States take action to address POD proliferation

As federal regulatory or enforcement activity concerning physician-owned distributors (PODs) awaits a study by OIG (expected later this year), states are beginning to recognize the serious potential for patient and program harms that PODs involve and to take action on their own.  The New Hampshire legislature’s recent actions in the area of physician-owned distributorship (POD) regulation are the latest in a growing trend of state activity in this area.  This spring, the New Hampshire House of Representatives passed a bill that would have amended state law to prohibit physicians from referring their patients for implantable medical devices to a company in which the physicians have an ownership interest.  Amid intense lobbying by the New Hampshire Medical Society and the dissemination of inaccurate information by some of the bill’s opponents about the bill’s potential effects, the Senate failed to pass the bill.  Last week, a conference committee established a committee of state legislators to study the issue of self-referral for implantable medical devices and make recommendations for future legislation.  The committee’s findings are due November 1, 2012. That such a prohibition made it so close to becoming law in a state that presently has no discernible POD activity is more evidence that the proliferation of PODs is viewed with increasing skepticism by serious-minded observers.  A past president of the American Association of Neurological Surgeons recently wrote that PODs “exploit, and may at least potentially violate, the trust that a physician’s interest is altruistic and purely for patient welfare, not personal profit. The conflict is a clash between business and professional ethics.”  New Hampshire’s legislature was the third in the past year to address this conflict; California and Oklahoma also recently passed laws addressing PODs supplying implants in workers’ compensation cases. In California, a new law took effect in January that prohibits physicians treating workers’ compensation patients from owning an interest in the companies that supply “pharmacy goods,” which include implantable medical devices, to those patients.  Enactment of the law was significant not just because it outlaws PODs in the workers’ compensation space, but also because it represents a legislative rejection in workers’ compensation cases of a prior California Attorney General opinion on physician-owned implant companies.   Oklahoma also recently passed workers’ compensation reforms that require physicians to disclose to patients, employers, insurance companies, case managers, attorneys, and other parties if they have a financial interest in an entity that buys and resells implantable devices.  The law also requires physicians with ownership interests in device companies to limit markup of implantable devices to 10% above cost in workers’ compensation cases.  It may reasonably be asked if this state legislative activity will be a harbinger of state action in other jurisdictions to limit PODs. Physicians, hospitals, and device manufacturers considering doing business with PODs now have more to give them pause than even a year ago.

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