire has a team of reviewers who review claims.

EVOLVING STRATEGY

Patients and lawyers argue that the hip recall claims should not be treated in the same way as a standard medical claim. An insurance company, after all, does not decide whether to reimburse policyholders for medical costs related to a problem it caused itself. Moreover, lawyers representing patients say the amount of information being collected by Broadspire is excessive.

This is an evolving strategy that is outside the norm of what companies have done in the past, said Edward Blizzard, partner with the law firm Blizzard, McCarthy & Nabers. Blizzard is representing plaintiffs in the case.

Normally a company would not get the kind of information Broadspire is asking for until a case was in litigation, and even if the case was in litigation, in no circumstance would the defendant be allowed to have their own physician talk to the patient's physician privately, as Broadspire is demanding, he said.

Last August, DePuy wrote to orthopedic surgeons asking them to forward to their patients a package of information about the recall. It contained a form letter from doctor to patient, written by DePuy, asking the patient to set up an appointment to discuss any concerns and to bring with them a signed medical release giving the physician permission to share information with DePuy.

It is important to share this information with DePuy so that DePuy may contact you directly regarding any additional information regarding the ASR Hip System and process your claims efficiently, the letter said. Please complete the form and bring it with you to your next appointment.

DePuy offered doctors $50 for each completed set of forms.

I have been doing this work for 35 years and it is almost unprecedented for a large corporate defendant to run out and preemptively attempt to identify potential claimants, said Alex MacDonald, a partner at MacDonald Rothweiler Eisenberg, who helped negotiate billions of dollars in settlements over the diet-drug cocktail Fen-Phen. He is not representing clients in the DePuy case.

J&J is reaching out to doctors and asking them to use their influence with their patients in the hope that the doctor will help identify potential claimants in a lawsuit, MacDonald said.

DePuy, which is based in Warsaw, Indiana, denies that it is doing anything out of the ordinary, or that it might be seeking to influence doctors with its upfront offer of payment, as some critics charge.

It is standard practice for, and indeed healthcare professionals require, reimbursement for the costs of producing the medical records, Gawreluk said.

But some doctors say they have not previously been asked by a product manufacturer to persuade patients to give up their privacy rights, or been directly offered payment to do so.

It made me uncomfortable, said Mark Barba, an orthopedic surgeon at Rockford Orthopedic Associates, a surgical center in Rockford, Illinois. I've never faced anything like that before. Never.

METAL POISONING

Some 93,000 people have been implanted with DePuy's ASR hip system worldwide.

With wear, the grinding of the hip's ball-and-socket structure causes metal debris to collect in the tissue surrounding the implant, damaging muscle and tendons and complicating replacement surgery. In some cases, metal ions released into the blood causes broader health problems.

Aubie Brennan, a 56-year-old teacher on the Hawaiian island of Oahu, had replacement surgery for each hip in 2007 and 2008 due to bone deterioration.

In 2009, he began to be plagued by flu-like symptoms, rashes, swollen lips and debilitating fatigue. Doctors were unable to locate the cause. They thought he might have allergies, or be depressed, or poisoned by a substance in the ocean surrounding his home.

But last August, Brennan said he received a letter from his health insurance company, Kaiser Permanente, alerting him to the recall and urging him to come in for tests. These showed that his left hip was crooked and that his blood contained significantly elevated levels of chromium and cobalt ions. The surgeon told him he wasn't sure if the elevated metal levels were causing his symptoms, and to return for further testing in six months.

Brennan could not wait. He sought a second opinion, and in February met with a surgeon at The Queen's Medical Center in Honolulu, the leading medical referral center in the Pacific Basin.

He looked at my results and said, 'I think you need surgery, on both hips, and you need it now,' Brennan said. He declined to name either surgeon.

The Honolulu surgeon was not part of Kaiser's network, so Kaiser declined to pay, Brennan said. He turned to Broadspire for reimbursement.

Broadspire told Brennan it would not agree in advance to pay. His only option would be to pay for the surgery himself. Then he would have to submit the doctor's report to Broadspire, whose physicians would review the case and make a decision on whether the procedure had been necessary.

Brennan could not afford to pay the $43,467 that the surgery would have cost -- or take the risk that Broadspire would decline coverage. He canceled the scheduled procedure.

I was really devastated, he said. Emotionally, and as far as my job went, it really devastated me.

Ultimately, Kaiser reversed itself and agreed to pay for the surgery, which took place in July.

Broadspire would not comment on individual claims, or its payment process in general. DePuy said patients first file for reimbursement through their insurance company, and DePuy later repays the insurance company.

RECALL UPON RECALL

Over the past two years, J&J -- for decades one of the most trusted brands in America -- has recalled more than 50 products, ranging from Children's Tylenol to insulin cartridges to contact lenses. The company's handling of the recalls has in some cases sparked Congressional and federal criminal investigations.

Particularly disturbing to regulators was an older phantom recall of painkiller Motrin. J&J hired a contractor to secretly buy the product from stores well before it alerted the general public in 2009 that the pills did not dissolve properly.

To critics, DePuy's handling of its hip implant recall is designed to save money by potentially settling claims with patients before they fully understand their legal rights, or the likely cost of their hip-related medical costs in the future.

DePuy is adamant in its denial.

To be very clear: the sole purpose of the Broadspire process is to assist patients and health care providers as efficiently as possible, Gawreluk said.

David Prince, professor of law at William Mitchell College of Law, said that while the hiring of Broadspire may make economic sense for J&J by saving the company the trouble of gearing up and organizing in-house, it also has the effect of distancing the company from patients.

By pawning this process off on a third party, they don't have to deal face to face with patients, and may be less sensible to the human cost of what their product has done, he said.

Prince, who has represented both plaintiffs and defendants in the past and specializes in product liability, said he can see both perspectives.

In a larger sense, this is a clash between the individual and his or her needs, and the broad corporate interest, he said. If I were a patient I'd be very unhappy if someone I trusted, my own doctor, recommended a procedure and someone stood in the way. I would find that intolerable.

On the other hand, he said, You can see how the company wants to make sure they only pay what they consider in their own mind legitimate claims.

J&J has taken special charges of about $400 million associated with the ASR recall through the second quarter of this year. The company's litigation expense also includes a component for increased product liability reserves related to the recall. Gawreluk declined to quantify that component or say what DePuy has paid out so far in claims.

Some experts say the ultimate cost to J&J could run to the billions of dollars.

In January 2001, Swiss medical device maker Sulzer Medica AG recalled a hip implant after a manufacturing glitch caused it to loosen. The company settled the case in 2002 for $1 billion. Of the 31,000 patients who received the Sulzer Medica implants, more than 2,760 had them replaced.

The DePuy recall is three times larger and much more complex. The revision rate has not yet been established, but data from a study released in March by the British Orthopaedic Association and the British Hip Society showed the ASR system had a failure rate of up to 49 percent after six years -- nearly four times the rate cited by DePuy when it recalled the device.

This is the absolute worst thing that ever happened to my practice, Barba, the Rockford surgeon, said of the recall. It keeps me up at night wondering how to treat these patients whose future is so uncertain. It has been difficult for all of us emotionally.

(Additional reporting by Debra Sherman in Chicago; Editing by Michele Gershberg, Matthew Lewis)

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