The cost of spinal fusion surgeries is boosted when hospitals purchase medical devices from physician-owned distributors, according to Daniel Levinson, the inspector general of the U.S Health & Human Services Dept.
The POD businesses also create the potential for conflicts of interest, according to the report, which prompted a call for increased scrutiny of PODs from 3 senators last week.
The OIG examined Medicare claims for 1,000 spinal fusion procedures performed in 2011 for the report, which found that 20% of the procedures used devices purchased from PODs.
"Spinal surgeries that used POD devices used fewer devices but did not have lower per-surgery device costs than surgeries that did not use POD devices. Among the hospitals in our sample, about a third reported buying spinal devices from PODs. When hospitals in our sample began buying from PODs, their rates of spinal surgery grew faster than the rate for hospitals overall. Finally, in FY 2012, surgeons performed more spinal surgeries at hospitals in our sample that purchased from PODs than at those that did not purchase from PODs," according to the report. "Our findings raise questions about PODs’ claim that their devices cost less than those of other suppliers. Surgeons performed more spinal surgeries at hospitals that purchased from PODs, and those hospitals experienced increased rates of growth in the number of spinal surgeries performed in comparison to the rate for hospitals that did not purchase from PODs. Taken together, these factors may increase the cost of spinal surgery to Medicare over time. Finally, hospitals’ policies varied in whether they required physicians to disclose ownership interests in PODs to either the hospital or their patients. Thus the ability of hospitals and patients to identify potential conflicts of interest among these providers is reduced."
Last year Levinson issued a "Special Fraud Alert" labeling PODs as "inherently suspect" under Medicare’s anti-kickback rules, prompting a lawsuit from Reliance Medical Systems earlier this month. The latest report from the OIG drew an immediate response from Sens. Orrin Hatch (R-Utah), Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa).
"My deep-seated skepticism that physician-owned distributors operate in the best interest of patients and save taxpayers money has been confirmed by this non-partisan report," Hatch said in the statement. "Seniors on Medicare deserve a surgeon who makes these life-changing health care decisions based on what is best for the patient, not what is best for the surgeon’s bottom line. The HHS Inspector General’s finding that hospitals conduct a greater number of high risk spinal surgeries when they purchase products from physician-owned distributors shows why vigorous oversight is necessary to protect the health and safety of patients."
"The findings from the HHS Inspector General show that physician-owned distributorships are driving up health costs and may even be encouraging unnecessary surgeries. Together with the Inspector General’s special alert issued earlier this year, it’s clear that PODs require closer monitoring," added Baucus. "We must ensure that physician-owners of these medical device distributorships play within the rules and are not allowed to profit at the expense of patients and taxpayers."
"The growth in surgeries connected to physician-owned distributorships raises a lot of questions," Grassley said. "Are patients undergoing surgeries based on medical need and quality of care or financial incentives for doctors? As a start, hospitals should take a closer look at whether their physicians are participating in and benefiting from these arrangements and what that means for patients. Also, the inclusion of physician-owned distributorships in the Physician Payments Sunshine Act will help shed light on these relationships."
Christopher White, general counsel for AdvaMed, the lobbying arm of the medical device industry, said the report underscore’s the group’s concerns about PODs.
"AdvaMed believes that transparent, ethical interactions between health care professionals and medical technology companies are critical to innovation and improved patient care. We have long been concerned that companies – such as PODs – with equity investments by physicians who are also major revenue generators for the companies, raise important legal and policy issues relating to the potential effect on clinical decisions by physicians," White said in prepared remarks.
Joseph Truhe, general counsel for PDP Holdings, a Nashville POD, told Modern Healthcare last year that the criticism of the POD industry is driven by deep-pocketed medical device makers.
"A hospital’s decision to work with a POD is because it is the low-cost vendor," Truhe said. "There’s about $20 billion in business in implants at stake, and the legacy manufacturers have a lot at stake in preventing 20 or 30 or 40 American manufactures of quality generics from having easy market entry without investing in huge and expensive distribution networks. They’ve already got the market cornered, and they don’t want to see competition."