Physician Owned Distributorships

The PODs are groups of physicians, usually surgeons, who agree to purchase implanted devices such as total joint prostheses or spinal hardware (i.e. pedicle screws, cages, and rods). The physicians in the POD profit financially by participating in the sale of medical devices intended for implantation in their own patients, thus creating the opportunity for them to profit from their own referrals.

Under the Federal Anti-Kickback Law, the financial inducement to use one particular brand of device over another for the sake of profit, which increases with usage, is a felony. Although individuals offering to set up these businesses for physicians will claim they are legal and approved by the Office of Inspector General (OIG), this is not the case. It is fact that only opinions issued by the OIG, and NOT the interpretations of private attorneys to the contrary, are the opinions that count. The opinions issued by the OIG on this subject document that such POD corporations fall under existing Anti-Kickback statutes. Other laws, such as the Civil Monetary Penalty and the Stark Self Referral, are a set-up for potential criminal prosecution and financial penalties that may apply to PODs.

It needs to be pointed out that private attorneys issuing opinions claiming the legality of POD arrangements are not themselves subject to federal indictments under the Anti-Kickback statutes if they wrong. It is the physicians and hospitals participating in the POD who bear the liability.

Issues of concern also include the incentive or inducement to overutilize surgical devices by the involved physicians which could result in unnecessary surgery, such as multi-level fusions for the primary treatment of degenerative disc disease. Such blatant abuse of patient trust has been frequently documented by members of the Association for Medical Ethics, whose participation in PODs is a prohibition of membership.

Overutilization also increases unnecessary health care costs that burden our already strained medical reimbursement system. Claims of saving hospitals money on implants need to be balanced against the “volume effect” of such behavior, as well as the ripple effect of more surgeries with ancillary expenses.

Public pronouncements by the Chief of the OIG make it clear that indictments of physicians and their associated medical facilities will be occurring among those participating in PODs. Medical societies are trying to educate their membership about the pitfall of PODs. The OIG submitted a comprehensive opinion about PODs in August 2011 which tightens loopholes and declares the POD model as illegal.

And in March of 2013, the OIG claimed that PODs were “Inherently Suspect” where the courts may subject PODs to the most rigid scrutiny. In October of 2013, the OIG further brought to public awareness that PODs did not to save money for the hospitals and in many cases were more expensive than other name brand products, which had been the main argument for the use of POD implants.

One has to be aware that being POD owner makes each and every member of that POD liable for the activities of the entity with risks of legal prosecution. Since POD owners are resellers of implants, they are subject to product liability lawsuits and are subject to FDA reporting requirements.

The first federal lawsuit was filed by the OIG and DOJ against Dr. Aria O. Sabit and 32 other spine surgeons who were members of several POD entities from the parent company, Reliance Medical Systems, owned by Mr. Adam Pike and Mr. Bret Berry. As a result of the “Inherently Suspect” label, many hospital systems have pulled away from PODs since they deem PODs as being too risky. Unless a spine surgeon is willing to assume the liability of each and every POD member, belonging to a POD simply would not make sense and should be regarded as a high risk business arrangement.

In summary, the Association for Medical Ethics believes that participating in PODs is both unethical and illegal, and likely to ensnare physicians and hospitals in future enforcement activities and lawsuits. Because of this, physicians need to stay away from any such arrangements.