Life Science Compliance Update

July 05, 2017

MedPAC Takes Anti-Pod Stance


The Medicare Payment Advisory Commission (MedPAC) released its annual Report to the Congress on Medicare and the Health Care Delivery System (the “Report”) on June 15, 2017. While the report makes many suggestions, one important one is the discussion of physician-owned distributorships of implantable medical devices (PODs). The discussion – and thereby, the report – call for action to reduce the number of PODs.

This negative commentary follows a 2016 report critical of PODs from the majority staff of the Senate Finance Committee, which concluded that PODs are “harmful to patients and payers.” The MedPAC Report joins others (policymakers, regulators, law enforcement, consumer groups, health care providers, etc.) in calling for the conflict of interest that they believe is inherent in the POD business model to be eliminated.  

The discussion found in the Report touches on issues that critics have made regarding PODs, including that they may lead to increased volume of surgery, increased intensity of procedures, inappropriate care, and higher device costs.

MedPAC speaks as Congress’ chief advisor on Medicare payment issues. This Report adds to a decade-long trend ringing loud alarm bells about PODs, as outlined below:

  • 2008: CMS expresses concern that PODs may “serve little purpose other than providing physicians the opportunity to earn economic benefits in exchange for nothing more than ordering medical devices or other products that the physician-investors use on their own patients.”
  • 2011: SFC (then) minority staff releases its first report questioning the propriety of PODs, observing “[t]he very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain.”
  • 2013: OIG issues its Special Fraud Alert (SFA) enumerating elements exhibited by PODs that make them “inherently suspect” under the Anti-Kickback Statute, including features common in the POD business model, such as:
    1. the POD offers investment interests primarily or exclusively to physicians who are expected to order or recommend implants sold by the POD;
    2. the POD primarily or exclusively serves its physician-owners’ patient base;
    3. physician-owners shift to the POD’s products on a primary or exclusive basis after joining a POD;
    4. physician-owners condition their referrals to hospitals by coercion (such as threats that they will go elsewhere unless the hospital buys implants sold by the POD); and
    5. physician-owners are few enough in number that the volume or value of a physician’s own referrals correlates closely to investment return.
  • 2013: OIG also publishes the results of its research into actual hospital purchases from PODs, concluding that PODs result in increased utilization of implantable devices compared to procedures performed with implants not acquired by PODs, and yield no cost savings (and in some cases increase costs).
  • 2014: DOJ files a civil case against Reliance Medical Systems LLC (Reliance), two of Reliance’s affiliated PODs, and some of their investors for violations of the Anti-Kickback Statute and the False Claims Act. The Complaint is based on the legal theory that physician-owner return on investment in Reliance PODs constitutes a kickback to induce the physicians to order Reliance implants for their own patient procedures, resulting in the submission of false claims to Medicare.
  • 2016: SFC majority staff releases its second report on PODs, relying on evidence collected from its investigations, and stating in stronger terms that the committee is “highly concerned about the damage that PODs have done, and are continuing to do, to patient safety and federal healthcare programs.”
  • 2017: A physician involved in the Reliance case is sentenced to nineteen years and seven months in prison for $2.8 million in criminal healthcare fraud. The physician admitted to persuading a hospital where he performed procedures to buy the implants that he ordered for those procedures from a Reliance POD, Apex Medical Technologies, in which he had ownership stake. Additionally, the physician conceded that economic benefits of the POD motived him to perform medically unnecessary surgeries.

It is unlikely that the Report will lead to any immediate actions by Congress or Medicare regulators. Congress’ attention to health care is currently focused on “repeal and replace” (Obamacare) and the Centers for Medicare and Medicaid Services (CMS) is similarly involved with considering whether and how to move forward with several Obama Administration initiatives, such as value-based health care.

However, it is significant that another independent inquiry has concluded that physician self-referral to PODs should be curtailed. The Report will add another notch in the belt of False Claims Act qui tam relators and law enforcement as they challenge POD relationships. Further, many hospitals have adopted policies forbidding or severely restricting dealing with PODs. This Report will make it harder for hospitals and physicians to initiate or maintain relationships with PODs.

May 12, 2017

MedPAC Discussed Medical Devices at April Meeting


During the Medicare Payment Advisory Commission (MedPAC) April meeting, Commissioners discussed the medical device market. Since the medical device market is not a primary focus of the Commission, MedPAC staff made sure to introduce statistics on the industry at the beginning of their presentation. The discussion on possible policy changes revolved around four issues: unique device identifiers (UDIs); gainsharing; price transparency; and physician-owned distributorships (PODs). While no immediate action is expected from the Commission, commissioners were generally in favor of considering policy changes in all four areas, especially with respect to implantable medical devices (IMDs).

During the discussion, Commissioner Rita Redberg, Professor of Clinical Medicine at the University of California of San Francisco, took a sharp tone, stating that the United States “uses more devices and pays more for them” than comparable industrial countries. One reason for that dilemma, she explained, was the slow approval process at the Food and Drug Administration (FDA) and the Medicare requirement for randomized controlled trials before devices hit the market. She noted that post-market trials were a good idea to speed the process, but that more data was needed on the devices’ failure rate and their impact on health outcomes.

