Further, hospitals that began buying from physician-owned companies saw a 16% increase in the number of spinal surgeries six months after the switch. That was three times the rate of increase in spinal procedure volume for hospitals overall during the same period of time, the report says.
“The presence of PODs may encourage surgeons to perform more surgeries, or more complex surgeries, to increase device sales,” according to the report.
The report triggered immediate responses from Senate Finance Committee members, who said it confirmed their suspicions about a direct correlation between physician ownership and higher use of devices.
“My deep-seated skepticism that physician-owned distributors operate in the best interest of patients and save taxpayers money has been confirmed by this nonpartisan report,” said Sen. Orrin Hatch, ranking Republican on the committee. “Seniors on Medicare deserve a surgeon who makes these life-changing healthcare decisions based on what is best for the patient, not what is best for the surgeon's bottom line.”
Medicare's watchdog office has long been critical of physician-owned device companies. In March, the office issued a rare special fraud alert (PDF) saying the industry—including buyers and sellers of spinal devices—has a business model that poses an inherent risk of violations of the Anti Kickback statute, since doctors could profit from increasing the volume of their Medicare procedures. That followed similar warnings issued in 2006 on the same topic.
Proponents of physician-owned devicemakers say they save hospitals money by cutting out the expensive marketing and sales forces employed by the major U.S. devicemakers and selling “generic” surgical devices directly.
“A hospital's decision to work with a POD is because it is the low-cost vendor,” Joseph Truhe said in a March interview after the OIG's fraud alert. Truhe is senior vice president and general counsel for a Nashville-based POD called PDP Holdings, which buys devices from generic manufacturers and sells them to hospitals for cases in which generics will work just as well as more-expensive proprietary devices made by one of the major international orthopedics companies.
“There's about $20 billion in business in implants at stake, and the legacy manufacturers have a lot at stake in preventing 20 or 30 or 40 American manufactures of quality generics from having easy market entry without investing in huge and expensive distribution networks. They've already got the market cornered, and they don't want to see competition,” Truhe said in the March interview.
Indeed, another devicemaker that has had physician ownership arrangements in the past accused the OIG of being in the pocket of major devicemakers in a lawsuit filed this month in U.S. District Court in Los Angeles.
Reliance Medical Systems, based in The Woodlands, Texas, designs, manufactures and distributes its own devices. Its lawsuit accuses OIG of interfering with the free-speech and due process rights of physician-owned companies, alleging that the special fraud was published after aggressive lobbying by large, established devicemakers.
“Large corporations that are also in the business of manufacturing medical devices were forced to compete in the marketplace against smaller physician-owned entities like Reliance,” according to the lawsuit Reliance v. United States (PDF). “That competition diminished the big corporations' market share. Unable to win in the marketplace, the big corporations embarked on a multiyear effort to win at the legislative/agency level through substantial lobbying efforts."
OIG officials have declined to comment on the litigation, but the report published Thursday casts doubt on claims that PODs deliver cost savings to hospitals.
For five types of devices, the OIG found the cost differences between traditional and POD-sold devices were not statistically significant. For a sixth category, spinal plates, the OIG found POD-sold devices were on average $845 more expensive.
“This difference could eventually raise a hospital's Medicare reimbursement through increased device costs,” according to the OIG report.
Follow Joe Carlson on Twitter: @MHJCarlson
