Should physicians own their own means of implant or instrument distribution?
No other question generates more passionate debate within orthopedics than that one. Many physicians have jumped onto the Physician-Owned Distributor (POD) bandwagon and defend their decisions to do so fiercely. At the same time, many suppliers and distributors are equally adamant that PODs are out of bounds and should be modified or even stopped immediately.
Orthopedics This Week is pleased and honored to invite two of the most articulate and knowledgeable experts in the area of orthopedic product distribution to debate and shed light on the POD controversy—John Steinmann, M.D., founder of the first physician-owned distributor and Bill Kolter, Vice President for government and public affairs and corporate communications for Biomet, Inc.
Biomet, in the person of its CEO Jeffrey Binder, has been an outspoken and very articulate critic of PODs replying to Dr. Steinmann on a corporate blog on February 21, 2012:
You are cloaking your argument to doctors in save-the-world self-righteousness while enticing them with the oldest sales pitch in the world: easy money.
Dr. Steinmann commented for OTW that having his ethics questioned, “Is hypocritical from a company who just reported $22 million in fines for suspected violations of the Foreign Corrupt Practices Act.”
So, are physician-owned distributorships legal and ethical and do they reduce overutilization of implants and instruments?
FOR that proposition is Dr. Steinmann and OPPOSING that proposition is Bill Kolter of Biomet. This week we present Part I of this vital and important debate.
Incidentally, while the orthopedics industry is debating PODs internally, the Department of Health and Human Services’ Office of Inspector General (OIG) is preparing a report for the U.S. Senate to assess the adequacy of the guidance that has been issued addressing the legality of PODs and other physician-owned entities under the Federal Anti-Kickback Statute.
Dr. John SteinmannDr. Steinmann: The surgeon owned stocking distribution model is legal provided, like any similar arrangement, there exists proper intent, structure, and conduct that is compliant with existing laws.
Proper intent is demonstrated by creating substantial healthcare savings while providing quality products and services. Compliance with existing laws requires transparency, proper disclosure, investment risk, ownership of inventory, written contracts with hospitals and vendors, and never leveraging referrals or favoring the volume or value of referrals.
September 13, 2011 Daniel Levinson, Inspector General of the OIG, confirmed this position in his response to the Senate Finance Committee, stating:
“The legality of any individual physician-owned entity under the Federal Anti-Kickback Statute is highly dependent on each entity’s particular characteristics, including the details of its legal structure; its operational safeguards; and importantly, the actual conduct of its investors, management entities, suppliers, and customers during implementation and ongoing operations.”
A legally compliant structure for surgeon ownership of distribution is available.
Mr. Kolter: We have yet to encounter a POD that fits within safe harbors, one of which requires 60% of a physician-owned entity’s revenue to come from non-investors.
If PODs were able to offer a legitimate distribution business that could attract non-investor surgeon customers, then the model should also attract non-surgeon investors. But PODs depend on surgeon investors switching their business. POD proponents know it. We know it. This is the essence of a kickback.
If PODs were to tout a pure low cost model without financial incentives to surgeons for using particular products, we would have no issues. We would simply compete.
However, given our understanding of the POD structures that we have reviewed, we believe they run afoul of the Federal Anti-Kickback law (AKL), a concern that OIG has repeatedly and consistently expressed.
The AKL has a “one purpose” test. If even one purpose of a payment to a healthcare provider is to induce referrals or other business, it runs afoul of the AKL.
PODs seem tailor-made to violate the “one-purpose” test by depending on surgeon/investor purchases.
Can manufacturers who supply PODs reasonably argue that generating sales from physician-investors is not one purpose of distributing through PODs? Can physician-investors reasonably argue that financial motivation is not one reason for choosing POD products? Can hospitals that work with PODs reasonably argue that preventing the loss of referrals from surgeon-investors is not one reason for purchasing from a particular POD?
Dr. Steinmann: Biomet maintains that surgeons, hospitals and manufacturers cannot be trusted to act with honorable intent. This is hypocritical for a company who just reported $22 million in fines for suspected violations of the Foreign Corrupt Practices Act.
We do not violate the “one purpose” rule and are fully compliant under the AKL.
Nowhere in Mr. Kolter’s response does he propose a solution. Fourteen years ago a hip implant represented less than 30% of the DRG [diagnosis-related group] and now it often exceeds 60%. It is time the industry take responsibility to help develop a solution and stop spending resources to eliminate a viable alternative to overly expensive distribution.
OTW: Mr. Kolter and Dr. Steinmann, are there ways in which physician participation in a POD is ethical and are there ways in which it is not?
Mr. Kolter: Physicians may gain guidance from the AAOS [American Academy of Orthopaedic Surgeons] and AMA {American Medical Association] Codes of Ethics.
The AAOS Code of Ethics states:
It is unethical for an orthopaedic surgeon to receive compensation (excluding royalties) from a manufacturer for using a particular device or product.