The language used by Commissioners against PODs was consistent and vigorous, as Commissioners took issue with their general existence. Commissioner Warner Thomas of Oschner Health System urged the Commission to take a “harder approach” on PODs and noted that he could see no way that they were helpful for the program or beneficiaries. Commissioner Jack Hoadley of the Health Policy Institute at Georgetown University summed up the Commission’s thoughts by saying that “many of us are wondering if there’s any good reason for PODs to exist.” Chairman Jay Crosson, a former executive at Kaiser Permanente, said that addressing PODs may be “one of the easier areas” to address through MedPAC.

While the Commissioners did not like PODs, they were generally supportive of an increased use of UDIs, though they did not endorse a particular method. Chairman Crosson said that “bang for buck” will be an important consideration going forward. Vice Chairman Jon Christianson of the University of Minnesota said that UDI was a “quality issue” and that it was “clear” that the Commission needed to find a way to connect Medicare and the medical device industry.

Commissioners also largely endorsed the notion of aligning incentives for physicians and hospitals in device procurement, with Chairman Crosson saying that the Commission should “make suggestions on how it could be improved.” In addition, Commissioner Thomas said that Commission should consider a 340B program for medical devices similar to the current program that allows certain hospitals to purchase drugs at a discounted rate.

Chairman Crosson and Executive Director Mark Miller also noted their belief that the Commission could focus on the IMD market, given the costs involved. Commissioner Paul Ginsburg of the Brookings Institution said that price transparency would depend on the concentration of the market and that MedPAC should explore whether Medicare can collect price data and share it confidentially to hospitals and providers. He also endorsed mandatory warranties from manufacturers to help offset costs for hospitals dealing with the fallout of failed devices.

May 11, 2017

MedPAC Approves Part B Payment Recommendations


In early April, during the first session of the Medicare Payment Advisory Commission’s (MedPAC’s) public meeting, the Commission discussed Medicare Part B drug payment policy issues. During the meeting, the Commission unanimously approved several draft recommendations that are expected to be part of the Commission’s June Report to Congress.

MedPAC staff outlined the policy approach to Part B drug reform that would mirror the approach to Part B physician payment reform enacted under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Under the recommendations, there would be two tracks for Part B drug reimbursement: a re-vamped version of the current average sales price (ASP) plus six percent payment, or an updated version of Medicare’s competitive acquisition program (CAP), known as the Drug Value Program (DVP). The basic idea behind this is that, over time, the ASP add-on payment would be reduced to incentivize physician participation in the DVP.

The DVP program would take lessons learned from the CAP program and give the Department of Health and Human Services (HHS) Secretary the authority to use private vendors to negotiate prices and offer providers shared savings opportunities. MedPAC staff noted that DVP would: be voluntary, include multiple vendors, and allow providers to share in savings that Medicare received on the drug’s purchase price. The vendors who negotiated the prices would be paid a fixed administrative fee. Additionally, the DVP would differ from the CAP because vendors would be able to utilize a formulary with an exceptions and appeals process.

Specifically, MedPAC made several recommendations that Congress should change Medicare’s payment for Part B drugs and biologicals. Some of those recommendations are laid out below.  

First, they agreed that the ASP system should be modified in 2018 to: (1) require all manufacturers to submit ASP data, and impose penalties for failure to report; (2) reduce wholesale acquisition cost (WAC)-based payment to WAC plus 3 percent; (3) require manufacturers to pay Medicare a rebate when the ASP for their product reaches an inflation benchmark, and tie beneficiary cost sharing and the ASP add-on to the inflation adjusted ASP; and (4) require the HHS Secretary to use a common billing code to pay for a reference biologic and its biosimilars.

They also agreed to create and phase in a voluntary Drug Value Program (DVP) with the following mandatory elements (no later than 2022): (1) Medicare contracts with a small number of private vendors to negotiate prices for Part B products; providers purchase all DVP products at the price negotiated by their selected DVP vendor; (3) Medicare pays providers the DVP-negotiated price and pays vendors an administrative fee, with opportunities for shared savings; (4) beneficiaries pay lower cost-sharing; (5) Medicare payments under the DVP cannot exceed 100 percent of ASP; and (6) vendors use tools including a formulary and, for products meeting selected criteria, binding arbitration.

While MedPAC Commissioners voted in favor of the reforms discussed above, the stability of pricing within the Part B drug marketplace remained a concern. The Commissioners also pressed MedPAC staff for specific numbers regarding inflation caps, DVP incentives, and penalties for failing to report ASP data. Chairman Jay Crosson and Commissioner Paul Ginsburg of the Brookings Institution called the reforms a step in the right direction, noting that the proposals strengthen the market dynamics for Part B Drugs. Commissioner Ginsburg also praised inflation adjustment caps as a means for suppressing the continuing price increases for Part B drugs.

Commissioner Amy Bricker of Express Scripts noted that she supports “roughly 80%” of the draft recommendations, but expressed three concerns with provisions put forward by the Commission. Commissioner Bricker strongly opposed the arbitration provision of the DVP, noting that it’s “contradictory to the free market emphasis” MedPAC aims to achieve through these reforms, as well as disagreeing with other Commissioners regarding inflation caps and consolidated billing codes for biosimilars. Commissioner Bricker and Commissioner Alice Coombs of South Shore Hospital also questioned MedPAC staff about administrative costs for drug administration, stressing the importance of minimizing the burdens of these costs.


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