June 26, 2011

Senators Request Investigation of Physician Owned Distributorships

On June 9, 2011, five prominent United States senators sent a letter to the Inspector General of the Department of Health and Human Services (HHS) asking that a probe of physician-owned distributorships be conducted. The Senators who signed the letter include Orrin Hatch (R., Utah), Max Baucus (D., Mont.), Herb Kohl (D., Wis.), Charles Grassley (R., Iowa) and Bob Corker (R., Tenn.).

Physician-owned distributorships (PODs) are physician-owned intermediaries between medical device makers and providers like hospitals. These PODs typically have arrangements with the device makers whereby they are paid, often in the form of commissions, based on sales of the medical devices that they promote. The senators are concerned about when these distributorships are owned by physicians who work in the hospitals that are purchasing these devices and who may be instrumental in the decision-making process regarding which devices are purchased.

The senators prod the Inspector General and ask him to take action based on prior guidance issued by the Office of the Inspector General (OIG) which noted the “strong potential for improper inducements” involving PODs and the need for close scrutiny of PODs under applicable fraud and abuse laws. There is presently a lack of clear legal guidance specific to PODs, which has led to divergent views about their propriety. While the senators state that “questions have been raised about whether PODs serve any legitimate value,” they seem to place blame for the uncertainty regarding PODs on the OIG based on its failure to act and to provide the scrutiny that it advanced. Indeed, the letter asserts that the confusion created in the health care industry about PODs was caused by the OIG’s failure to publish clear policy statements about PODs and the rules they must follow. In the event that this message was unclear, the senators even went so far as to attach a list of important questions and legal issues that they believe the Inspector General should consider and be prepared to address in connection with his report concerning PODs.

The senators asked the Inspector General to report his initial findings by August 12, 2011 so it seems that the OIG will be forced to undertake some substantial action with regard to PODs in the short term.

This post was contributed by Kurt Bratten.