Physician Owned Distributorships (PODs) are complex business relationships in which physician owners sell and profit from the use of medical devices.
The structure of these relationships continues to evolve including physician-owned manufacturing companies and group purchasing organizations. Given that Orin Hatch (R-UT) and the Senate Finance Committee continue to investigate physician-owned distributorships and the Department of Health and Human Services Office of the Inspector General (HHS-OIG) has deemed them “inherently suspect” here are 10 key points for physicians, hospital administrators and practice managers to be familiar:
1. POD’s are drawing attention in part due to the practice patterns of their physician owners. As a group, POD surgeons perform surgery at a much higher rate (44%) than non-POD Surgeons. They also perform fusion surgeries at twice the rate of non-POD surgeons. HHS is concerned that the financial incentives associated with POD’s are leading to a pattern of overutilization.
2. The HHS-OIG continues to tighten the ownership criteria of POD’s that do not violate the anti-kickback statutes (AKS). Previously, limiting physician ownership to less than 40% was thought to be sufficient protection. In it’s latest report, the Department of Justice (DOJ) has made clear that the financial returns to physician owners must be consistent with the business risk of the investment and not based on product use. Physician profits out of proportion to the investment or ownership stake in the POD are violations of the anti-kickback statutes.
2. POD’s are now expected to be operating business entities. The DOJ will examine the operations of a POD to verify that they are a real business activity, including having a physical office, warehouse space, and staff. They also must seek customers beyond the physician owners and negotiate with hospital customers, including offering discounts from list price if appropriate.
3. POD’s that have exclusive clients who are owners of the POD, as well as POD's that do not actively attempt to sell to other surgeons, are drawing significant attention for violating the law.
4. Manufacturing of the product by the POD does not provide protection as compared to buying the product and reselling to customers. The DOJ is focusing on the entire business operations of the POD to determine that the POD is an authentic business entity and how the POD obtains its products, either by manufacturing or by reselling does not establish legitimacy.
5. The DOJ is focusing on the pattern of physician implant use. If physician owners have a significant increase in implant use after joining a POD, they will be vulnerable to anti-kickback claims.
6. Disclosure to hospitals and patients does not protect POD’s from anti-kickback claims, but failure to do so increases the likelihood of further investigation.
7. The DOJ is concerned about inappropriate physician/POD owner influence with hospital customers. Physician/POD owners cannot exert undue influence such as threatening to operate elsewhere to have a hospital buy a POD’s products.
8. Hospitals and ambulatory surgery centers (ASCs) have exposure to liability as well. If violations of the anti-kickback or Stark laws are found, the liability is on both sides of the transaction, including both the POD’s physician-owners and the hospital purchaser. Hospitals and ASC’s need disclosure policies so they know when they are negotiating with a potential POD.
9. Many large hospitals and health systems have adopted policies limiting or banning purchases from PODs. The implementation of these policies has resulted in PODs and POD surgeons moving to smaller hospitals that do not have limiting purchasing policies. Congress is now calling for CMS to require all hospitals to have policies and purchasing guidelines for PODs.
10. In an attempt to avoid Stark and AKS, PODs are altering their ownership structure and operations. PODs have begun to hire physicians as employees or consultants to avoid disclosure of ownership interests and Sunshine Act reporting. There have also been reports in large surgical groups of patients being referred among surgeons owning multiple PODs so that an individual doctor is benefiting from the use of implants by their partners.
Additional reading:
Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas of Congressional Oversight - http://www.finance.senate.gov/imo/media/doc/POD Analysis June 2011.pdf
Physician Owned Distributorships: An Update on Key Issues and Areas of Congressional Concern- http://www.finance.senate.gov/imo/media/doc/Combined PODs report 2.24.16.pdf
Bruce Mathern MD is Professor and Vice Chair of Neurosurgery at Virginia Commonwealth University where he also serves a Chair of Managed Care and Contracting and is a Master of Science in Health Administration candidate.
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