In spite of efforts to eliminate them, PODs (physician-owned distributors) are not going quietly into the night. In fact, the business model is spreading geographically and apparently branching out beyond spine devices. But confusion remains and more transparency is needed.
That’s the conclusion of a new U.S. Senate report on PODs. It’s also a conclusion the POD trade association agrees with.
New Senate Report
On May 10, 2016, the U.S. Senate Finance Committee issued a report titled: “Physician Owned Distributorships: An Update on Key Issues and Areas of Congressional Concern.” The report followed a hearing held on November 17, 2015, titled, “Physician Owned Distributors: Are They Harmful to Patients and Payers?”
War on PODs
The somewhat surprising growth of PODs comes after an October 2013 Special Fraud Alert (SFA) from the Office of Inspector General (OIG) warning hospitals that prosecutors considered PODS “inherently suspect.” Some large hospital systems, including Hospital Corporation of America, immediately instituted a policy to ban or severely limit their relationships with PODs.
The OIG warning was a big stick to strike at PODs. SFAs are extremely significant warnings that OIG only releases for highly contentious issues, as illustrated by the fact that only five SFAs have been issued in the past 15 years.
What’s more, the Department of Justice (DOJ) undertook a high profile prosecution of Aria Sabit, M.D., a spine surgeon currently sitting in jail after pleading guilty to false claims charges after he illegally billed Medicare for reimbursements of spinal implants he used on patients purchased from a distributorship in which he held an ownership stake.
Just to make sure everyone was paying attention, The Wall Street Journal and CBS Television devoted significant ink and air time to alert patients and hospitals to the alleged dangers of surgeons participating in the distribution of spinal devices.
The Senate committee staff wrote that they “fully support DOJ efforts to prosecute surgeons who put patients at risk for personal financial gain. We believe that DOJ’s continued focus on these arrangements could persuade POD surgeons to sever their relationships with PODs and remind the health care industry that the POD business structure results in behavior that is unethical and potentially illegal.”
POD Resiliency
Yet, in the spite of the shaming, prosecution and some large hospital systems saying “no thanks” to PODS, the healthcare marketplace continues to favor the business model.
OIG found that PODs held a “substantial” share of the spinal device market. In fiscal year 2011, PODs supplied the medical devices used in nearly one in five spinal fusion surgeries billed to Medicare. The Senate report didn’t offer more current statistics.
Since the 2013 OIG warning, the Committee says it found that the growth rate of PODs has slowed, but the absolute number of PODs does not appear to have declined. “It appears that PODs are no longer concentrated in large hospital chains, many of which have adopted policies forbidding or strictly curtailing business with PODs. Perhaps to avoid strict compliance environments, PODs appear to be migrating to smaller and more rural hospitals, which have not yet developed POD specific policies.”
Overall, there is evidence that spinal device PODs are now operating across the country. In its 2011 report, the Committee identified 20 states where PODs were believed to be operating. The Committee now has reports of PODs operating in 43 states and the District of Columbia.
The Committee has also seen indications that the POD business model may be spreading to other sectors of the medical industry beyond spinal surgery. “The Committee is particularly concerned about the POD model spreading to other types of medical implants, including hip, knee, and other joint replacements as well as in prosthetics and orthotics.”
The Transparency Problem
Senator Orrin Hatch, the chair of the Senate Finance Committee which has led the anti-POD posse, with the Advanced Medical Technology Association (AdvaMed) cheerleading from the sidelines, can’t kill the model off. So they’ve focused on the one issue of PODs that enjoys widespread agreement.
Transparency remains a problem and more sunshine is needed.
About one-third of hospitals in an OIG sample survey purchased spinal devices from PODs. Approximately 40% of those hospitals did not realize that they were dealing with a POD. To the contrary, these hospitals indicated to OIG that they were, in fact, not doing business with a POD. OIG was only able to identify these POD relationships by cross-referencing hospital invoices against a list of PODs identified by other hospitals.
The Committee found these specific problems:
First, an increasing number of PODs are reclassifying their surgeons as employees instead of physician owners in an alleged attempt to avoid Sunshine reporting requirements.
Second, POD physicians are increasingly requesting that POD payments be paid to close family members or friends and not directly to participating surgeons.
Third, while payments have traditionally been paid directly from the POD to the surgeon, some PODs are outsourcing all payments to a third-party who then pays the surgeon in an alleged attempt to obscure the fact that the origin of the payment is a POD.
“There is no clear test to determine whether or not a POD is behaving legally or ethically, which inhibits hospitals from being able to protect themselves from potential legal problems.”
