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Reimbursement Feature

Image created by RRY Publications, LLC / Source: morguefile and Penywise

OIG POD Report: The Rest of the Story

John Steinmann, D.O. • Thu, November 7th, 2013

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On October 24, 2013, the U.S. Department of Health and Human Services, Office of Inspector General (HHS/OIG) released a study into the prevalence and use of spinal devices supplied by physician owned distributors (PODs).

This study was conducted in 2012 and consisted of 971 random spinal fusion cases billed to Medicare from 589 hospitals. Hospitals responded to questionnaires and provided hard copies of invoices. HHS/OIG then electronically analyzed this data.

OIG Findings

This study identified that:

  1. Approximately one in five spinal fusions are supported by a physician owned distributorship
  2. Surgeons using devices supplied by a POD implanted 13.4% fewer devices per surgery than surgeons obtaining products through traditional distribution
  3. There were no identifiable costs savings on devices supplied by the PODs
  4. Spinal fusion surgery grew at a rate of 21% in those hospitals that used PODs vs. a rate of 9% at all hospitals
  5. Spinal re-fusions at hospitals using PODs decreased from 6% prior to obtaining implants from PODs to 5% after contracting with PODs.

HHS/OIG tackled this complex issue and attempted to provide meaningful data about this newer distribution model. While there are significant limitations in this study and we do not know if any of the results carry statistical significance, some observations seem warranted.

What the OIG Didn’t Find

First, the claim that PODs save money could not be established. A study published on the web site of the American Association of Surgeon Distributors (AASD), however, demonstrates that in the select group of AASD member distributorships, the cost savings were very substantial.

This discrepancy is not hard to reconcile as the OIG largely studied a model without structure or standards while the findings reported on the AASD web site refer to ethically and legally structured PODs

Second, the frequently cited criticism that PODs incentivize increased use of spinal devices and an increase in re-fusion rates was also not supported by this study.

In a spinal fusion procedure, the surgeon determines the number of implants to place and where to place them within the spine. There is no scientific consensus as to the optimal implant density for spinal fusion procedures. The OIG report found that when a POD provides the implants, the implant density is 13.4% less than with the traditional distribution model.

This finding of lower implant density in POD cases, suggests that surgeon owners, as a whole, do not make surgical implant decisions based on their financial interests.

Lastly, the finding that spinal fusion surgery grew at hospitals that utilize PODs is certainly of concern.

But by HHS/OIG’s own admission, there is not sufficient information to indicate the reason—was it due to a financial incentive or due to the surgeon’s desire to reduce his or her inventory requirements by consolidating to fewer hospitals or growing partnerships between hospitals and surgeons to create centers of excellence.

In the end, this study resulted in a draw; implant usage and re-fusions went down with PODs, while costs were the same and fusion rates went up—in a completely unregulated model that has no standards by which participants must act.

AASD Guidelines, Transparency and Disclosure

Consider what a different picture this study would paint if there were guidelines that required disclosure, utilization tracking and cost savings.

The American Association of Surgeon Distributors has set such standards and for the 11 ePODs (ethical PODs) that have gained membership, the story is quite different. Two separate studies have demonstrated 36% cost savings with no increase in use of spinal devices among members of the AASD.

This study is available on the AASD web site at The AASD standards ensure transparency, disclosure, legal compliance, utilization tracking and cost savings, all addressing valid concerns of the HHS/OIG’s office. These AASD standards are becoming an increasingly recognized framework for the legal and ethical application of this valuable model.

The Narrative: “Docs in Business is Bad”

There is a clear interest on behalf of the existing medical device industry to eliminate the competition brought on by this model and a clear interest by the media to report only what is “interesting or sensational.”

Each has its pre-established narrative and looks only to accept those facts that support that narrative. The narrative, for both, appears to be that, “Doctors in business is bad.”

Of the five conclusions of the study cited above, you will not find the media or industry discussing that there was a decrease in implant usage per surgery in those cases using devices from a POD nor will you hear the media or industry reporting that the rate of re-fusion surgery went down, instead you will only hear that there were no cost savings and an increase in spinal fusion rates. Everyone has an agenda.

Providers Must Ensure Quality and Cost

It is time to let common sense speak. There exists a clear market failure when we, in the U.S., pay twice what Europe does for U.S. manufactured devices. This is not an insignificant market failure either, representing a $10-$15 billion dollar overpayment annually by the American public.

Corporate business interests simply cannot be expected to shepherd the necessary transition to greater value in healthcare. Instead, the providers of health care must step up and ensure the American public obtains the highest quality healthcare for the lowest cost. This must be done in a structured environment that ensures transparency and value.

Endorsement of the standards of the American Association of Surgeon Distributors will immediately result in billions of dollars of saving to the healthcare system and signal the American public’s demand for change.

Where Do We Go?

As the HHS/OIG concludes this study and indicates that they are offering no recommendations, where do we go from here?

The “bad doctor” stories are getting old. While such stories may increase viewership or readership, they will never lead to a solution that will improve the value of healthcare in America. The price of orthopedic and spinal devices in America is excessive and there has never been a credible study or opinion that would suggest otherwise.

The properly structured physician owned distribution model (ePOD) effectively restores market forces and results in considerable societal benefit. While it is understood that left without structure, abuse potential exists, there is proof that endorsing a set of standards such as those published by the AASD will result in patient protections, necessary transparency and very meaningful healthcare savings."

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