The controversy over physician-owned distributorships (PODs) took on a new twist when Scott Lederhaus, M.D., a California neurosurgeon and member of the Association for Medical Ethics (AME), published a recent article titled, “Physician-Owned Distributors: The Wave of the Future or the End of the Model?” in the journal Ethics in Biology, Engineering & Medicine (EBEM).
After being notified by Dr. Lederhaus, we reviewed his article. Since the article did not appear to be peer reviewed, we sought a review from the physicians of the American Association of Surgeon Distributors (AASD).
Lederhaus, Rosen and Association for Medical Ethics
As a quick aside: EBEM includes on its editorial board, Charles Rosen, M.D., the president of the Association for Medical Ethics. Dr. Lederhaus is the physician quoted by The Wall Street Journal in a story last October about a patient who died after being operated on by a surgeon who had ownership in the device company whose product was used.
The WSJ quotes Dr. Lederhaus as saying, “Patients are having huge operations that are un-indicated because of conflicts of interest.” We found the facts didn’t match in a story we wrote about WSJ’s accusation. It was another bungled, misleading story about physician ownership in the business of healthcare. Dr. Lederhaus told us then that he did not review the patient’s medical records, nor was he speaking specifically about the surgeon. The reporters didn’t tell him his comments would be tied to a particular case.
Risks of Joining PODs
Dr. Lederhaus provides a brief history of the development of PODs and tries to outline the legal, ethical and economic risks facing a surgeon considering becoming an investor in a POD. The legal and political issues have been vetted here in great detail in the past, so we’ll focus on Dr. Lederhaus’s opinions about surgeon participation in a POD.
“With the controversy regarding the legality of PODs, one must decide if sitting on the fence waiting for the federal government to formally declare PODs illegal or legal or if the risks of joining a POD are worth it. With time there may be more openly prosecuted cases involving PODs undergoing OIG [Office of Inspector General] investigations for fraud and abuse with surgeons performing egregious non-indicated, multilevel procedures, ” writes Dr. Lederhaus. (We are not aware of any “openly prosecuted cases” involving PODs.)
Specifically he cites another WSJ expose’ involving Omega Solutions, a distributor used by Dr. Vishal Makker, who was using implants from the POD and allegedly was performing multiple repeat surgeries while receiving $500, 000 per year from Omega Solutions. (We also covered this story and found the WSJ provided misleading assumptions regarding the payments.)
Case for Guidelines
Dr. Lederhaus notes that if a legal POD could be devised with stringent guidelines, “then perhaps there is a place in the market for such a model. Without strict guidelines the POD model will be poorly defined and lead to fragmentation of structure, and we will be back to our current dilemma of forming semi-legal or entirely illegal PODs and dealing with predatory pricing and kickbacks.“ (We are not aware of any POD that has been declared illegal.)
Dr. Scott Lederhaus“Continuing on as we are is not acceptable and will eventually require the OIG (Office of Inspector General) to take a firm stance for or against PODs. It is up to physicians to practice responsible, ethical surgery for the benefit of their patients. However, if a legal POD entity can be developed that satisfies all the stringent federal laws and restrictions it also could be a revenue source for physicians in these difficult economic times.”
The hypothetical PODs described by Dr. Lederhaus purchase devices, “that the owner physician ordered for their cases…[and] enhance the income of physicians who are investors via the recovery of money paid out for the implantation of medical devices in their patients.”
Physicians in the POD profit financially by participating in the sale of medical devices intended for their own patients, says Dr. Lederhaus, “Thus creating the opportunity for them to profit from their own referrals and implants.”
Non-Indicated Surgeries and Predatory Pricing
Dr. Lederhaus, as well as Dr. Rosen’s AME, seem to have little confidence in the ethics of their fellow surgeons. “It is doubtful that all physicians can be trusted enough to perform operations or provide services for only those patients who need surgery and do only what is best for their patients.”
Dr. Lederhaus argues that predatory pricing, which he claims is occurring with PODs, “rewards those unscrupulous surgeons who have no sense of ethics or doing what is best for the patient.”
“This essentially promotes those physicians who may egregiously perform extensive and non-indicated operations for the sake of enhancing income solely on the implants used. Gone are the days of lumbar discectomies when a multilevel fusion can be done instead. “
No evidence of predatory pricing or documented non-indicated surgeries were noted in Dr. Lederhaus’s article.
POD Surgeons Respond
Since Dr. Lederhaus’s article in EBEM lacked peer review or another opinion, we contacted AASD, the organization set up by physicians who own their own distribution companies. John Steinmann, M.D., one of the founders of the POD concept is also a founding member of AASD. Their response was signed by Charles Edwards, M.D., Paul Burton, D.O. and Tom Eickmann, M.D.
Bad Apples
The surgeons say they agree with Dr. Lederhaus’ characterization of the bad apples who utilize the model for their sole personal financial gain with either no or frankly negative societal benefit.
“We know these exist and have developed effective means to root out these individuals who are the single greatest threat to a model that can save the U.S. healthcare system billions of dollars annually. As opposed to a desire to protect the status quo, we recognize the need for change and have constructed a very appropriate, legal and ethical model to effect that change.”
