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U.S. OIG Issues POD Report; Reliance Medical Files a Suit

The U.S. Office of Inspector General of the Dept. of Health and Human Services' overview of prevalence and use of physician owned distributors (PODs) of spinal devices does not make specific recommendations for action, but notes that in FY11, PODs supplied devices used in ~1 in 5 spinal fusions billed to Medicare. In FY12, surgeons performed more spinal surgeries at sampled hospitals that purchased from PODs than at those that did not purchase from PODs.

What's a POD?

  • Physician owned distributorship. An entity that distributes devices, in which a surgeon has an ownership stake.

Why is this report important?

  • PODs assert that they supply spinal devices at a lower cost than non-PODs. They claim to reduce costs for hospitals.
  • Critics maintain that PODs create a conflict of interest: ownership may encourage surgeons to perform unnecessary surgeries to drive sales. Surgeons may also perform more spinal revisions.

What did the study find?

  • In FY11, PODs supplied devices used in ~1 in 5 spinal fusions billed to Medicare. This is higher than an earlier going estimate that placed PODs at 10% to 15% of U.S. spinal hardware segment; it's more like 20%.
  • Surgeries that used POD devices used fewer devices, but did not have lower per-surgery device costs than non-POD surgeries.
  • When surveyed hospitals started buying from PODs, their rates of spinal surgery grew faster than the rate for hospitals overall.

What does this mean?

  • This raises questions that PODs do what they say they intend to do.
  • There are no recommendations for action in the report, but Congress could use it to legislate against PODs in the future.
  • If PODs went away, companies like Globus, LDR and NuVasive could enjoy a bump in annual sales to the tune of a 6% to 10% increase. (Analyst estimates)

Reliance Medical Systems filed a suit against the U.S. Dept. of Health and Human Services, seeking a judgment declaring that physician-owned companies that comply with the law are not inherently suspect under the anti-kickback statute. Reliance collaborates with spine surgeons to design implants and surgical tools.

 

REFERENCES

U.S. Department of Health and Human Services Office of Inspector General Report, Physician-Owned Distributors of Spinal Devices: Overview of Prevalence and Utilization, October 24, 2013.

Reliance Medical Systems Files Federal Court Lawsuit Challenging U.S. Government's Crusade Against Physician-Owned Businesses That Reduce Healthcare Costs And Promote Medical Innovation, October 9, 2013.

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