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Health May 2013

Aid for Age

Implantable Devices Suspected in Physician Fraud

By Tait Trussell

Doctor-owned businesses that act as middlemen between medical device makers and hospitals are “inherently suspect,” the Attorney General at HHS said.

At a time when seniors are fretting about whether they will have a doctor to care for them in the years ahead, the Justice Department and the Inspector General of Health and Human Services (HHS) are suggesting situations of doctor fraud.

It’s all about physician-owned distributorships (PODs). Distributorships may be an innovative alternative to manage costs of orthopedic implants for hospitals, patients, and payers. PODs are now found in fields of spinal surgery, joint replacement and cardiology. All are areas where Medicare spends billions of dollars.

The Justice Department and HHS Inspector General, however, are moving forward with a probe of PODs as a possible health-care scandal. PODs act as intermediaries between medical device manufacturers and hospitals. In exchange for marketing medical devices, the physicians get a cut — a slice of the pie, so to speak.

The Office of the HHS Inspector General charged that PODs risk substantial fraud and abuse. “The financial incentives that PODs offer to their physician owners may induce the physicians both to perform more procedures than are medically necessary and to use the devices the PODs sell in lieu of other more clinically appropriate devices.”

Doctor-owned businesses that act as middlemen between medical device makers and hospitals are “inherently suspect,” the Attorney General at HHS said.

Christopher L. White, senior executive VP for the Advanced Medical Technology Association (AdvaaMed) said his organization applauded the action taken by HHS in recognizing the inherent conflict of interest risks posed by PODs… “and pose dangers to patient safety.”

AdvaMed member companies produce medical devices, diagnostic products and health information systems.

The greatest concern of HHS is about implantable devices. This is an area where doctors have broad latitude in selecting the brand and type of device to use on patients.

Dr. Robert Haralson III, medical director of DeRoyal Industries, reviewed the history of physician-owned distribution of durable medical equipment (DME). By buying directly from manufacturers, physicians could have an inventory on hand to serve patients. Eliminating the “middle man” resulted in savings for patients while providing an ancillary income for the practice.

Dr. John Steinmann, an orthopedic surgeon who owns the distributorship Inland Spine & Orthopedics in Redlands, California, said “Doctor-owned suppliers can help reduce health-care costs when operated ethically and legally.”

The HHS alert identified several characteristics that, if present, in a POD, could result in a higher risk of fraud and abuse:

  • The size of ownership stakes offered to physicians correspond to the expected or actual volume of the implantable devices used by the physicians.
  • Physician owners are penalized for not using the POD’s devices on the patient.
  • The POD does not conduct consistent oversight over its distribution.
  • The POD has the right to buy out a physician’s investment stake if the physician fails to refer or recommend the purchase of the POD’s devices.

One doctor in Portland, Oregon, said that its POD reportedly paid its surgeon members as much as $500,000 a year to use its products.

It appears that PODs will be fighting for their lives — or their dollars — from now on.

 

Tait Trussell is an old guy and fourth-generation professional journalist who writes extensively about aging issues among a myriad of diverse topics.

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