Doctor-Owned Device Suppliers Deemed Inherently Suspect

Doctor-owned businesses that act as middlemen between medical device makers and hospitals are “inherently suspect” and some of their practices may violate U.S. anti-kickback laws, a government inspector general said.

Daniel Levinson, the inspector general for the Health and Human Services Department, today issued an unusual “special fraud alert” about so-called physician-owned distributorships, or PODs. The companies sell medical devices that the doctor owners then use in surgical procedures on their own patients.

The greatest concern is about implantable medical devices, an area in which doctors have wide latitude in selecting the type and brand of device that will be used in patients. When the doctor performing the surgery also has an ownership interest in the distributor of the device, the risk of fraud and abuse is substantial, Levinson’s office said in its notice.

“Anytime a few bad actors determine the treatment and care of patients, as this warning makes clear, patient safety is put at risk and millions of dollars are lost to fraud,” Senator Orrin Hatch of Utah, the senior Republican on the Senate Finance Committee who has been tracking the use of PODs, said in an e-mail. “I will continue to scrutinize these high-risk structures and demand answers from HHS.”

Doctor-owned suppliers can help reduce health-care costs when operated ethically and legally, said John Steinmann, an orthopedic surgeon who is an owner of the distributor Inland Spine & Orthopedics in Redlands, California.

Public Trust

“We recognize that this valuable model bears a risk of abuse,” Steinmann, who also represents the industry trade group American Association of Surgeon Distributors, said in a phone interview. “We’re happy that the OIG is creating clarity in defining the characteristics of distributorships that violate the public trust.”

The HHS inspector general said the financial incentives PODs offer may push their doctor-owners to perform more procedures than medically necessary and to use the PODs’ devices over other more appropriate products, Levinson’s office said.

“PODs are inherently suspect under the anti-kickback statute,” he said.

Steinmann said that to his knowledge, neither his company nor any other associated with the trade group are under investigation by the inspector general.

Hatch’s staff, in a June 2011 report, found “rapid proliferation” of PODs since 2009 and that they operated in at least 20 states. The companies are concentrated in California, where Hatch’s staff counted at least 40 and said they specialize in spine and joint implants.

The finance committee has congressional oversight of the Medicare program for the elderly and disabled and the joint federal-state Medicaid plan for the poor, both of which are run through the Health and Human Services Department.

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