PODs Spark a Political War

At this point, the matter of physician owned distributorships is another Washington D.C. tale of political intrigue. Whether it becomes spine-tingling remains to be seen.

The Senate Finance Committee is looking into PODs, signaling what may be an all-out government assault on the highly controversial practice, with questions about the role of physicians and medical device chains, and opposing high powered law firms in the fray and big-buck physicians as big targets.

Or it may fall flat.

""It is a complicated issue,"" the committee states. No kidding.

The issue is churning in the wake of a Senate Finance committee report issued last week, Physician-Owned Distributors: An Overview of Key Issues and Potential Areas for Congressional Oversight. The report says that under PODs physicians act as middlemen between manufacturers and hospitals or surgical facilities, in lieu of manufacturer representatives.

The committee noted, for example, that there was a marked increase in spinal fusion surgery with the expansion of PODs, and it cited examples of patients put at risk. The suggestion is that physicians are exerting undue influence.

I've spoken to both sides of the debate. POD critics say growing numbers of physicians are improperly making big money in spine and total joint replacements, and are branching out to other areas such as cardiac implants, pacemakers, and defibrillators with their questionable links to device manufacturers. Patients are paying the price, critics say, in a practice that "smells to high heaven."

POD proponents lash back, saying what they are doing improves hospital and physician alignment, and undermines the big profits of device makers and "is threatening to a very powerful industry."

"It makes all the sense in the world," says John Steinmann, MD, an orthopedic surgeon based in Redwood, CA, and involved in PODs. "One thing I won't disagree with is there is potential for abuse. We've worked very hard to instruct our models to put in place excellent compliance programs and there isn't one with a shred of abuse. There are individuals, not surgeons, using them for personal financial enrichment. But that's where the discussion should go: This is a model that absolutely makes sense, and how can we establish appropriate safeguards? We've gone a long way toward establishing those."

The blockbuster Senate report charges that in the interest of financial interests, physician investors in PODs may perform more procedures than necessary or may use implants of inferior quality or not best suited to the procedures. Five senators, working in a bipartisan manner, have asked the Inspector General of the Department of Human Services for an investigation.

The senators' letter also asks the IG to review the structure of PODs be reviewed in terms of the federal anti-kickback laws, designed to protect patients and federal healthcare programs form the potential influence of financial arrangements.

"Our main concerns are pretty much expressed in the Senate report," Thomas N. Bulleit, a partner with Hogan Lovells, a law firm based in Washington, D.C., which has represented medical device makers, and staunch opponent of PODS, tells me. "I think on its face it violates the law, and even if it didn't violate the law, (PODs) smell to high heaven," Bulleit says. "It gives the doctor financial incentive to pick one device over another, instead of letting the decision be based on what is right for the patient."

Among the patient-related concerns noted in the Senate report:

One surgeon provided examples to the committee of elderly patients who received eight to ten back fusion surgeries despite the serious health risks posed by the procedures.

Another example was of an elderly patient who had a herniated disc and ended up receiving four fusion operations based on the recommendation of the surgeon, who happened to be a member of a POD.

Other surgeons provided examples of patients who had died from multiple operations.

While there should be a crackdown of those who abuse the POD practice, general criticism against PODs is wrong, says Steinmann.

Steinmann describes it as the most effective means of hospital/physician alignment, and reflective of what healthcare reform is all about. The Senate report noted that in 2009 a POD in California asserted that its model helped save the hospital they were affiliated with 34% over a two-year period on the purchase of implantable devices, with a total savings of more than $1 million. 

The example sounds exactly like the one that Steinmann says he has been involved in. When it is set up correctly, surgeon owned distribution models would ensure lower cost and demonstrate transparency, Steinmann says.

All this criticism of the PODs is wrapped around self-interests of those in the medical device industry to thwart competition, says Steinmann and W. Bradley Tully, an attorney with the Los Angeles-based Hooper, Lundy and Bookman.

"What you are seeing in Washington DC, [is a] lobbying effort by the medical device industry to eliminate a threat of competition," Steinmann says.

"The difference is sales reps have a commission structure of 40%," Tully says. "It's very large and a [POD] doesn't need a sales rep. It's a functional difference in the delivery of the devices."

In the wake of the Senate Finance Committee report, nearly all parties involved await the release of an Office of Inspector General Report on the issue, expected sometime in August.

"The IG has spoken on this several times," says Bulleit, with a bit of frustration in his voice. "They wrote a letter in 2006, and there was congressional testimony. In each case, they said in essence the same thing: They had serious concerns for potential abuse of patients and programs and were worried when doctors had a financial interest in PODs."

Bulleit describes the expansion of PODs as the result of "the absence of government action." He says that the strongly worded Senate report "shows it is already giving this a serious look. They are not just dabbling; this isn't just fishing. A lot of investigating has been going on."

The major problem is that the POD model "changes the game" in the medical device field, says Steinmann.

Whether the game changes or not may depend on the next move, by the Inspector General's Office, in August, when it gets really hot and muggy in Washington.