Caution: Physician-Owned Distributorships Ahead

Payments to physicians always raise conflict-of-interest issues for medical device companies (see my post on When Is It Okay to Pay Physicians?). These issues never go away. Today, the Wall Street Journal reported that five US Senators have requested an investigation into the legality of Physician-Owned Distributorships (PODs).

Not being in the spinal implant business, this is the first I’ve ever heard of PODs. What are PODs and what are the implications for medical device companies?

A POD is a physician-owned business that buys products wholesale from manufacturers and sells those products retail to hospitals or offices. This creates the opportunity for a conflict of interest, if greater use of a product by a physician for patient care increases the profits of the POD. Even if the use of the product is medically justified, the POD still creates the appearance of a conflict.

In turn, the appearance of conflict created by PODs reflects negatively on medical device manufacturers. The device company appears to be complicit in the conflict, selling to the POD to benefit from increased or improper usage. No one wants their device associated with negative publicity.

What should medical device companies do? Unilateral action is difficult. If you refuse to sell to a POD, you risk losing significant business to competitors who will. Medical device companies have no real ability to monitor for improper device usage.  So, it’s a real dilemma.

The law firm Hogan Lovells has been on top of this issue for the past few years, and I encourage you to check out their detailed advice here. Because unilateral action by a single medical device company will not be effective, collective action by the medical device industry is needed. On their website, Hogan says they have “advocated for stronger legislative and regulatory action to halt the proliferation of these entities.” Medical device companies should do the same, through trade groups like MassMEDIC, AdvaMED, and MDMA. Improved regulation can reduce physician conflicts, eliminate the device company dilemma, and ultimately benefit patients.

Update 10 June 2011: You can read the US Senate Finance Committee report on Physician-Owned Distributors here.


5 thoughts on “Caution: Physician-Owned Distributorships Ahead

  1. Any time any individual derives his income from another who pays for services there is a conflict of interest. Because a physician’s income is dependent on the services he provides he is inherently incentivized to provide them. No one questions the dentist on the necessity of fillings for a particular when in fact the dentist has to pay for all the equipment that makes fillings possible.

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