MedPAC Takes Anti-Pod Stance

The Medicare Payment Advisory Commission (MedPAC) released its annual Report to the Congress on Medicare and the Health Care Delivery System (the “Report”) on June 15, 2017. While the report makes many suggestions, one important one is the discussion of physician-owned distributorships of implantable medical devices (PODs). The discussion – and thereby, the report – call for action to reduce the number of PODs.

This negative commentary follows a 2016 report critical of PODs from the majority staff of the Senate Finance Committee, which concluded that PODs are “harmful to patients and payers.” The MedPAC Report joins others (policymakers, regulators, law enforcement, consumer groups, health care providers, etc.) in calling for the conflict of interest that they believe is inherent in the POD business model to be eliminated.  

The discussion found in the Report touches on issues that critics have made regarding PODs, including that they may lead to increased volume of surgery, increased intensity of procedures, inappropriate care, and higher device costs.

MedPAC speaks as Congress’ chief advisor on Medicare payment issues. This Report adds to a decade-long trend ringing loud alarm bells about PODs, as outlined below:

• 2008: CMS expresses concern that PODs may “serve little purpose other than providing physicians the opportunity to earn economic benefits in exchange for nothing more than ordering medical devices or other products that the physician-investors use on their own patients.”
• 2011: SFC (then) minority staff releases its first report questioning the propriety of PODs, observing “[t]he very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain.”
• 2013: OIG issues its Special Fraud Alert (SFA) enumerating elements exhibited by PODs that make them “inherently suspect” under the Anti-Kickback Statute, including features common in the POD business model, such as:
  1. the POD offers investment interests primarily or exclusively to physicians who are expected to order or recommend implants sold by the POD;
  2. the POD primarily or exclusively serves its physician-owners’ patient base;
  3. physician-owners shift to the POD’s products on a primary or exclusive basis after joining a POD;
  4. physician-owners condition their referrals to hospitals by coercion (such as threats that they will go elsewhere unless the hospital buys implants sold by the POD); and
  5. physician-owners are few enough in number that the volume or value of a physician’s own referrals correlates closely to investment return.
• 2013: OIG also publishes the results of its research into actual hospital purchases from PODs, concluding that PODs result in increased utilization of implantable devices compared to procedures performed with implants not acquired by PODs, and yield no cost savings (and in some cases increase costs).
• 2014: DOJ files a civil case against Reliance Medical Systems LLC (Reliance), two of Reliance’s affiliated PODs, and some of their investors for violations of the Anti-Kickback Statute and the False Claims Act. The Complaint is based on the legal theory that physician-owner return on investment in Reliance PODs constitutes a kickback to induce the physicians to order Reliance implants for their own patient procedures, resulting in the submission of false claims to Medicare.
• 2016: SFC majority staff releases its second report on PODs, relying on evidence collected from its investigations, and stating in stronger terms that the committee is “highly concerned about the damage that PODs have done, and are continuing to do, to patient safety and federal healthcare programs.”
• 2017: A physician involved in the Reliance case is sentenced to nineteen years and seven months in prison for $2.8 million in criminal healthcare fraud. The physician admitted to persuading a hospital where he performed procedures to buy the implants that he ordered for those procedures from a Reliance POD, Apex Medical Technologies, in which he had ownership stake. Additionally, the physician conceded that economic benefits of the POD motived him to perform medically unnecessary surgeries.

It is unlikely that the Report will lead to any immediate actions by Congress or Medicare regulators. Congress’ attention to health care is currently focused on “repeal and replace” (Obamacare) and the Centers for Medicare and Medicaid Services (CMS) is similarly involved with considering whether and how to move forward with several Obama Administration initiatives, such as value-based health care.

However, it is significant that another independent inquiry has concluded that physician self-referral to PODs should be curtailed. The Report will add another notch in the belt of False Claims Act qui tam relators and law enforcement as they challenge POD relationships. Further, many hospitals have adopted policies forbidding or severely restricting dealing with PODs. This Report will make it harder for hospitals and physicians to initiate or maintain relationships with PODs.