Senate Finance Committee Report Inquires into Physician-Owned Distributors

August 22, 2011, 10:45 AM

Senator Orrin Hatch recently released a report by the Senate Finance Committee offering an overview of key issues and potential areas for Congressional oversight concerning Physician-Owned Distributors (PODs). After the issuance of this report, the Chairman and Ranking Members of the Senate Finance Committee sent letters to the Centers for Medicare & Medicaid Services (CMS) and the United States Department of Health and Human Services (HHS) requesting they address the concerns voiced in this report.

PODs normally consist of a small group of physicians who form these companies to distribute and sometimes manufacture medical implantation devices used in surgery. The report emphasized that because these very physicians usually work at the hospitals to which these PODs sell their products, they believed there is a significant risk of fraud and abuse. The Committee asserted that the very nature of PODs creates financial incentives for physicians to use the devices distributed by their PODs as much as possible, whether or not this is the most efficient use of hospital funds, in their patients best interests, or the highest quality products.

The report asserted instances where the number of certain surgeries spiked with the advent of a new POD device that was integral to such operations. Further, it offered anecdotal stories where physicians redid surgeries so as to use their own POD devices, or engaged in several surgeries that all required POD devices on elderly patients, despite the high risk that numerous surgeries pose to this demographic.

As a result of this report, the Senate is calling for more regulation to clarify the environment in which PODs operate. Although the HHS has issued written guidance concerning PODs expressing the need to carefully review and scrutinize these entities under fraud and abuse laws, it declined to specifically regulate PODs under the Stark Law. In its report, the Senate Finance Committee has called for HHS and CMS to take several measures to increase scrutiny of PODs. The Committee would like to see HHS and CMSinquire into existing PODs and their current ownership structures in order to develop additional regulatory guidance and recommendations for further regulation of PODs. Further, the Committee believes that PODs should be included within the final definition of applicable manufacturers under the Sunshine Act so that these POD entities activities will be more transparent and subject to the Sunshine laws reporting requirements.

For more information please refer to the Senate Finance Committees Report. --Christopher L. McLean