A bipartisan group of senators, including Finance Committee Chairman Max Baucus (D-Mont.) and Finance Committee Ranking Member Orrin G. Hatch (R-Utah), have requested that the Centers for Medicare and Medicaid Services (CMS) and the U.S. Health and Human Services Office of Inspector General (OIG) provide additional guidance regarding the legality of physician-owned distributors (PODs), citing patient safety concerns and possible federal healthcare program fraud and abuse due to the heightened potential for physician conflicts of interest.  Generally, the concern is that a physician’s financial interest in a POD that sells products ordered or used by the physician to a hospital where the physician performs procedures will influence inappropriately the physician’s selection of products, the physician’s decision whether to perform procedures using the products, or the physician’s decision of facilities at which to perform procedures using the products because the physician would profit from the hospital’s purchase of the products from the POD. 

Specifically, the senators, via a letter dated June 9, 2011, requested that the OIG:  (1) conduct an inquiry into current structures and activities of PODs; and (2) report the results of the inquiry along with recommendations for further action that should be taken by the OIG and Congress to address patient safety and fraud and abuse risks.  In their letter to the OIG, the senators state that the OIG’s prior guidance regarding the legality of PODs is insufficient and unclear.  The letter also states the Senators’ concern “that guidance alone, in the absence of any visible enforcement proceedings, may be insufficient to stop the growth of those entities that do not appear to be structured with the appropriate safeguards.”  The letter notes the substantial growth of PODs in the spine and total joint area, in particular, over the past 18 to 24 months.

In a separate June 9, 2011 letter to CMS, the senators requested that CMS:  (1) examine the physician ownership and investment interests presented by PODs and ensure those are addressed in the final reporting requirements under the “Sunshine Act,” including disclosure requirements applicable to group purchasing organizations (GPOs); and (2) address POD models when developing final regulations regarding accountable care organizations (ACOs).   The letter expressly states that “[t]he final rule should prohibit ACOs from purchasing products or services from entities that are owned by physicians participating in the ACO.”  The letter also states that the final regulation should “[make] clear that waivers of Stark and Anti-Kickback laws [for ACOs] should not extend to PODs.”

Senators Herb Kohl (D-Wis.), Chairman of the Special Committee on Aging; Bob Corker (R-Tenn.), Ranking Member of the Special Committee on Aging; and Charles Grassley (R-Iowa), Ranking Member of the Judiciary Committee, joined Senators Hatch and Baucus in the letters to CMS and OIG.  In addition to the letters, Senator Hatch released a detailed paper drafted by the Senate Finance Committee Minority Staff regarding the proliferation of, and concerns presented by, PODs.

For a copy of the Senate Finance Committee Minority Staff paper on PODs, click here.  For a copy of the June 9 letter to OIG, click here.  For a copy of the June 9 letter to CMS, click here.