News Roundup: Drug Ads, Devices, and Payments Scrutinized

Physicians are at odds with hospitals over Medicare pay cuts at the same time that doctors' financial ties to medical devices are under the microscope of the U.S. Senate. And the AMA is sounding the alarm on drug ads.

The American Medical Association's penchant for making big announcements during its annual interim meetings continued this week in Atlanta with a call to ban all ads aimed at consumers for prescription drugs and medical devices.

The AMA also reaffirmed its rejection of the proposed mergers of insurers Cigna and Anthem and Humana and Anthem.

Normally, I'd focus all of my attention this week on the AMA's meeting because symbolic and significant policy pronouncements are typically made at these events. But two items that flew under the radar this week caught my attention instead because of their potential financial impact on physicians.

First, the practice of physician-owned distributorships, or PODS, in which physicians earn a portion of sales from prescriptions for medical devices, was heavily criticized during a U.S. Senate Finance hearing on Tuesday. The regulatory environment of surgeons using devices they may have a financial stake in, such as orthopedic implants, is not straightforward. Second, the Medicare payment cuts that are part of the budget deal agreed to in October are pitting hospitals against physicians.

Banning Drug and Device Ads
Direct-to-consumer prescription drug and medical device ads are a significant chunk of consumer advertising—just watch any TV show. The AMA wants this to stop. In a statement, Patrice Harris, MD, AMA board chair-elect, said the ads drive up consumer demand for expensive treatments over cheaper, but effective alternatives. "Direct-to-consumer advertising… inflates demand for new and more expensive drugs, even when these drugs may not be appropriate."

Unsurprisingly, Pharmaceutical Research and Manufacturers of America, PhRMA, pushed back immediately on Twitter.

The AMA believes banning drug ads will reduce healthcare spending (because patients won't be demanding specific drugs they may not need) and improve transparency.

I have heard physicians complain about having to give in to patients who heard or read about a new drug. But over and over again, research points out that patients listen to their doctors when they trust them. There are always one or two patients who are insistent, but if a physician is constantly giving into patients' demands for Humira because the ad for it is on heavy rotation in during Law & Order reruns, maybe it is time to for a doctor-patient relationship checkup.

Prescription drug and device advertising is a favorite punching bag, in part, because the commercials are so predictably bad. The ads are also everywhere, as the Washington Post found earlier this year. Kantar Media, a market research firm the Post used to source its findings, reported that drug companies spent $4.5 billion in marketing in 2014, and that the drug companies spent more on marketing than research.

The AMA's statement on banning drug and device ads doesn't hold consequential weight, however. The FDA regulates prescription drug and device ads and any changes to them would have to come from Congress. But as a powerful lobbying group in a presidential election season, the AMA's opinion may get some traction.

Physician-owned distributorships
A U.S. Senate inquiry into physician-owned distributorships (PODs) on Tuesday revealed support for models that include more transparency. Critics of the PODs say surgeons are more likely to overuse medical devices they have a financial stake in while proponents say they encourage innovation.

Finance Chair, Orrin Hatch (R-UT) and ranking Democrat, Ron Wyden (D-OR), held the bipartisan hearing the same week that a federal judge rejected a plea deal from Aria Sabit, MD, a neurosurgeon who was part of a POD and who admitted to performing unnecessary surgeries because of the financial incentives the POD offered him.

Sabit pled guilty and was looking at spending at least nine years in prison, but the judge's rejection means Sabit's sentencing could be even longer.

"POD ownership may affect clinical decision making… is this a conflict of interest that compromises medical judgment?" Hatch asked.

John Steinmann, DO, senior partner and medical director at the Spine and Joint Institute at Redlands Community Hospital says no.

"I don't believe it's powerful enough to change a person's ethics," Steinmann said. "We have, and are met with, a powerful conflict of interest in every patient we see. We are paid, on a back pain patient $100 to recommend a conservative regimen of exercise and safe medication, or we're paid $5,000 to operate on their back."

Steinmann says that instead of the traditional PODs model that is based on manufacturer control over inventory of medical devices, he is part of a POD that uses a "stocking distribution model" that controls inventory through volume purchasing.

Suzie Draper, vice president of business ethics and compliance at Salt Lake City–based Intermountain Healthcare, says the healthcare system revised its policies regarding not only PODs, but also all physician-owned enterprises in May 2013.

Federal investigations into PODs prompted fraud alerts across the industry. Draper says Intermountain is committed to transparency and meeting the letter and spirit of federal guidance about PODs, but also says there are now significant implications when buying medical devices.

She says the field of suppliers is narrower and that there could be a "potential chilling effect" on innovation among physicians at Intermountain who want to design and collaborate.

"We recognize that many of Intermountain's own physicians are in the best position to invent disruptive and innovative technologies, and we hope that this exception will provide a compliant model for those activities," Draper says.

Wyden argues that PODs gave physicians an opportunity to double dip—first, by getting paid by the insurer, then by getting residuals on the devices that were used.

Docs vs. Hospitals in Medicare Payment Cuts
The American Hospital Association is lobbying for a new exemption to Medicare payment cuts that were agreed to in last month's budget.

At issue are the payments to outpatient facilities and ASCs once owned by physicians that hospitals are planning to buy or build but the deals have not yet been finalized.

The higher payment rates hospitals received when they bought a physician-owned practice or ASC expired November 1, when the new budget became law. The AHA says the deals that are in process should be exempt from receiving the lower rate and instead be grandfathered in as existing HOPDs or ASCs.

The American College of Physicians supports the payment cuts. After the budget deal was reached in late October, ACP officials issued a statement calling the new payment policy "a positive step forward." The ACP is one of the largest U.S. physician groups with 143,000 members. It criticized the facility fees that get tacked onto a physician practice when it's acquired by a hospital.

The cuts also have broader support from physicians and physician organizations who are part of the Alliance for Site Neutral Payment Reform. The coalition of payers, and members from physician groups, such as the ACP, the American Academy of Family Physicians, and others, lobbied for site payment neutrality in January, sending a letter to then House Speaker, John Boehner (R-OH). It said: "Reforms must be further designed to stop hospitals' reliance on revenue from HOPD services to fund the delivery of unrelated care services."

So far, the ACP, AAFP and others part of the alliance have been silent on whether the deals in play should be exempt.