Last year, HHS' Office of the Inspector General published a national alert warning doctors and hospitals about the patient-safety dangers and fraud risks of buying surgical products from PODs. The alert caused some health systems, such as Dallas-based Baylor Scott & White Health and Nashville-based HCA, to phase out purchasing supplies from PODs.
In a typical POD arrangement, physicians own or have a financial interest in the POD. The hospital where those doctors have staff privileges buys equipment from the POD and provides it to the doctors to perform procedures. The government's concern is that this creates a financial incentive for physician owners of PODs to perform more procedures. Traditional devicemakers, whose business has been hurt by PODs, say the physician-owned entities create a conflict of interest because the doctors who implant the devices stand to profit when hospitals buy the equipment.
PODs market themselves as lower-cost distributors to hospitals of traditional spine devices such as screws, rods and plates. In recent years, the companies have cut into market shares typically held by traditional device manufacturers. It is estimated that PODs accounted for about 15% of the domestic spine device market at their peak in 2011 and 2012.
But the report and fraud alert issued by the OIG found that spinal surgeries using devices sold by PODs did not have lower costs. It also found that hospitals buying devices from PODs reported that their spinal surgery rates grew faster than at hospitals that did not buy from PODs. “Taken together, these factors may increase the cost of spinal surgery to Medicare over time,” the report concluded.
The allegations about Sabit's conduct were revealed in legal arguments over whether the Justice Department has the right to force Sabit to produce records that he says could be used against him in a future criminal case. “The government has learned that Dr. Sabit had an undisclosed financial relationship with a spinal implant distributor during a period that the Medical Board of California has accused him of gross negligence, repeated negligent acts and dishonest and corrupt acts,” according to a March 5 filing. “The government has evidence that Dr. Sabit's economic relationship with Reliance may have caused him to perform unnecessary surgeries using Reliance devices.”
Reliance operates several physician-owned surgical supply companies, including Apex, Justice Department officials say. Reliance did not respond to requests for comment.
In court records, federal investigators said Apex paid Sabit $30,000 a month after he made a $5,000 investment to buy a stake in the company. Investigators also produced data showing that Sabit's use of Apex devices, including spinal-surgery screws, spiked while he was being paid by Apex.