Dollar signs tip the scales of medical judgment, physician-owned distributorship study finds

Physician-owned distributorships (PODs) will most certainly continue to be subject to increased government scrutiny after a recent Senate Finance Committee (SFC) investigation confirmed its suspicions that “PODs present an inherent conflict of interest that can put the physician’s medical judgment at odds with the patient’s best interests.” The report, “Physician Owned Distributorships: An Update on Key Issues and Areas of Congressional Concern,” provided more fuel for the argument that PODs have a distinct potential to violate fraud and abuse laws.

Kathleen McDermott, a partner at Morgan Lewis’ Washington, D.C. office, commented, “the findings of the SFC update are not a surprise but are important. PODs pose classic fraud and abuse risks for companies, physicians and hospitals and the SFC update shows most of all that the heat is on and should be to assure protection to the Medicare program and patients.”

Focus

The SFC requested the report based on its concerns that physician ownership of and self-referral to PODs result in:

  • anti-kickback statute (AKS) (42 U.S.C. §1320a-7b) and Stark law (42 U.S.C. §1395nn) violations;
  • physician conflicts of interest;
  • evidence of overutilization and higher health care costs;
  • danger to patients; continued medical industry confusion over legality; and
  • lack of transparency of physician ownership, including failure of PODs to meet their legal obligations to report under the Sunshine Act.

The report focused on PODs operating in the field of spinal surgery, but noted, “the POD business model could be used to market any type of medical device, and there are indications that PODs have started to appear in other fields beyond spinal surgery.”

Overutilization

The SFC reports a significant amount of overutilization by PODs, noting that “POD doctors see more patients, perform more surgeries, and perform more complex surgeries . . . [which] come at a cost, not only by increasing costs for the entire health care system, but also by harming patients who receive unnecessary treatment.” Having identified the continuing trends, McDermott said, “The Senate Finance Committee’s update assures continued scrutiny because it has confirmed over-utilization trends.”

Risks

According to the report, although a POD is taking some steps to try to mitigate the risks associated with its business model does not mean that the risks no longer exist. Hospitals face serious risks when they do business with PODs, and the only way to completely eliminate those risks is to not conduct business with any POD or any entity like a POD. This may not be as easy as it sounds. McDermott noted, “more troubling is the transparency findings where it appears many PODs are not disclosed to hospitals, preventing hospitals from managing a clear conflict of interest in the interests of patients.” She recommends that “hospitals should pro-actively collect information from its surgeons on participation in PODs and undertake policies that manage the conflict as well as the fraud and abuse risk. Some hospitals manage the risk by prohibiting PODs.”

Recommendations

The report recommended that the Government Accountability Office (GAO) evaluate the costs and benefits of requiring hospitals that purchase from PODs to perform enhanced utilization review. It also noted that CMS should consider withholding reimbursement from hospitals that have not adopted POD-specific policies and do not document that they consider the Sunshine Act database in making procurement decisions involving medical devices. Larger scale recommendations involved revising federal law to require doctors to disclose any interest they have in a POD to the hospital where they practice and to patients and expanding law enforcement efforts to investigate and prosecute hospitals and PODs that violate the law.