By Jonathan Ellis

The Senate Committee on Finance held a hearing Tuesday on entities known as physician owned distributorships, or PODs. Utah Republican Sen. Orrin Hatch, who chairs the committee, and the ranking Democrat, Oregon Sen. Ron Wyden, were critical of PODs.

“I think this is some of the most egregious and offensive behavior that I’ve seen in a long, long time,” Wyden said.

Physician owned distributorships have come under scrutiny because of fears about conflicts of interest with the physicians who invest in PODs. Typically, physicians own or invest in PODs. The PODs sell medical implants to the hospitals where the physicians work. The physicians then use those implants on their patients.

Hatch explained the relationship as a “double dip” in which physicians get their surgical fee and then also make money off the implants they use on patients.

The inspector general for Health and Human Services has said the practice could violate anti-kickback provisions in federal law, and a special fraud alert warned the health industry that investigators were examining the issue.

Critics say that when doctors profit from the devices they implant in patients, they are more likely to perform unnecessary or overly complex surgeries.

Kevin Reynolds testified that his mother agreed to undergo a one-segment fusion surgery from Dr. Aria Sabit. But when she awoke, Sabit had operated on four segments, implanting multiple devices in her spine. His mother developed infections and never walked again. She died several months later from complications caused by the surgery.

Sabit, meanwhile, pleaded guilty earlier this year to performing unnecessary surgeries in which he made hundreds of thousands of dollars on the implants he used.

“I believe that PODs are a serious threat to patient health and must be stopped immediately,” a tearful Reynolds said.

Dr. John Steinmann, a California orthopedic surgeon and an adviser to the American Association of Surgical Distributors, defended PODs as a way to decrease costs to the health care industry. PODs don’t have the sales forces and overhead that traditional device manufacturers have and can thus sell devices at a lower cost.

Steinmann is also the founder of Alliance Surgical Distributors, which worked with a group of Sioux Falls doctors from the Orthopedic Institute and the Sioux Falls Specialty Hospital to establish a POD in Sioux Falls. The revelation last year of a POD operating in Sioux Falls led to debate among the doctor owners of the Sioux Falls Specialty Hospital about the propriety PODs. The OI doctors who started the POD say they eventually abandoned it.

Steinmann testified Tuesday that PODs, when done correctly, save money. He said that his association promotes standards that encourage transparency with patients and utilization reports to ensure doctors who join a POD don’t suddenly start performing more surgeries.

Steinmann said that ethical surgeons aren’t tempted by the potential for extra money.

“I don’t believe it’s powerful enough to change a person’s ethics,” he said.

But Dr. Scott Lederhaus, a California neurosurgeon who is president of the Association for Medical Ethics, said he doubted the conflicts could be managed. PODs took off in California, and Lederhaus said he saw patients that had been operated on by doctors in PODs.

“I was witnessing patients who had multi-level fusions for no reason,” he said.

Lederhaus also said it’s a mystery as to who manufacturers some of the implants used by PODs. He noted that Steinmann’s company doesn’t reveal who or where the devices are made.

Hatch vowed that lawmakers and regulators would continue addressing the issue.

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