OIG Released Report on the Prevalence and Use of Spinal Fusion Devices Supplied by Physician-Owned Distributors

On Wednesday, October 23, 2013, the Office of Inspector General (“OIG”) for the U.S. Department of Health and Human Services released a report detailing its findings from a study it completed on the prevalence and use of devices supplied by physician owned distributors (“PODs”). The report, issued in response to a congressional request, used data the OIG gathered from approximately 1,000 randomly sampled claims hospitals submitted for spinal fusion surgery as well as surveys sent to those hospitals. Specifically, the report examined the data to assess whether the use of POD supplied devices affected the costs associated with spinal fusion surgery, the rates of use of devices during such surgeries, and the rate of surgery itself.

Critics of PODs assert that the arrangements have the potential to create conflicts of interest that might impair a physician’s professional judgment. The OIG has released previous guidance including a Special Fraud Alert in March 2013, in which it stated that PODs were “inherently suspect” under the Anti-Kickback Statute (“AKS”) and subject to special scrutiny. On the other hand, proponents argue that PODs have the potential to decrease costs associated with medical devices due to lower overhead and less need for marketing and sales personnel.

The OIG’s report reached a number of conclusions. Interestingly, it found that when PODs supplied the devices used in spinal fusion surgeries, the number of devices used per surgery was lower than surgeries performed using non-POD devices. In contrast, the report also found that POD devices cost the same or more than non-POD devices. For instance, spinal plates cost, on average, an additional $845 when supplied by a POD. Other highlights of the report include:

• PODs supplied the devices in nearly one in five (19%) spinal fusion surgeries.
• Approximately one-third of the hospitals in the sample used purchased devices by PODs.
• Eighty Eight percent (88%) of hospitals only began purchasing from PODs in 2005.
• Hospitals reported that physician preference was the strongest influence and approximately one-third hospitals reported purchasing devices from PODs owned by surgeons practicing in their hospitals.
• Sixty five percent (65%) of hospitals required physician disclosure to the hospital of ownership in PODs, but only eight percent (8%) required disclosure to patients.
• The rate of spinal surgery (defined as fusion of more than three vertebrae) grew faster in hospitals that purchased devices from PODs while the complexity of the surgeries (defined by number of vertebrae fused) largely stayed the same.
• Over the course of a single quarter in Fiscal Year 2012, the hospitals purchasing devices from PODs performed twenty eight percent (28%) more spinal fusion surgeries than hospitals purchasing non-POD devices (131 out of 1,000 surgical discharges versus 99 out of 1,000 surgical discharges).

In considering the OIG’s conclusions in the report, it is worth noting that much of the data the OIG relies upon is self-reported, and, the sample of hospitals that reported using POD devices is relatively small at a mere 119 hospitals. Furthermore, while the report included the conclusions summarized above, the OIG did not include any recommendations resultant from the report’s conclusions.

Nonetheless, from this report and the OIG’s previous guidance, it is clear that PODs will continue to be scrutinized for potential violations of the AKS and other fraud and abuse laws. Hospitals working with PODs should evaluate the relationships in light of the OIG’s guidance on PODs. Physicians and group practices contemplating entering into POD arrangements should work closely with their health counsel in order to understand the risk that such arrangements may pose in the current regulatory environment.

For more information, please contact Adrienne Dresevic, Esq. or Clinton Mikel, Esq. at (248) 996-8510, or visit The HLP website.