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, ckenny@kslaw.com and Constance F. Dotzenrod, Atlanta, + 1 404 572 3585, cdotzenrod@kslaw.com.