The AAOS Code of Ethics does allow for dispensing of patient-care items EXCEPT where inconsistent with applicable law, and we clearly believe that the POD model is inconsistent with applicable law.
The AMA Code of Ethics states:
“Physicians may not accept any kind of payment or compensation from a drug company or device manufacturer for prescribing its products. Furthermore, physicians should not be influenced in the prescribing of drugs, devices, or appliances by a direct or indirect financial interest in a firm or other supplier, regardless of whether the firm is a manufacturer, distributor, wholesaler, or repackager of the products involved.”
Dr. Steinmann: A properly structured surgeon-owned distribution company will operate entirely consistent with the AMA and AAOS Code of Ethics. Mr. Kolter presents a small subset of the broad Academy Code that supports physician’s ethical participation in ancillary services.
Recognizing that pitfalls do exist and desiring to protect the virtues of this model led to the establishment of the American Association of Surgeon Distributors (aasdonline.org), an association that has established comprehensive legal and ethical standards.
Again, I find it hypocritical that Biomet continues to suggest that there exists a “de facto” absence of ethical standards in physicians.
Surgeons by and large are ethical individuals who face various conflicts every day and steadfastly manage these in the best interest of their patients.
While this model does create a conflict of interest, it is no different than the conflict that exists in our fee-for-service reimbursement system or with surgeon ownership in surgery centers. Such conflicts are common in the practice of medicine and are managed through transparency and disclosure to patients, hospitals and colleagues.
While there are some unethical surgeons that have chosen self-interest over patient and societal interest, these deviants can be easily controlled through the adoption of standards such as those published by the American Association of Surgeon Distributors.
Similar to the question of legality, a distributorship structured with transparency and the assurance of high quality products and services is highly ethical and clearly in patients, hospitals and society’s best interest.
Bill KolterMr. Kolter: Surgeons certainly are capable of managing their own ethical behavior. The question is whether the model is ethical.
Dr. Steinmann essentially argues that, because fee-for-service rewards surgeon volume, it is therefore ethical to pay surgeons based on the volume of implants they distribute to themselves. Clearly, the model itself is inherently unethical, as suggested by AAOS and AMA guidelines, and preys upon surgeons’ legitimate frustration in the current reimbursement environment.
Those who attempt to sell surgeons on POD models are leading them (and hospitals) into a dangerous trap that runs the risk of federal enforcement.
Dr. Steinmann: The vast majority of surgeons are honorable and ethical individuals that would never operate on someone for their own personal gain. For the few dishonorable individuals out there, you can be assured that the fee-for-service system has far greater influence on them and hence this model does not introduce an incentive that does not already exist.
A study conducted by Alliance Surgical Distributors analyzed utilization (measured as the ratio of new patient visits to the decision to treat operatively with implants) in five affiliate distributorships. This surgical decision index was calculated for the 12 months prior to the distributorship and up to five years following the distributorship. There was no increase in the decision to treat surgically following the implementation of this model in any of the five distributorships studied.
While it is reasonable to have concern regarding the issue of utilization, currently, there does not exist any evidence to support the allegation that this model introduces a new incentive capable of increasing utilization
Mr. Kolter: While OIG intends to investigate POD utilization, we have never argued that PODs influence surgeons’ decisions to operate. But they clearly influence the choice of implants.
It is fallacious to argue that the POD model does not introduce new incentives. Rewarding surgeons financially for using a device distributed by their POD is a new incentive and a new conflict. When the amount paid increases, either directly or indirectly, with the volume of devices used, that also is a new incentive and a new conflict, which we believe is clearly proscribed by AAOS and AMA Codes of Ethics and federal statutes.
OTW: Gentlemen, let’s talk for a minute about this issue of overutilization. Does physician involvement in the distribution of implants promote overutilization or reduce it?
Mr. Kolter: Proper utilization can only be determined on a patient-by-patient basis. Mere increases in volume, of which there is some evidence, may or may not be overutilization. Whether or not PODs promote overutilization is immaterial to the fact that the model is problematic under the Anti-Kickback Statute. That said, the OIG, as part of its investigation into PODs, intends to explore this very question, and will undoubtedly question volume increases, whether legitimate or not, that coincide with surgeons’ changing their implants to those distributed by their PODs.
Dr. Steinmann: We have found no increase in utilization among the surgeons in our distributorships, nor would I have expected to. Contrary to the suggestions of Mr. Kolter, surgeons do not operate on people because they own a distributorship.
We have voluntarily met with the OIG and showed them how we track utilization and ensure transparency. We also fully support a distributorship registration process to ensure transparency. Finally, I again draw the readership attention to the standards published by the American Association of Surgeon Distributors to see how this and many other concerns are appropriately addressed.
OTW: Gentlemen, so in terms of the larger economic issues, who wins and loses under the current models of physician-owned distributorships?
(The answer to that question and the rest of this debate continues in Part II in an upcoming issue of OTW).
