June 09,2011

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Hatch Releases Analysis Outlining Questionable Legality of Physician Owned Entities

Analysis Finds Overutilization of Medical Procedures By Physicians Participating in these Entities; Hatch Spearheads Bipartisan Letters Calling for Investigation

WASHINGTON –U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, today released a Committee Minority analysis, Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight, detailing a spike in the utilization of medical procedures by physicians invested in these entities.  Citing these concerns, Hatch spearheaded two separate bipartisan letters to the Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services (HHS) Inspector General calling for an investigation. 

This analysis, conducted by the Senate Finance Committee Minority staff, examines the structure and activities of physician owned distributorships (PODs) within the medical device supply chain.  In recent years, there has been an uptick in these arrangements, 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 utilizes in surgery.  Hatch’s analysis, which identifies the rapid proliferation of PODs in at least 20 states, exposes the lack of specific legal guidance issued by the Office of Inspector General for HHS to govern the structure and establishment of PODs and brings into question the utilization and appropriateness of services provided by doctors participating in some of the PODs, particularly with respect to Medicare, which is funded by taxpayers. The Senate Finance Committee has jurisdiction over Medicare and Medicaid. 

“Patients should have peace of mind that a doctor’s recommendation for treatment or care is in their best interest and isn’t just a way of making money,” said Hatch. “The financial incentives created by these entities set a dangerous precedent that, as indicated in this report, can lead to serious overutilization and force unnecessary, invasive procedures for patients.  This arrangement demands further scrutiny and should be investigated.”

While there may be legitimate business reasons for the PODs, the report identified several instances that the utilization for spine refusion or total joint surgeries spiked significantly in areas after the PODs were established then the rate of utilization before the PODs.

The findings of the Hatch Report, prompted the lawmaker to spearhead two bipartisan letters to the Health and Human Services Inspector General, Daniel Levinson and to the CMS Administrator, Donald Berwick. U.S. Senators Max Baucus (D-Mont.), Chairman of the Senate Finance Committee, Herb Kohl (D-Wis.), Chairman of the Special Committee on Aging, Bob Corker (R-Tenn.) Ranking Member of the Special Aging Committee, and Chuck Grassley (R-Iowa), Ranking Member of the Judiciary Committee joined Hatch in calling for an investigation into the structure of PODs and their potential adverse impact on the Medicare program and its beneficiaries.

“There is as much confusion in your office’s stance on PODs as there is confusion in the health care community about how to arrange these in a legal manner,” the lawmakers wrote to Inspector General Levinson.  “Until there is clarity, inappropriate versions of these entities could continue to proliferate, potentially driving up medical device costs to the Medicare and Medicaid programs putting patient safety at risk.”