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Report: POD-supplied Spinal Devices Boost Cost of Surgery




Nearly one in five devices used in spinal fusion surgery in 2011 were supplied by physician-owned distributorships (PODs), and while these products resulted in a lower number of devices used per procedure, they did not contribute to lower surgery costs overall, according to a report released by the U.S. Department of Health and Human Services’ Office of Inspector General (OIG).

“Our findings raise questions about [physician-owned distributorships] PODs’ claim that their devices cost less than those of other suppliers. Surgeons performed more spinal surgeries at hospitals that purchased from PODs, and those hospitals experienced increased rates of growth in the number of spinal surgeries performed in comparison to the rate for hospitals that did not purchase from PODs,” Daniel R. Levinson, Inspector General of the Department of Health and Human Services (HHS), wrote in the executive summary of the report. “Taken together, these factors may increase the cost of spinal surgery to Medicare over time.”

Investigators conducting the HSS report sampled 1,000 Medicare claims bills in fiscal 2011 and asked each hospital associated with the claims to fill out a questionnaire asking for details about the spine devices used during surgery. Roughly one-third of thehospitals that responded said they purchased spine devices from PODs, and hospitals that did not use POD devices had lower surgery costs than those that did use POD devices.

The Washington, D.C.-based Advanced Medical Technology Association (AdvaMed) called the HHS data compelling and said the report reinforces findings from the SpecialFraud Alert OIG issued in March that found PODs produce "substantial fraud and abuse risk and pose dangers to patient safety."

"AdvaMed believes that transparent, ethical interations between health care professionals and medical technology companies are critical to innovation and improved patient care," Christopher L.White, AdvaMed senior executive vice president and general counsel, said in a statement. "We have long been concerned that companies - such as PODs - with equity investments by physicians who are also major revenue generators for the companies, raise important legal and policy issues relating to the potential effect on clinical decisions by physicians."

Key findings from the HHS-IG report:
  • In FY2011, PODs supplied spinal devices for 19 percent of the spinal fusion surgeries billed to Medicare.
  • Surgeries that used POD devices implanted an average of 12.3 spinal devices compared to an average of 14.2 spinal devices for surgeries that did not implant POD devices. Investigators did not find a statistically significant difference between the average total device cost for spinal surgeries that used POD devices and those that did not use the devices.
  • None of the six types of spinal devices examined was less costly per unit when provided by PODs, and one was more costly when provided by PODs. The HHS-OIG data show “the average total device cost for surgeries that used POD devices was $11,601 and the average total device costs for surgeries that did not use the POD devices was $11,383.
  • The spinal surgery growth rate after hospitals began purchasing from PODs was three times that for all hospitals. Investigators found that hospitals’ overall rate of spinal surgery grew more quickly for the group of healthcare institutions in the HHS-OIG sample that purchased from PODs. Specifically, before hospitals started purchasing from PODs, they performed 95 spinal surgeries per 1,000 surgical discharges. This rate grew to 110 spinal surgeries per 1,000 surgical discharges after these hospitals began purchasing from PODs, an increase of 16 percent. During the same time period, the rate for hospitals overall grew by only 5 percent, from 57 to 60 spinal surgeries per 1,000 discharges.
“My deep-seated skepticism that physician-owned distributors operate in the best interest of patients and save taxpayers money has been confirmed by this non-partisan report,” said U.S. Sen. Orrin Hatch (R-Utah), one of three legislators who demanded an investigation into PODs two years ago. “Seniors on Medicare deserve a surgeon who makes these life-changing health care decisions based on what is best for the patient, not what is best for the surgeon’s bottom line. The HHS Inspector General’s finding that hospitals conduct a greater number of high risk spinal surgeries when they purchase products from physician-owned distributors shows why vigorous oversight is necessary to protect the health and safety of patients.”

Hatch, the U.S. Senate Finance Committee Ranking member, Committee Chairman Max Baucus (D-Mo.) and Senate Judiciary Committee Ranking Member Chuck Grassley (R-Iowa), requested the report, directingthe Office of Inspector General to investigate whether the structure of PODs were a breeding ground for fraud within the Medicare program. The Senate Finance Committee has jurisdiction over Medicare and Medicaid.

“The findings from the HHS Inspector General show that physician-owned distributorships are driving up health costs and may even be encouraging unnecessary surgeries. Together with the Inspector General’s special alert issued earlier this year, it’s clear that PODs require closer monitoring,” Baucus said. “We must ensure that physician-owners of these medical device distributorships play within the rules and are not allowed to profit at the expense of patients and taxpayers.”

“The growth in surgeries connected to physician-owned distributorships raises a lot of questions,” Grassley addeid. “Are patients undergoing surgeries based on medical need and quality of care or financial incentives for doctors? As a start, hospitals should take a closer look at whether their physicians are participating in and benefiting from these arrangements and what that means for patients. Also, the inclusion of physician-owned distributorships in the Physician Payments Sunshine Act will help shed light on these relationships.”



In June 2011, Hatch released a report which identified the rapid proliferation of PODs in at least 20 states, exposed the lack of specific legal guidance issued by the Office of Inspector General for HHS to govern the structure and establishment of PODs and questioned the utilization and appropriateness of services provided by doctors participating in some of the PODs, particularly with respect to taxpayer-funded Medicare. The HHS-OIG report confirmed a significant surge in the number of hospitals that conduct business with PODs, which allow physician investors to purchase ownership shares in an entity that, in turn, purchases or serves as a medical device distributor for the products the physician uses in surgery.



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