Senate Committee Staff Recommendations
To address these findings, the Committee staff recommended, among others, the following steps:
- Federal law should require physicians to disclose any ownership that they or their family members have in non-publicly traded device companies to the hospitals where they practice, and should also require disclosure to patients.
- CMS [Centers of Medicare and Medicaid Services] should require hospitals and ambulatory surgical centers to examine the Open Payments data collected under the Sunshine Act, and document that they have taken such data into account when making device purchasing decisions.
- All hospitals should establish their own hospital-specific policies to manage their relationship with PODs consistent with the OIG HHS [Health and Human Services] SFA.
- CMS should undertake increased enforcement actions to ensure compliance with Sunshine Act reporting requirements.
PODs Agree on More Transparency and Guidance
John Steinmann, D.O., a POD industry founder, told OTW that the Committee report “offers a reminder to all of the potential for these arrangements to be abused and appropriately calls for stronger standards to ensure disclosure, transparency and proper conduct. The report also goes on to reasonably recommend that hospitals adopt policies ensuring legal compliance and disclosure for physician owned distributorships.”
Since 2011, he says many surgeons have appealed to lawmakers and regulatory agencies to provide affirmative guidance and support standards that ensure transparency. His American Association of Surgeon Distributors (AASD) has published a comprehensive set of standards that not only address the recommendations in the report, but takes these recommendations further to ensure cost savings and legal compliance, monitor utilization, ensure product quality evaluations and other key patient protection factors.
Critical of “Unbalanced” Report
While embracing the report’s call for transparency, Steinmann says the public should be cautious of the presumptions made by the report and should be somewhat critical of the absence of balance. “Any study of surgeon ownership in medical device distribution should include the recognition that, when formed with proper intent and transparency, this model can represent an appropriate alignment between surgeons and hospitals resulting in competition and cost savings while ensuring patient protections.”
He noted the report did not mention the only scientific study published in a peer-reviewed journal on cost savings associated with properly structured physician owned distributorships (Surgeon ownership in medical device distribution: does it actually reduce healthcare costs: Steinmann J, Edwards C, Eickmann T, Carlson A, Blight A. Expert Review of Pharmacoeconomics and Outcomes Research. Volume 15, Issue 6, 2015). That study showed that savings of 36% were realized by the properly structured distributorships studied.
While agreeing with the report’s call for hospitals to adopt policies ensuring legal compliance and patient safeguards, Steinmann says, “Supporting a blanket ban on this model will only serve to support the status quo and incumbent industry in a time when healthcare costs threaten this country and at a time when physician/hospital alignment strategies need to be supported.”
The large hospital systems “no POD policy” should not be misinterpreted to suggest the model is illegal, but instead recognizes the inability of these systems to properly differentiate appropriate arrangements from inappropriate ones.
“Large chain hospitals, that can rely on larger cash coffers and well-funded foundations, have the luxury of making broad brush policies in order to avoid the hassle of vetting each POD arrangement. Small hospitals, on the other hand, are both, in need of support to create effective competition and cost savings, and in a far better position to know the individual surgeons and ensure patients best interest are always protected.”
He added that small/rural hospitals under extreme fiscal constraints are more likely to invest the time and resources to vet the physician owned distributorship arrangement and make determinations of compliance and relative cost savings benefit. “Adoption of the AASD standards is a comprehensive, proven and cost effective platform to use as the foundation for a policy on surgeon ownership in medical device distribution.”
Steinmann: Potential Conflicts Are Manageable and Common
The potential conflict of interest associated with surgeon ownership in medical device distribution suggested by the report is manageable. “It is essentially no different than the conflict associated with the fee-for-service system that governs nearly all healthcare reimbursements. This conflict only becomes unmanageable when transparency and disclosure are absent.”
Steinmann concludes that the recommendations of the report “are sound and should serve to help eliminate abusive practices while ensuring this valuable model remains available to hospitals and surgeons. One cost-effective solution for small/rural hospitals is to adopt the AASD standards, or use these standards as platform for their policy.”
“As we move to newer payment models that hold surgeons and hospitals accountable to cost, we must support alignment strategies that can introduce effective competition. Stocking distribution, whether it is institutionally owned or surgeon owned, offers the ability to create efficiencies and a competitive environment that will reduce the cost of high quality medical devices.”
Let the Sun Shine
While not everyone agrees that PODs reduce the cost of medical devices, or that potential conflicts can be managed, everyone agrees that shining more light on the business model will benefit patients, providers and payers.
