The Senate Finance Committee has been conducting an investigation into Physician Owned Distributorships (PODs), leading to at least one referral to the Health and Human Services Office of Inspector General for potential action, the case of a device manufacturer who offered to make payments to doctors through a third party to avoid disclosure.
Background
The Affordable Care Act’s Open Payments Program made it a requirement for PODs to disclose their ownership interests. POD critics, including some politicians, say such required disclosure has not been happening the way it should be. On November 17, 2015, the Senate Finance Committee held a hearing on PODs, entities in which physicians are both an investor and a distributor of the product or device. Senate Finance Committee Chairman Orrin Hatch and Ranking Member Ron Wyden called the hearing and issued the following joint statement:
While the vast majority of doctors operate with the highest ethical standards, those with a vested stake in medical device distributorships raise a number of concerning questions about the physician’s motivation in prescribing a procedure, as well as the overall cost to the health care system. When physicians have a financial incentive to recommend and perform a surgery, a potential conflict of interest can occur and jeopardize the health of patients. With this hearing, the Committee will have the opportunity to hear views on all sides of the debate, and we look forward to a constructive conversation on how to ensure major health decisions are made in the best interest of the patient and not the physician’s pocketbook.
Senator Hatch insisted that he understands that PODs are not always problematic, but that “more and more of these physician-salespeople using the very devices they sell in the surgeries and procedures they perform” and could be beginning to cause an ethical imbalance in the profession.
The hearing did include views on all sides of the debate, with Scott Lederhaus, M.D., President of the Association for Medical Ethics; John Steinmann, D.O., Board Advisor to the American Association of Surgical Distributors; Suzie Draper, Vice President of Business Ethics and Compliance at Intermountain Healthcare; and Kevin Reynolds, the son of a patient where the surgeon was affiliated with a POD, in attendance.
Due to their involvement in the field and presumed understanding of the topic, Dr. Lederhaus and Dr. Steinmann offered the majority of the testimony, each on an opposing side of the issue.
Scott Lederhaus, M.D. – Association for Medical Ethics
Dr. Lederhaus has spent the last several years speaking out against PODs of implantable medical devices. The organization Dr. Lederhaus is president of, the Association for Medical Ethics, was formed in 2005 because of concerns about excessive and unnecessary spinal surgeries being performed. The members of that group “believe there is a need to address the rampant physician financial conflicts of interest contributing to the overuse and misuse of spine surgery in America.”
According to Dr. Lederhaus, spinal fusion surgery is one of the most common surgical procedures done in the United States with roughly a half a million operations per year. He states, “extensive spinal fusion surgery in the United States has exploded over the last decade often without indication and for no reason other than to enhance the income of some greedy and misguided spine surgeons.”
Dr. Lederhaus believes that PODs have a tendency to find their way around the legal requirements, stating that even when doctors do disclose their POD ownership to patients, patients do not understand what it means, or what it entails. “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. A patient has no idea what a POD is or how a POD might affect their treatment or outcome.”
Senator Hatch asked Dr. Lederhaus if he though changes to the Sunshine Act would eliminate any conflicts of interest and be “enough to protect patients from physicians with financial interests” in PODs. Dr. Lederhaus does not think changes to the Sunshine Act would be enough and that it would be difficult to control and keep track of dishonest people who went out of their way to hide their involvement. Dr. Lederhaus feels as though it is a conflict of interest for a physician to have ownership interest in a POD and receive revenues from procedures that they perform on their patients.
John Steinmann, D.O. – American Association of Surgeon Distributors
Dr. Steinmann was the only witness present at the hearing who supported PODs. As board advisor for the American Association of Surgeon Distributors (AASD), he focused on the compliance that the AASD requires of PODs with respect to both the self-referral and anti-kickback statutes. AASD also encourages transparency with patients and utilization reports to ensure doctors who join a POD do not suddenly start performing more surgeries as a result.
Dr. Steinmann also defended PODs, saying they actually help to lower the cost of treatment by reducing the price of devices they sell. He stated that since PODs do not have the sales force and overhead that traditional device manufacturers have, they can sell their devices at a lower cost, thereby lowering the cost of healthcare.
He recognized that there are, as always, some bad apples who take advantage, and insisted that the lack 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.” Steinmann continued to defend the ethical physicians who participate in PODs, saying, “I don’t believe it’s [the potential for physicians to earn extra money from PODs] powerful enough to change a person’s ethics.”
Conclusion
Proponents of PODs argue that some of the hardline statements coming from the HHS OIG and Congress go too far and claim that implementing a sweeping prohibition on physician ownership in medical technology companies might have an unintended “chilling effect” on legitimate business practices as well as medical breakthroughs and research.
Senator Hatch was the only senator to ask questions of the witnesses. While it seems as though Senators Hatch and Wyden are eager to engage in discussion of what should be done to “promote patient safety and transparency” in PODs, they haven’t given us an exact “tell” of how they plan to move forward. Senator Hatch seemed particularly interested in existing laws and whether the federal government currently offers enough guidance to provide clarity for hospitals to design POD policies that comply with the law and how to deal with the confusing web of entities that may be involved in paying physician POD investors.
Senator Hatch also expressed an interest in finding a balance between physician entrepreneurship and safeguards to protecting patients from unnecessary harm. He asked that members of the Senate Finance Committee submit their written questions to him by Tuesday, December 1, signaling that he himself is not entirely sure what to think.
Senator Hatch has previously represented physicians and hospitals so he comes from a position of understanding. He also stated that many great ideas that have improved the profession, solved problems and advances have come from good physicians and managers who care about patient health and want to make sure everything is ethical and appropriate.
For the time being, the committee has decided to submit additional information to both the OIG and to the Centers for Medicare & Medicaid Services (CMS) about the rate at which PODs report their ownership interests.
Given the intense focus the Senate Finance Committee seems to have on the issue of PODs, we anticipate some further action to be taken on this issue. Any further action has the potential to implicate the Sunshine Act and possibly make further, more burdensome, changes to the already-onerous reporting laws.
Mr. Sullivan,
Thank you for your fair reporting on this very important issue. As a country, we waste $7-10 billion dollars every year on orthopedic and spinal devices, paying for items that have no bearing on the actual implant quality or research and development. As is present throughout so many areas of healthcare, there is an obvious market failure here that needs to be addressed. This is best addressed by moving from the dominant commissioned distribution model to a stocking distribution model. Ownership of this stocking distributorship can be hospitals but often makes much more sense to be physician owned.
The conflict of interest associated with physician ownership in medical device distribution is significant and just as other powerful conflict that exist in healthcare, politics and law, must be managed through transparency. We have proposed a structure through the American Association of Surgeon Distributors that comprehensively ensures transparency, patient safety and cost savings. I certainly hope that this upsurge in interest in this model will result in affirmative program guidance from the OIG so that the benefits of this model can be realized in a safe and effective manner.
John Steinmann, DO