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Physician Owned Distributorships
Earlier last, the Senate Finance Committee minority staff began an
inquiry into the complicated issue of physician owned distributors (PODs),
also known as physician owned companies or intermediaries. Since
that time, committee staff has reviewed over 1000 pages of
documents, spoken to over 50 people and uncovered many issues
associated with the PODs that merit further review and
consideration. This report is a summary of the Committee findings to
date and an overview of the key issues identified which have
implications for the health care system as a whole. Some states,
such as California, have taken steps to limit or outlaw PODs.
Business arrangements involving physician ownership of medical
device companies and distributorships have been around in various
forms for at least ten years. The basic arrangement involves medical
device companies formed to give physicians who control the choice of
what medical devices they implant in patients a share in the profits
generated by the sale of such devices. The physician owners can then
use their ability to generate referrals for hospitals to induce them
to buy the medical devices from the companies in which the
physicians have ownership. In effect, these entities act as a
middleman entity that exists to give its physician investors the
opportunity to profit from the sale and utilization of the medical
devices they provide to hospitals. This is a significant shift away
from what has typically been the model for the supply chain in the
implant world.
PODs step into this supply chain as a middle man entity with no
obvious nexus other than ownership by the ordering/referring
physicians. Many PODs lack any operating history or experience
(except to the extent that they are organized by and outsource their
functions to a third-party entrepreneur/manager), and may not offer
any or most of the existing suite of services outlined above, but at
best offer (usually through a third-party manager) to replicate some
of the services already performed by the manufacturer and its
representatives. PODs also differ from the physician-owned providers
of ancillary healthcare services. For those arrangements, the Office
of Inspector General for (OIG) for the Department of Health and
Human Services has historically advised that following guidance like
its Special Fraud Alert on Joint Venture Arrangements may chart a
path to compliant operation, in that the service providers are
subject to state licensure, federal regulation and public oversight
that is currently lacking for PODs.
As physicians continue to see dramatic reductions in reimbursements,
increased demands on their time, hospital cost initiatives and
growth in patient and procedure volumes, they are continuously
looking for sustainable ancillary revenue sources. This has led to
numerous models being implemented by physicians to provide such
revenue sources, but foremost among them in the surgical arena
appears to be the PODs. These entities first appeared primarily in
California beginning around 2003. Currently, they appear to be
limited to the orthopedic implant (spine and total joint) sector of
the device industry, but appear to be quickly branching out into
other areas such as cardiac implant (e.g., pacemakers and
defilibrators.)
If you are a physician who has been approached about joining a POD,
or you are thinking of starting one of your own, contact Martin
Merritt at click here.
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