Feds probe sur­geon-dis­trib­u­tor as pres­sure on PODs continues

Modern Healthcare - - NEWS - By Jaimy Lee and Joe Carl­son

The Jus­tice Depart­ment is pur­su­ing what may be the first en­force­ment ac­tion against a sur­geon in­volved in a con­tro­ver­sial type of med­i­cal de­vice firm known as a physi­cian-owned dis­trib­u­tor­ship.

The probe fol­lows govern­ment scru­tiny into the im­pact of PODs on pa­tient care and costs, which has led some hos­pi­tals to back away from deal­ing with these en­ti­ties.

Court records show that the Jus­tice Depart­ment is con­duct­ing a False Claims Act in­ves­ti­ga­tion into the deal­ings of Dr. Aria Sabit, a neu­ro­sur­geon who has prac­ticed in Cal­i­for­nia and Michi­gan. The civil law­suit, filed last month in federal court in Detroit, al­leges that Sabit con­cealed prof­its he made as an in­vestor in a POD. It also al­leges that fi­nan­cial in­cen­tives as­so­ci­ated with the POD may have mo­ti­vated him to per­form un­nec­es­sary surg­eries.

Sabit is fight­ing a federal sub­poena for records show­ing how much he was paid by a small spinal-surgery de­vice firm called Apex Med­i­cal Tech­nolo­gies, based in Ven­tura, Calif., and op­er­ated by Re­liance Med­i­cal Sys­tems. Sabit also is re­sist­ing de­mands for pa­tient records de­tail­ing what equip­ment was used on each pa­tient and whether the pro­ce­dures were needed.

Last year, HHS’ Of­fice of the In­spec­tor Gen­eral pub­lished a na­tional alert warn­ing doc­tors and hos­pi­tals about the pa­tient-safety dan­gers and fraud risks of buy­ing sur­gi­cal prod­ucts from PODs. The alert caused some health sys­tems, such as Dal­las-based Bay­lor Scott & White Health and Nashville-based HCA, to phase out pur­chas­ing sup­plies from PODs.

In a typ­i­cal POD ar­range­ment, physi­cians own or have a fi­nan­cial in­ter­est in the POD. The hospi­tal where those doc­tors have staff priv­i­leges buys equip­ment from the POD and pro­vides it to the doc­tors to per­form pro­ce­dures. The govern­ment’s con­cern is that this cre­ates a fi­nan­cial in­cen­tive for physi­cian own­ers of PODs to per­form more pro­ce­dures. Tra­di­tional de­vice­mak­ers, whose busi­ness has been hurt by PODs, say the physi­cian-owned en­ti­ties cre­ate a con­flict of in­ter­est be­cause the doc­tors who im­plant the de­vices stand to profit when hos­pi­tals buy the equip­ment.

PODs mar­ket them­selves as low­er­cost dis­trib­u­tors to hos­pi­tals of tra­di­tional spine de­vices such as screws, rods and plates. In re­cent years, the com­pa­nies have cut into mar­ket shares typ­i­cally held by tra­di­tional de­vice man­u­fac­tur­ers. It is es­ti­mated that PODs ac­counted for about 15% of the do­mes­tic spine de­vice mar­ket at their peak in 2011 and 2012.

But the re­port and fraud alert is­sued by the OIG found that spinal surg­eries us­ing de­vices sold by PODs did not have lower costs. It also found that hos­pi­tals buy­ing de­vices from PODs re­ported that their spinal surgery rates grew faster than at hos­pi­tals that did not buy from PODs. “Taken to­gether, these fac­tors may in­crease the cost of spinal surgery to Medi­care over time,” the re­port con­cluded.

