Is Medtronic Inc. ‘bribing’ doctors overseas?

Medtronic Inc. (NYSE: MDT) has been under heavy fire in the United States for making consulting payments to doctors — money it says compensates doctors for their help in developing medical devices. But regulators and lawmakers, most notably Sen. Charles Grassley (R-Iowa), suspect Medtronic is paying doctors to push its products on patients, whether they need them or not.

What has attracted far less attention is Medtronic now faces the same scrutiny overseas. Federal prosecutors and the Securities and Exchange Commission have “requested information” about similar consulting deals to doctors in several countries, including Greece, Poland, Germany, Turkey, Malaysia, and Italy, according the company’s 10-K filings from the past two years.

Medtronic, which notes several competitors received similar letters, says it’s cooperating with the investigation. And at least a dozen major drug and device makers are being investigated by federal prosecutors and securities regulators for whether they made illegal payments to doctors and health officials in foreign countries.

Why would the feds care about Medtronic’s relationship with foreign doctors? As it turns out, doctors in those countries are considered state employees. If Medtronic is paying the doctors to market their devices to patients, then the companies might be violating the Foreign Corrupt Practices Act (FCPA).

Passed in 1977, the act bars American citizens and companies from paying-off foreign officials. Here’s how the Justice Department describes the law:

“The Foreign Corrupt Practices Act was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay…to a foreign official to influence the foreign official in his or her official capacity … to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.”

Interesting. In America, critics say consulting deals present conflict-of-interest problems. Overseas, the payments might constitute outright bribery, according to federal law. I guess it can be difficult at times to tell the difference.

One would think it will be tougher to prove the latter. Whereas the consulting deals in America so far suggest the appearance of impropriety, under FCPA the feds would have to prove two things: 1. government-employed doctors constitute “foreign officials,” and 2. there was clear impropriety — that is, Medtronic willfully paid doctors in exchange for winning more business.

That’s a tough hurdle to clear. In any case, if the feds do charge Medtronic with violating FCPA, it could have profound consequences for the company.

Overseas growth is far outpacing domestic sales. Fiscal 2010 revenue rose 8 percent to $15.8 billion from the previous year. Most of that jump came from international sales, which jumped 15 percent, compared to just 4.2 percent in the United States.

International revenue now make up 41 percent of the company’s revenue. Assuming Medtronic maintains its current growth rates, international will overtake domestic operations in just four years. By 2015, international operations would account for 53 percent of the company’s revenue, versus 47 percent in America.

In fiscal 2010, Medtronic’s best selling products overseas — pacemakers and implantable cardioverter defibrillators — grew seven percent in foreign markets, versus 3.6 percent in America.

One would assume any FCPA violations would cramp the company’s style in places not named the United States of America.