May 10,2016

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Hatch Releases Updated Report on Physician-Owned Distributorships

Findings Detail How Physicians with Financial Interests in Medical Device Companies Recommend and Overutilize Invasive Surgeries for Patients
WASHINGTON – Senate Finance Committee Chairman Orrin Hatch (R-Utah) today released an updated report on physician-owned distributorships (PODs), that for the first time, details the extent to which POD ownership influences the behavior of physicians when recommending invasive surgeries for their patients.  PODs, which are structured so that physician-investors profit from the sale and use of their POD’s products, can bill Medicare and Medicaid for their devices. The report, titled Physician Owned Distributorships: An Update on Key Issues and Area of Congressional Concern, focuses primarily on the influence of PODs within the field of spinal surgery and makes a series of recommendations.
“The relationship between doctors their patients should be one characterized by trust and a level of professionalism that is held to the highest standards,” Hatch said. “Unfortunately, when surgeons have a financial interest in medical device companies, the data calls into question whether the best interest of the patient is considered when invasive surgeries are recommended.  Patients are strongly inclined to follow their physician’s advice, and when doctors are able to recommend surgeries from which they financially benefit from the devices used, a clear conflict of interest is presented and the patients’ health can be put at risk.  Moreover, by recommending surgeries that may not be necessary, such arrangements can also inflate federal healthcare costs at the expense of taxpayers.  It is my hope that, with this report, we can continue to work towards expanding transparency and identifying how to better protect and inform patients about what could possibly be harmful POD arrangements.”
Findings from the report include:
·      The financial incentives from PODs increase utilization.  Analysis done by Committee Staff found that as a percentage of patients seen, POD surgeons performed surgery at a much higher rate (44% higher) than non-POD surgeons.  And furthermore, in absolute number, POD surgeons performed nearly twice as many fusion surgeries (94% more) as non-POD surgeons
·      Sunshine reporting requirements are insufficient and PODs are changing their behavior in response to these requirements.  It appears that PODs are not complying with their reporting requirements, and PODs are changing the way they pay their physician owners, in an attempt to skirt Sunshine requirements. PODs are moving from large hospital chains to small rural hospitals as many large hospital chains have implanted strict POD policies.  It remains difficult to identify POD physicians.
·      PODs are now located in at least 43 states and the District of Columbia, up from 20 in 2011.
A summary of the report can be found here. An appendix can be found here.  
The report follows a November 2015 Finance Committee hearing on PODs and builds Hatch’s on 2011 analysis of PODs, its structure, and the growth of such arrangements in a number of states.  
The Department of Health and Human Services Office of Inspector General (HHS OIG) has also highlighted concerns with PODs and, in 2013, issued a special fraud alert regarding the arrangements followed by a report detailing the prevalence and use of PODs.