Yokl: PODs — Innovation or Obfuscation

I don’t often talk about current events in my blog articles, but a piece in the Wall Street Journal (WSJ) last week got my attention. Five U.S. senators asked the Inspector General of the Department of Health and Human Services to open an investigation into physician-owned distributors (PODs) to determine if they are legal under Medicare’s anti-kickback regulations.

PODs are middleman entities that allow surgeons to profit from medical devices (spine and joint implants) they use on their patients. The article states that there are 20 such entities operating in the USA today.  Here’s how this concept works based on the WSJ’s investigation. “Distributors act as links between medical-device makers and hospitals: In exchange for marketing and stocking the devices, they get a cut of each sale.  When surgeons own a distributorship, that commission goes into their pockets. Since surgeons often dictate to their hospitals which devices to buy, surgeons involved in PODs can effectively steer business to themselves.”  

To support their position, one of these PODs states on their website that this distribution model saves dollars and makes sense because, “Surgeons are the most qualified to: (i) identify quality implants, (ii) direct the functions of the distributorship, (iii) negotiate implant purchases, (iv) provide hospital and rep training and, (v) provide patient training. Yet, Martin Memorial Health System, Florida, decided to cancel their contract with a local POD since they believe that this practice is “inconsistent with the spirit and intent of the federal anti-kickback statute.”

Some believe that these PODs have popped up since orthopedic surgeon’s revenues are being squeezed, but as Tom Scully, senior counsel at the law firm Alston & Bird, states, “I understand that the docs feel squeezed and want to make more money, but they’re racing toward a cliff.”  Is this a portent of the new healthcare economy where healthcare providers, surgeons and clinicians look for loopholes in healthcare regulations to make more money?  I hope not…

The PODs like to think of themselves as being innovative, but I believe they are obfuscating the fact that they can’t serve five masters (i.e., medical device manufacturers, PODs, healthcare providers, their patients and the federal government) without short-changing or compromising their ethical or legal status with one or more of their customers or stakeholders. 

The conventional wisdom is that PODs operate in a legal gray area and might even be lawful under the anti-kickback statues as written today. However, are PODs really going to bring the cost of healthcare down as the POD’s tout, or just enrich a few surgeons and their associates who don’t mind bending and manipulating a few laws for a profit?

Robert T. Yokl

Chief Value Strategist

Strategic Value Analysis® in Healthcare

www.strategicva.com

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