The Senate Finance Committee has released "Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight," the result of an inquiry the committee's minority staff began earlier this year.
In PODs, physicians have ownership in a medical device company and thus profit from the sale of its devices, which are typically less expensive than those from medical device manufacturers. It has been alleged that physicians may require or encourage hospitals to refer patients to purchase implants or devices needed for surgery from their POD.
Here are ten key comments from the report:
1. While proponents of the POD model say the arrangement lowers healthcare costs through decreased device prices, others suggest the model may result in increased healthcare costs due to the cost of performing an operation, revision surgeries and other factors.
According to the report:
"One of the key assertions of the POD model is that they are lowering healthcare costs by providing products at a lower price than a medical device manufacturer or non-POD distributor. Opponents of the PODs claim this is a false metric because it does not take into account several critical and material factors in a true cost analysis, including the initial decision to operate on the patient and the number of revision surgeries necessary. Either of these factors could have a significantly larger impact on total healthcare costs in addition to calling into question whether it is in the best interest of the patient."
2. One risk of PODs is that the financial incentive to use their company's devices may interfere with sound patient treatment decisions and may lead to overutilization or the use of inferior products.
According to the report:
"The very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain."
3. Data and anecdotal evidence suggest a correlation between PODs and utilization of spinal fusion surgery, which has implications for patient safety and costs to health insurers.
According to the report:
"These actual and perceived increases [in utilization of spinal fusion surgery] raise significant questions of whether the physician investors decided to "re-do" a previously performed spinal fusion to utilize the POD's products, thereby increasing POD revenue and physician return on investment. This is of particular concern as it raises serious patient safety and ethical questions, not to mention potentially increasing Medicare and other health insurer costs."
4. The lack of specific guidelines for PODs creates a dilemma for physicians: become a POD to gain profit despite the potential unethical/illegal implications, or sacrifice potential business and savings that may be taken up by companies who choose the POD model.
According to the report:
"With the POD structure, the surgeon is acting as the seller, buyer, and person making the decision about what is best for the patient. On its face this appears to be entirely inconsistent with the fundamental tenets of healthcare compliance that have shaped the medical device industry over the last decade, and the POD structure has generated significant conflict of interest and anti-kickback concerns. However, in the absence of more clearly articulated guidance on the legality of these arrangements, those affiliated with this aspect of the medical device industry are faced with walking away from a significant amount of business that will be absorbed by companies who are willing to engage in this practice, or acquiesce to the POD structure that, in many cases, is potentially unethical and/or illegal."
5. The uncertain legal status of PODs allows physicians to choose a legal theory that aligns with their decision to join or not join PODs.
According to the report:
"It appears that hospitals and physicians, like medical device manufacturers, would benefit greatly from clear legal guidance regarding doing business with PODs. The most consistent comment from individuals interviewed by the Committee on this topic was 'it was unclear to them if PODs were legal or illegal.' As a result, potential physician investors typically choose the legal theory that best supports their inclination to join or refrain from joining a POD entity."
6. A concern with the POD model is that physician investors' practice at a particular hospital could become contingent on the hospital's acquisition of the POD's devices.
According to the report:
"Hospitals, like manufacturers, have a responsibility to navigate their relationships with physicians with integrity such that a physician's ability to make more money based on the selection of products used does not enter into the equation of what is in the best interest of the patient. This obligation is greatly complicated by the threat of physician investors in PODs to take their practice and patients to another hospital if the hospital does not do business with them."
7. The Office of Inspector General's broad recognition of potential fraud and abuse without specific guidelines has allowed the number of PODs to increase. Many PODs may be able to avoid direct violation of the law while engaged in legally questionable behavior.
According to the report:
"A consistent theme among the multiple individuals interviewed by the Committee was that while OIG has acknowledged the risks of abuse that PODs pose, the lack of any recent or more specific guidance on this topic has allowed these entities to flourish as a result by citing that they are indeed following the basic guidance set forth by the OIG. This guidance does not appear to address all of the new permutations of the POD model and many of the models are being set up in such a way to purposefully circumvent the federal fraud and abuse laws designed to curb such behavior."
