Senate Finance Committee holds hearing on physician-owned distributors

On November 17, 2015, the US Senate Finance Committee held a hearing entitled “Physician Owned Distributors: Are They Harmful to Patients and Payers?”.

Physician-owned distributors (PODs) act as wholesale distributors of medical devices to hospitals and surgical centers, including the same hospitals and surgical centers where physician investors perform surgical procedures. Because PODs can create a financial incentive for a physician to recommend and perform more surgeries using medical devices from a POD in which the physician has an ownership interest, the committee expressed its concerns about the growth and prevalence of PODs and their lack of accountability to the federal government.

Senate Finance Committee Chairman Orrin Hatch said that the hearing is “another important step in our ongoing efforts to provide appropriate oversight and enforcement on this issue” and announced the committee’s intention to submit additional information to the HHS Office of Inspector General (OIG) and Center for Medicare and Medicaid Services about the reporting rates of PODs under the Physician Payments Sunshine Act.

Dr. Scott Lederhaus, President, Association for Medical Ethics, addressed concerns regarding the dangers of PODs. Dr. Lederhaus’s testimony included anecdotal evidence of PODs increasing the number of spinal and back surgeries being performed on patients, contributing to a decline in patient health due to POD physicians performing multiple and unnecessary surgical procedures, and creating unfair competition between POD and non-POD physicians by allowing POD physicians to accept lower reimbursement rates for surgical procedures.

Conversely, Dr. John Steinmann, Board Advisor, American Association of Surgical Distributors, testified that properly structured PODs, including the model of POD ownership developed by the American Association of Surgeon Distributors (AASD), could protect patients and ensure cost savings for payers. Dr. Steinmann also suggested that the conflict of interest associated with PODs can be overcome with “high, clear, and enforceable standards” and requested the issuance of affirmative program guidance by the OIG that aligns with the standards adopted by the AASD.

*Wendy Wright is admitted only in North Carolina. Her practice is supervised by principals of the firm admitted in the District of Columbia.