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Current & Critical

OIG Continues to Monitor Links between Physician-Owned Hospitals and PODs

By Carolyn LaWell

The U.S. Office of Inspector General (OIG) released a report that reiterates its stance that there is limited transparency with regard to ownership information of physician-owned distributors (PODs) linked to physician-owned hospitals.

The OIG used publicly available information (websites) and data from the Centers for Medicare & Medicaid Services (CMS) to attempt to determine whether a physician had ownership interest in both a hospital and a POD that sold spinal devices to that hospital. The research focused on the ownership of 12 PODs, from which 12 physician-owned hospitals reported purchasing spinal devices.

The OIG identified one physician who owned a POD that supplied devices to a hospital in which the physician had an ownership stake. The report noted the possibility of additional physicians with identical relationships that could not be detected using the outlined information.

No future recommendations were announced in the report, but OIG said that it will continue to monitor POD activity through CMS’s Sunshine Act database, because the office’s finding of limited information continues to raise transparency concerns, for instance: that ownership information may have implications for patient safety and quality of care, as well as the criticism that physician owners could make clinical decisions leading to unnecessary surgery in order to boost financial gain.

The report was completed as a follow up to an OIG October 2013 report on the prevalence and use of spinal devices supplied by PODs.

That study found that in 2011 PODs supplied devices used in ~1 of 5 spinal fusions billed to Medicare, meaning PODs accounted for about 20 percent of the spinal device market, a much higher number than industry estimated.

Today, spine industry executives estimate PODs to account for 15 to 20 percent of the market, a number that is expected to remain stable. Government and hospital pushback are two factors that could shift PODs market share.

The U.S. Department of Justice (DOJ) filed in September 2014 false claims action against Reliance Medical Systems, Apex Medical Technologies, Kronos Spinal Technologies and several physician owners based on the theory that the investment returns were unlawful kickbacks. One of the neurosurgeons cited in the suit plead guilty in May to healthcare fraud, conspiracy to commit health care fraud and unlawful distribution of a controlled substance, resulting in losses to CMS and private payors.

Leadership at NuVasive, Globus Medical and K2M have commented in recent months that customers have returned after working with PODs, and they do expect the number of PODs to eventually fall based on DOJ guidance and hospital action.

“I think the government has been very clear that the model is not a legal model in any form, and that we are starting to see some hospitals forbid [it] in their chains,” said Dave Demski, Group President, Emerging Technologies at Globus Medical during the company’s 2Q earning call. “But it really hasn’t swept through the industry in any meaningful way. So, we are at equilibrium now.”

At Canaccord Genuity’s Musculoskeletal Conference earlier this year, Eric Major, President and CEO of K2M, said that they’ve mainly seen PODs in the degenerative spine space and have seen hospitals deny surgeons the option to use the product that they sell.

“Those that are involved with PODs, I think some are still active,” Major said. “But I’m not getting the call from the field as much, that this surgeon now seeks to participate in a POD environment.”

During OIG’s data collection, 119 hospitals self-identified as having purchased spinal devices from PODs—12 of these hospitals self-identified as physician owned and were then further researched.

Carolyn LaWell is ORTHOWORLD’s Content Manager. She can be reached by email