8. CMS needs to revise the Sunshine Law to include PODs in the requirement to disclose financial interests of physician investors.
According to the report:
"It does not appear that the legislative history of the Sunshine Law fully contemplated the POD concept. However, the POD model at its basic level appears to be exactly the type of entities envisioned by the drafters of the Sunshine Law, which would require disclosure of the financial interests of their physician investors. Therefore, the Centers for Medicare & Medicaid Services (CMS) needs to closely examine the physician ownership and investment interests presented by PODs and ensure that those are addressed as they finalize the reporting requirements of the Sunshine Law."
9. The final regulations for accountable care organizations should guard against potential fraud by PODs by prohibiting ACOs from buying products from their participating PODs.
According to the report:
"It seems clear that CMS should take into account the POD models when developing the final ACO regulation to ensure that qualification and oversight of ACOs should protect against the abuses posed by PODs. The final rule should prohibit ACOs from purchasing products or services from entities that are owned by physicians participating in the ACO. Ownership would be deemed to exist if the physician receives any remuneration from the entity supplying the product or service. It should also be made clear that waivers of Stark and Anti-Kickback laws should not extend to PODs except where appropriate."
10. Congress, CMS and the OIG need to develop clear regulations for PODs that will prevent abuse.
According to the report:
"The apparent lack of clear guidance from the government on this topic appears to be contributing to the potential for abuse in this area and it seems incumbent upon Congress to play a leadership role in bringing these issues to the forefront so they can be fully vetted and addressed. As such, the Committee is recommending that letters be sent to both OIG and CMS articulating many of the concerns cited above. We believe it is incumbent upon the Committee to work with OIG to address this rapidly evolving healthcare market issue by conducting an inquiry into PODs and their current structures and activities and develop recommendations for further action to effectively address the patient and program risks presented by PODs."
Related Articles on Physician Owned Distributors:
Using Surgeon-Owned Distribution to Change an Unsustainable Trend
5 Senators Request Investigation Into Legality of Physician-Owned Distributorships
Physician-Owned Device Companies: A New Warning Bell is Rung
In PODs, physicians have ownership in a medical device company and thus profit from the sale of its devices, which are typically less expensive than those from medical device manufacturers. It has been alleged that physicians may require or encourage hospitals to refer patients to purchase implants or devices needed for surgery from their POD.
Here are ten key comments from the report:
1. While proponents of the POD model say the arrangement lowers healthcare costs through decreased device prices, others suggest the model may result in increased healthcare costs due to the cost of performing an operation, revision surgeries and other factors.
According to the report:
"One of the key assertions of the POD model is that they are lowering healthcare costs by providing products at a lower price than a medical device manufacturer or non-POD distributor. Opponents of the PODs claim this is a false metric because it does not take into account several critical and material factors in a true cost analysis, including the initial decision to operate on the patient and the number of revision surgeries necessary. Either of these factors could have a significantly larger impact on total healthcare costs in addition to calling into question whether it is in the best interest of the patient."
2. One risk of PODs is that the financial incentive to use their company's devices may interfere with sound patient treatment decisions and may lead to overutilization or the use of inferior products.
According to the report:
"The very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain."
3. Data and anecdotal evidence suggest a correlation between PODs and utilization of spinal fusion surgery, which has implications for patient safety and costs to health insurers.
According to the report:
"These actual and perceived increases [in utilization of spinal fusion surgery] raise significant questions of whether the physician investors decided to "re-do" a previously performed spinal fusion to utilize the POD's products, thereby increasing POD revenue and physician return on investment. This is of particular concern as it raises serious patient safety and ethical questions, not to mention potentially increasing Medicare and other health insurer costs."
4. The lack of specific guidelines for PODs creates a dilemma for physicians: become a POD to gain profit despite the potential unethical/illegal implications, or sacrifice potential business and savings that may be taken up by companies who choose the POD model.
