Pressure Mounts to Curtail Physician-Owned Distributorships

The last few years have been rough for proponents of physician-owned distributorships (PODs), and a recent report from the Medicare Payment Advisory Commission is sure to complicate things further. PODs make money by selling devices that are then used in procedures performed by the physician-owners in hospital, and the report called for limiting the number of PODs and improving their Open Payments reporting.

The report falls in line with a growing consensus among legislators and regulators that PODs are “inherently suspect” and need to be closely monitored, Katie Pawlitz, a health-care attorney with Reed Smith LLP in Washington, told me.

A 2016 report from the Senate Finance Committee said PODs increase the risk of unnecessary surgeries and patient harm, as well pose a conflict of interest for physicians. A 2015 report from the Health and Human Services Office of Inspector General also said POD arrangement could raise the risks for Stark and anti-kickback violations.

Pawlitz said the MedPAC report acknowledges what the health-care industry has recognized as a loophole for POD Open Payment reporting. Certain PODs, such as those only sell to one entity, don’t have to report any payments to the Open Payments database since they don’t meet the definition of a group purchasing organization, Pawlitz said.

Pawlitz also said that PODs that are required to report may not be doing so. The Open Payments program, created under the Affordable Care Act, requires manufacturers of drugs, devices, and other medical supplies, along with group purchasing organizations, to report certain payments made to physicians and teaching hospitals.

The MedPAC report may lead to legislative or regulatory changes requiring all PODs to report Open Payments data, which would result in more information for consumers regarding industry relationships, Pawlitz said. If the changes don’t happen, the report may still encourage the Centers for Medicare & Medicaid Services to take a closer look at PODs that are currently required to report but aren’t doing so, Pawlitz said.

Stay on top of new developments in health law and regulation with a free trial to the Health Law Resource Center. Learn more about Bloomberg Law and sign up for a free trial.