The al­le­ga­tions about Sabit’s con­duct were re­vealed in le­gal ar­gu­ments over whether the Jus­tice Depart­ment has the right to force Sabit to pro­duce records that he says could be used against him in a fu­ture crim­i­nal case. “The govern­ment has learned that Dr. Sabit had an undis­closed fi­nan­cial re­la­tion­ship with a spinal im­plant dis­trib­u­tor dur­ing a pe­riod that the Med­i­cal Board of Cal­i­for­nia has ac­cused him of gross neg­li­gence, re­peated neg­li­gent acts and dis­hon­est and cor­rupt acts,” ac­cord­ing to a March 5 fil­ing. “The govern­ment has ev­i­dence that Dr. Sabit’s eco­nomic re­la­tion­ship with Re­liance may have caused him to per­form un­nec­es­sary surg­eries us­ing Re­liance de­vices.”

Re­liance op­er­ates sev­eral physi­cianowned sur­gi­cal sup­ply com­pa­nies, in­clud­ing Apex, Jus­tice Depart­ment of­fi­cials say. Re­liance did not re­spond to re­quests for com­ment.

In court records, federal in­ves­ti­ga­tors said Apex paid Sabit $30,000 a month af­ter he made a $5,000 in­vest­ment to buy a stake in the com­pany. In­ves­ti­ga­tors also pro­duced data show­ing that Sabit’s use of Apex de­vices, in­clud­ing spinal- surgery

screws, spiked while he was be­ing paid by Apex.

Sabit replied in court documents that the govern­ment was try­ing to “tar­nish his per­sonal and pro­fes­sional rep­u­ta­tion.” He in­sisted he was never paid by Re­liance to use spe­cific Re­liance equip­ment.

PODs sup­plied de­vices for 19% of spinal fu­sion surg­eries for Medi­care ben­e­fi­cia­ries in 2011. Un­like tra­di­tional spine prod­uct man­u­fac­tur­ers, PODs tend to sell only com­mod­ity spine prod­ucts such as pedi­cle screws and cer­vi­cal plates, rather than new or in­no­va­tive prod­ucts.

Hospi­tal ex­ec­u­tives and de­vice­mak­ers said federal scru­tiny over the past year into POD spine de­vice dis­tri­bu­tion has chilled hospi­tal pur­chases from these com­pa­nies. But it hasn’t cur­tailed the sec­tor as a whole. How­ever, that may soon change. HCA’s new pol­icy, which will halt pur­chases of im­plantable de­vices, bi­o­log­ics and drugs from PODs, goes into ef­fect June 30.

“Since the OIG fraud alert went out last March, we’ve seen a stalling and a slow re­ver­sal of ac­tiv­ity around PODs,” said Matt Mik­sic, man­ag­ing di­rec­tor and se­nior re­search an­a­lyst with Piper Jaf­fray. “Some hospi­tal groups are get- ting more out­spo­ken about their poli­cies around do­ing busi­ness with PODs.” That re­ver­sal hasn’t yet led to in­creases in mar­ket share for tra­di­tional man­u­fac­tur­ers of spine de­vices. Alexis Lukianov, chair­man and CEO of San Diego-based NuVa­sive, re­cently told in­vestors that the preva­lence of PODs in the U.S. spine mar­ket is de­clin­ing, but “what we haven’t seen … is surgeons im­me­di­ately jump­ing away from PODs.”

David Demski, pres­i­dent and chief op­er­at­ing of­fi­cer of Globus Med­i­cal, an­other spine-de­vice maker, told in­vestors last month that the OIG’s ac­tions “are be­gin­ning to have some im­pact as we have re­cently been no­ti­fied of sev­eral hospi­tal sys­tems who have adopted a no-POD pol­icy.”

A spokesman for the Amer­i­can As­so­ci­a­tion of Sur­geon Dis­trib­u­tors said that while some hos­pi­tals may cut ties with PODs, “these same hos­pi­tals may re­con­sider the ac­cred­ited POD model as an ef­fec­tive cost sav­ings mea­sure.”

PODs mar­ket them­selves as lower-cost dis­trib­u­tors of tra­di­tional spine de­vices.

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