Should Medical Devices Be Sold This Way?Should Medical Devices Be Sold This Way?

A U.S. Senate report decries "a lack of transparency" surrounding physician-owned medtech distributorships, and says that they may be breaking federal law.

Nancy Crotti

Physicians who own medical device distributorships are more likely to perform spinal surgery and nearly twice as likely to perform fusion surgery than other doctors, a U.S. Senate report revealed.

These distributorships, known as PODS, sell implantable medical devices that their physician-investors use on patients. The physicians profit from from the sales, and may bill Medicare or Medicaid, according to the report by the U.S. Senate Committee on Finance.

The report calls for physicians to disclose POD ownership to hospitals and patients and for hospitals and surgical centers to examine their medtech purchases in light of federal law. It also recommends stiffer law enforcement for PODs, their physician- owners, and hospitals that do business with them.

Most PODS sell spinal surgery devices and ancillary products, according to the report, which warned they may be spreading into other areas of medtech. The report's findings caused Committee chair Sen. Orrin Hatch (R-Utah) to declare these businesses "a clear conflict of interest" that can put patients' health at risk and inflate federal healthcare costs.

"It is my hope that, with this report, we can continue to work towards expanding transparency and identifying how to better protect and inform patients about what could possibly be harmful POD arrangements," Hatch said in a statement.

Committee staffers heard "extremely troubling" reports of POD surgeons performing revision surgery to replace hardware with the same or nearly equivalent hardware sold by their own PODs, according to the report. "Our concerns about medically unnecessary services are especially acute in the case of seniors who, due to their age, are less physically capable of withstanding the rigors of complex, invasive spine surgery," it says.

The Senate report follows a November 2015 Finance Committee hearing on PODs and builds on Hatch's 2011 analysis of PODs, their structure, and the growth of such arrangements in a number of states.

Here are some highlights:

PODs can have widely varying payment structures, device-disbursing methods, owner characteristics, levels of ancillary services provided, and compliance methods, according to the report. However, they are all structured to ensure that physician-investors profit from the sale and use of the POD's products that they order for their own patients.

Fines for noncompliance with the Sunshine Act had better match the amounts that PODS make for their investors--or nothing will change, warned Madris Tomes, who has worked as a fraud analyst/consultant to CMS to improve medical device identification for the law.

"The Sunshine Act was not put in place as just a bureaucratic step. It is critical to transparency in our health system, and CMS needs the ability to enforce the act with patient safety and fiscal responsibility in mind," said Tomes, now CEO of Device Events, in an email.  "When a loophole or workaround is found, such as what these PODs are doing, that urgently needs to be fixed to help ensure patient safety."

The Department of Health and Human Services, which issued a fraud alert and its own report on PODS in 2013, found that the rate of spinal surgery grew three times faster for hospitals that purchased from PODs than for hospitals overall, and that devices purchased from PODs were not less expensive than non-POD supplied devices. PODs supplied the devices to one in five spinal fusion surgeries billed to Medicare in 2011, the department's Office of the Inspector General found. The Senate committee believes that the this percentage has increased, the new report said.

Committee staff believes PODS may violate the federal the Anti-Kickback Statute and the physician self-referral statute known as the Stark Law, or both. Physicians are also confused about the businesses' legality, the report says.

The report provides an overview of a Department of Justice case against Aria Sabit,a spinal surgeon who operated a physician-owned distributorship (POD). Two of Sabit's patients died and 28 others sued him for medical malpractice, according to the report. Sabit admitted to charges of Medicare fraud and of receiving kickbacks from his spinal device business, but a judge refused to accept his pleas and the case continues.

Hospitals must acknowledge that some physician ownership in medtech companies is necessary to promote innovation, the report adds.

Hospitals need policies about PODS, but must take care not to stifle creativity in medtech, or drive their best physicians away, it concludes.

Nancy Crotti is a contributor to Qmed and MPMN.

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