According to the report:
"With the POD structure, the surgeon is acting as the seller, buyer, and person making the decision about what is best for the patient. On its face this appears to be entirely inconsistent with the fundamental tenets of healthcare compliance that have shaped the medical device industry over the last decade, and the POD structure has generated significant conflict of interest and anti-kickback concerns. However, in the absence of more clearly articulated guidance on the legality of these arrangements, those affiliated with this aspect of the medical device industry are faced with walking away from a significant amount of business that will be absorbed by companies who are willing to engage in this practice, or acquiesce to the POD structure that, in many cases, is potentially unethical and/or illegal."
5. The uncertain legal status of PODs allows physicians to choose a legal theory that aligns with their decision to join or not join PODs.
According to the report:
"It appears that hospitals and physicians, like medical device manufacturers, would benefit greatly from clear legal guidance regarding doing business with PODs. The most consistent comment from individuals interviewed by the Committee on this topic was 'it was unclear to them if PODs were legal or illegal.' As a result, potential physician investors typically choose the legal theory that best supports their inclination to join or refrain from joining a POD entity."
6. A concern with the POD model is that physician investors' practice at a particular hospital could become contingent on the hospital's acquisition of the POD's devices.
According to the report:
"Hospitals, like manufacturers, have a responsibility to navigate their relationships with physicians with integrity such that a physician's ability to make more money based on the selection of products used does not enter into the equation of what is in the best interest of the patient. This obligation is greatly complicated by the threat of physician investors in PODs to take their practice and patients to another hospital if the hospital does not do business with them."
7. The Office of Inspector General's broad recognition of potential fraud and abuse without specific guidelines has allowed the number of PODs to increase. Many PODs may be able to avoid direct violation of the law while engaged in legally questionable behavior.
According to the report:
"A consistent theme among the multiple individuals interviewed by the Committee was that while OIG has acknowledged the risks of abuse that PODs pose, the lack of any recent or more specific guidance on this topic has allowed these entities to flourish as a result by citing that they are indeed following the basic guidance set forth by the OIG. This guidance does not appear to address all of the new permutations of the POD model and many of the models are being set up in such a way to purposefully circumvent the federal fraud and abuse laws designed to curb such behavior."
8. CMS needs to revise the Sunshine Law to include PODs in the requirement to disclose financial interests of physician investors.
According to the report:
"It does not appear that the legislative history of the Sunshine Law fully contemplated the POD concept. However, the POD model at its basic level appears to be exactly the type of entities envisioned by the drafters of the Sunshine Law, which would require disclosure of the financial interests of their physician investors. Therefore, the Centers for Medicare & Medicaid Services (CMS) needs to closely examine the physician ownership and investment interests presented by PODs and ensure that those are addressed as they finalize the reporting requirements of the Sunshine Law."
9. The final regulations for accountable care organizations should guard against potential fraud by PODs by prohibiting ACOs from buying products from their participating PODs.
According to the report:
"It seems clear that CMS should take into account the POD models when developing the final ACO regulation to ensure that qualification and oversight of ACOs should protect against the abuses posed by PODs. The final rule should prohibit ACOs from purchasing products or services from entities that are owned by physicians participating in the ACO. Ownership would be deemed to exist if the physician receives any remuneration from the entity supplying the product or service. It should also be made clear that waivers of Stark and Anti-Kickback laws should not extend to PODs except where appropriate."
10. Congress, CMS and the OIG need to develop clear regulations for PODs that will prevent abuse.
According to the report:
"The apparent lack of clear guidance from the government on this topic appears to be contributing to the potential for abuse in this area and it seems incumbent upon Congress to play a leadership role in bringing these issues to the forefront so they can be fully vetted and addressed. As such, the Committee is recommending that letters be sent to both OIG and CMS articulating many of the concerns cited above. We believe it is incumbent upon the Committee to work with OIG to address this rapidly evolving healthcare market issue by conducting an inquiry into PODs and their current structures and activities and develop recommendations for further action to effectively address the patient and program risks presented by PODs."
Related Articles on Physician Owned Distributors:
Using Surgeon-Owned Distribution to Change an Unsustainable Trend
5 Senators Request Investigation Into Legality of Physician-Owned Distributorships
Physician-Owned Device Companies: A New Warning Bell is Rung