Bias and Scare Tactics
While they agreed with Dr. Lederhaus over the potential for bad apples and saw his article as an “opportunity for a potentially unbiased surgeon to offer neutral commentary on the subject of physician ownership in medical device distribution, ” the surgeons were disappointed.
“Sadly, this manuscript failed to provide sensible, fair and balanced information for the readership. Such was unfortunately, also the case with The Wall Street Journal articles [Re: Omega Solutions and Dr. Makker]. Dr. Lederhaus’s bias appears to have been engendered through interactions with a potentially improper distributorship in his practice area. Rather than adding clarity, unique insight or a solutions focus, the article, regrettably uses scare tactics to foster paralysis among well-intentioned surgeons and hospitals.
Fee-For-Service Trumps POD Conflict
Pointing to Dr. Lederhaus’ assertion of conflicts of interest in PODs, they say his article does not acknowledge that this conflict is, “far subordinate to the conflict of the fee for service payment system for that same procedure. There is talk of overutilization, which impugns the integrity of the profession, without any data to validate that stance. There is talk of this being a financially motivated endeavor without any acknowledgment that surgeons might actually be motivated to correct the problem of overpriced implants.”
Utilization Data
The AASD physicians note that Dr. Steinmann’s group, Alliance Surgical Distributors, has developed 12 different distributorships across the U.S. and have documented a 37% average savings below hospitals best-contracted price. Alliance has studied utilization, comparing the decision to treat surgically with instrumentation for the 12 months prior to implementation of the distributorship and annually thereafter.
They say the data show a slight decrease in the decision to treat surgically following the initiation of a distributorship. “We are unaware of any occurrence whereby an Alliance distributorship leveraged referrals or failed to provide service commensurate with pre-existing standards. We are aware of no circumstance whereby use of distributorship products was a requisite of continued ownership in the distributorship.”
All 12 distributorships reviewed by the association, according to the surgeons, have been completely transparent to their hospitals, colleagues and patients. “Alliance appears to have developed a very viable solution to a significant healthcare problem and authors like Dr. Lederhaus should offer fair and balanced information on this subject matter.”
Addressing the OIG concerns noted by Dr. Lederhaus, the AASD members point to a September 2011 response to a U.S. Senate inquiry, indicating that PODs may or may not be legal depending on the structure and conduct of the participants and that each would need to be analyzed independently.
“For Dr. Lederhaus to expect a carte blanche yes or no to surgeon ownership of distribution is unreasonable. We look for continued guidance and hopefully the endorsement or publication of standards governing conduct within the surgeon-owned distribution model. Until then, the AASD is very clear in our understanding that the OIG, CMS [Centers for Medicare and Medicaid Services] and the U.S. Senate expect surgeons to always act in patients, hospitals and societies best interest—and our members do exactly that.”
To be fair to Dr. Lederhaus, we have only highlighted comments from his EBEM article relating to his personal opinion of PODs. Dr. Lederhaus also offers a 13-point addition to the AASD’s 19-point compliance program. (See insert.) We have provided a link to Dr. Lederhaus’ entire article in EBEM. You’ll have to pay for the article.
Show Us the Data
PODs have now been around for almost 10 years, with over 40 alone reportedly existing in California. The primary question of unethical overutilization and whether or not POD surgeons can be trusted to act in the best interest of their patients now has a potential body of data to answer the utilization question. We’ll await the data.
Dr Lederhaus’s Points for a Legal POD
The POD investors could only own a fixed, small percentage of the company and eliminate multiple small and individual or mini-PODs.
Reimbursement from a POD can be based only on the percentage ownership of an individual POD and not by individual use of a product.
A POD must have a large number of physician owners, perhaps 25 or more, all with equal percentages of ownership, who locally work in a close geographic area, so that one cannot construe that payment is based on volume as it would be in a smaller POD and an investor cannot choose heavy users throughout a large geographic area.
Any implant company potentially could compete for the business at any hospital [against] the POD.
The physician owners would not purchase specific implants because purchasing an implant would force a physician to use only one particular product that may be of inferior quality or not what would be best for the patient.
The POD would not accrue implants but would purchase implants from the most cost-conscious and quality options manufactured by any of the small or large implant companies.
Implants purchased by the hospital through any vendor would be no more expensive with a POD; a POD could not charge higher fees than other implant companies.
Each hospital that allows PODs must have a conflict of interest statement that each physician member of that hospital signs.
If any physician is egregiously performing non-indicated, multilevel operations (which would have to be monitored via a peer-review process and conflict of interest declaration at each hospital), those individuals would be eliminated from the POD and potentially reported for possible fraud and abuse prosecution.
The POD owner would have to declare in writing to their patients that they have a financial interest in the company.
There would be no need for passive investors because the POD models would not qualify as safe harbors.
Physician investors who retire or move out of the area of a particular POD would sell their interests back to the POD.
POD investors who care for non–federally funded insurance [patients], including workers compensation, should follow these same guidelines to avoid egregious acts and kickbacks.
