Senate Panel Probes Physician-Owned Distributors

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By Nathaniel Weixel

Nov. 17 — A Senate Finance Committee investigation into physician-owned distributors (PODs) of medical devices will result in at least one referral to the HHS Office of Inspector General for potential action, committee leaders said during a Nov. 17 hearing.

Sens. Orrin Hatch (R-Utah), committee chairman, and Ron Wyden (D-Ore.), its ranking member, said a device manufacturer offered to make payments to doctors through a third party to avoid disclosure, a violation of the Physician Payments Sunshine Act. Both Wyden and Hatch said they were skeptical about POD arrangements because of the financial incentives doctors have for performing potentially unnecessary surgeries, and using “preference items” in those surgeries.

PODs are medical device businesses in which a physician is both an investor and a distributor. The arrangement is most common with implantable spinal devices. The arrangements have been investigated by the Department of Health and Human Services OIG because they may represent a conflict of interest that can lead physicians to choose implants or facilities based on profit rather than their patients’ best interests. The Affordable Care Act's Open Payments Program (commonly known as the Physician Payments Sunshine Act) has made it a requirement for PODs to disclose their ownership interests, but POD critics, and the senators, say that hasn't been happening.

Both senators said there's a need for more transparency regarding POD ownership, and the committee will be submitting additional information to both the OIG and to the Centers for Medicare & Medicaid Services about the rate at which PODs report their ownership interests.

“We believe these findings will say quite a bit about the lack of accountability for these types of business arrangements,” Hatch said.

Wyden said there's going to be more bipartisan committee work to shed light on POD arrangements.

“You're going to see Democrats and Republicans working together,” Wyden said. “These are extraordinary circumstances. This is some of the most egregious and offensive behavior I've seen in a long, long time.”

Disclosure Needed

Lawmakers and witnesses, including the lone witness who supported PODs, agreed that disclosure of ownership interests to patients is important. John Steinmann, board adviser for the American Association of Surgeon Distributors (AASD), said the organization requires compliance with both the self-referral and anti-kickback statutes. Steinmann also said distributorships lower the costs of treatment by reducing the price of devices they sell.

“It is an unfortunate fact that throughout the medical profession there will always be a few ‘bad apples’ who can do serious damage to peoples’ lives. We simply must have mechanisms that force physicians to be held to the high standards patients deserve,” Steinmann said. “I believe the absence of clear, affirmative program guidance from the government has kept many honorable surgeons and their hospitals from sitting down to implement this very sensible model.”

But PODs can still find ways around those requirements, Scott Lederhaus, president of the Association for Medical Ethics, said. Even when doctors do disclose POD ownership to patients, the patients usually don't understand what it means.

“Patients are blindly willing to accept whatever implant the surgeon would decide to use regardless of the quality of those implants or where they are made,” Lederhaus said. “A patient has no idea what a POD is or how a POD might affect their treatment or outcome. So a disclosure by the physician of the POD implants to be used is nothing more than the physician telling their patients what they will be inserting into their spines.”

To contact the reporter on this story: Nathaniel Weixel in Washington at nweixel@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com