Federal regulators are sounding the alarm over physician-owned distributorships of orthopedic devices, which the regulators worry may be violating the nation's kickback laws and driving up costs.
HHS' inspector general's office published long-awaited guidelines last week that will help hospitals determine when it might be illegal to buy orthopedic devices from physician-owned distributorships (PODs). The guidance could lead to a swift downturn in business for the organizations, which have proliferated in the wake of greater scrutiny of direct payments to surgeons by implantable-device makers.
PODs are most active in selling devices for spinal, hip and knee replacement surgeries, which generated $13.6 billion in U.S. sales in 2011, according to research firm iData Research. Critics of the traditional orthopedic sales model say those figures are larded with outsized commissions and fees that may add as much as 40% to the cost of each device.
POD proponents say they offer generic pricing and smaller profits, which drive down costs. But the Senate Finance Committee and HHS' inspector general's office say the POD model includes an inherent conflict of interest, since the doctors who implant the devices also reap profits from their sale.
The inspector general's office “views PODs as inherently suspect under the anti-kickback statute,” officials in HHS' watchdog's office wrote in a special fraud alert last week. It detailed eight specific warning signs of problematic organizations.
Anecdotal accounts from government and industry sources say PODs have experienced rapid growth in the past decade. They may now account for as much as 25% of all sales of orthopedic devices.