New OIG Report Examines Cost-Effectiveness of Physician-Owned Spinal Device Distributorships


On Thursday, October 24, the HHS Office of Inspector General (OIG) released a report responding to a request from members of the Senate Finance Committee to determine the extent to which physician-owned distributorships (PODs) provide spinal devices to hospitals.  Critics of PODs claim that physician ownership in device distributorships creates a conflict of interest that may affect the physicians’ clinical decisionmaking (to the detriment of Medicare beneficiaries), as well as result in higher volume and cost of spinal surgeries using devices sold by PODs (to the detriment of federal health care programs).  PODs assert that their devices cost less than devices provided by other spinal device companies.

The OIG concluded that the data it gathered raises questions about PODs’ claim that their devices cost less than those of other suppliers.  The OIG also found that hospitals’ purchase of spinal devices from PODs may increase the cost of spinal surgery to Medicare over time.

To gather the data on which it based its report, the OIG sampled nearly 1,000 claims billed to Medicare in FY 2011 for spinal fusion procedures from 596 hospitals nationwide.  The OIG found that approximately one-third of the sampled hospitals reported buying spinal devices from PODs.  In FY 2011, PODs supplied devices used in nearly one-fifth of spinal fusion surgeries billed to Medicare.  The OIG found that, although spinal surgeries involving devices sold by PODs used fewer devices, they did not have lower per-surgery device costs than surgeries that did not use POD devices.  The sample data also showed that, when hospitals began buying from PODs, their rates of spinal surgeries grew faster than the rate for hospitals overall.  In FY 2012, hospitals in the sample that purchased from PODs performed more than 25 percent more spinal surgeries than those that did not purchase from PODs.

While noting that PODs potentially raise legal concerns under the Anti-Kickback Statute and citing the March 2013 OIG Special Fraud Alert on Physician Owned Entities (available here), the OIG explicitly declined in the report to “make any judgment on the legality of hospitals’ relationships with PODs or on the appropriateness of spinal surgeries performed by hospitals.”

The full OIG report is available by clicking here.  OIG based this study on data collected from a survey sent to hospitals in October 2012.  We reported on that survey in the October 29, 2012 edition of Health Headlines, available here.   

Reporters, Christopher Kenny, Washington, D.C., + 1 202 626 9253, and Constance F. Dotzenrod, Atlanta, + 1 404 572 3585,

Written by:

Published In:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.