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.



Martin Merritt, PLLC - Dallas Physician Law. Copyright 2012. All Rights Reserved.