Report: J&J mulling $3B plan to resolve metal hip lawsuits

As Johnson & Johnson ($JNJ) confronts up to 11,500 lawsuits in the U.S. alleging it sold faulty metal hip implants, the world's biggest maker of healthcare products is weighing whether it should settle all the cases. As Bloomberg reports, the cost would reportedly exceed $3 billion if most plaintiffs agree to a deal.

Five unnamed sources "familiar with the matter" told Bloomberg that J&J wants to resolve the U.S. lawsuits by early 2014 and is contemplating an offer of more than $300,000 per plaintiff. Executives will likely make a final decision, according to the sources cited in the story, based on the success of 7 upcoming product liability trials involving the company's now-recalled ASR hips, and those are slated from September through January.

Assuming most plaintiffs accept the financial terms, the healthcare products giant would fork over more than $3 billion. The proposed settlement figure is apparently 50% larger than initial numbers the company first contemplated in earlier talks. Nothing is set yet, but attorneys involved in many of the cases signed off on the broad outline of what they called a "global settlement" for the U.S. cases, Bloomberg reports. A deal would be designed to help compensate plaintiffs based, in part, on the severity of their injuries, how may surgeries they needed to remove defective implants and replace them, and age, according to the story.

Why settle now? The reality is that the cost for J&J is rising fast. J&J's DePuy arm addressed safety problems over the ASR hips three years ago with a massive recall of 93,000 hips, 37,000 of which were in the U.S. As the story explains, the products generated an excessive 12% failure rate within 5 years at that point, but the rate is growing rapidly. Alongside that trend, the number of lawsuits keeps climbing. Additionally, outside of the lawsuits, J&J's DePuy has gone through close to $993 million to date just to handle ASR patient medical costs and other related recall expenses, a DePuy spokeswoman told Bloomberg. There's also the track record of the metal hip trials J&J has completed so far. The company won a case and lost another one and was ordered to pay $8.3 million. So there's plenty of legal and financial risk moving ahead as the massive number of remaining lawsuits begin to reach court.

A settlement is not guaranteed at this point. Among challenges to overcome: figuring out how many years J&J would have to pay future claims, and whether to factor into a final deal a plan to pay back Medicare for claims it covered. The story also points out that some lawsuits involving more severe medical cases (dual hip surgeries or medical complications) could prompt higher settlements.

Meanwhile, Stryker and other makers of metal hips face similar lawsuits, and one wonders if they won't try to resolve their own legions of pending court cases with settlements of their own. And separate from the ASR fiasco, J&J announced in May it would leave the metal-on-metal and ceramic-on-metal hip markets entirely by the end of 2014. The company blamed its decision on plunging clinician use of the product class, plus pending FDA regulations that will toughen the metal hip regulatory process.

- read the full Bloomberg story

Editor's Note: This story has been updated to correctly refer to J&J as having spent $993 million to date to handle ASR patient medical costs and other related recall expenses.

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