Inside HSCA Guest Blogger Lori Pilla Discusses Recent Study on Implantable Device Costs

Editor’s Note: A recent study led by Dr. Kanu Okike and published in Health Affairs found that very few orthopedic surgeons are able to correctly estimate the price of implantable devices. Doctors surveyed in the study were only able to accurately estimate these costs between 17 and 21 percent of the time. Lori Pilla, Vice President of Clinical Advantage and Supply Chain Optimization for Amerinet, shared her thoughts on the study and its implications for healthcare organizations with Inside HSCA.

A very interesting study published recently in Health Affairs touches on the reality of implant utilization and why there remains a gap overall in relation to actual costs being paid by hospitals across the country. For years there has been a significant variance in the knowledge amongst surgeon groups about the total expense implants place on hospital budgets. It is very refreshing to see that at least the majority of the group actually participated in the survey and the fact that 21% actually knew the costs is progress. It is not a surprise that the delta across the estimates is so variant against what the cost actually is, of those products they use every day.

On the other side, this article validates once again the lack of transparency in pricing on vendors like products used in different organizations as pointed out by the Government Accountability Office in 2012. As reimbursements continue to decrease, this point will be of focus as organizations bear the strain of increased implant costs.

Finally, as organizations work to engage their physicians in helping with cost containment, it will be important to:

·      Stress the lack of variance in quality outcomes across like products made by multiple suppliers
·      Educate the physicians, and drive this education through both outcomes data and financials
·      Finally, incentivize those physicians, who are early adopters in participating in cost containment through equipment and other desired service line products.

-       Lori Pilla, RN, BSB/M, MBA, Vice President of Clinical Advantage and Supply Chain Optimization, Amerinet.


Inside HSCA Guest Blog, Tom Bulleit: OIG’s Bad News for PODs: Whither (or Wither) the Physician-Owned Supply Chain?

2013 was not a good year for physician-owned distributors of implantable medical devices (“PODs”).  In March, the Office of Inspector General of the Department of Health and Human Services (“OIG”) published a Special Fraud Alert on Physician-Owned Entities, the essential conclusion of which was that physician-owners ordering implantable devices for their patients through their PODs is “inherently suspect” under the Federal health care programs antikickback law (“AKL”). In October, OIG released a report reviewing the prevalence and use of spinal devices supplied by PODs, the essential conclusions of which took the wind out of the sails of POD proponents by demonstrating that PODs (i) do not result in cost savings and (ii) do lead to increased utilization of implantable devices. In the course of the year, several large hospital chains, including Tenet, Ascension, and Intermountain Health, adopted policies prohibiting purchasing from PODs owned by the ordering physicians. While the proponents of PODs have continued to scrounge for arguments that support the POD business model (see links below), it is increasingly clear that there is little to be said in favor. 

These points are made in greater detail in a recent article that I co-authored in Compliance Today (the leading periodical for hospital compliance officers, published by the Health Care Compliance Association) and in a letter to the editor of Orthopaedics This Week (perhaps the most widely-read publication in the orthopaedics industry).

These developments should not come as a surprise to anyone who has followed the steady defeat of each new physician ownership vehicle over the last twenty years.  Beginning with the publication of OIG’s Special Fraud Alert on Joint Venture Arrangements in 1989, the federal government has moved to restrict self-referrals by passive physician owners in ancillary lines of business. In the early 1990s the government settled cases involving physician-owned laboratories, imaging and radiation therapy centers.  See, e.g., SmithKline Lab To Pay Record $1.5-Million Fine, Los Angeles Times, Dec. 29, 1989; DOJ Press Release, T2 Medical, Inc. Agrees to Pay $500,000 and Discontinue Improper Practices (Sept. 26, 1994), ; Shalala v. T2 Medical, No. 1-94-CV-2549-ODE, 1994 WL 686949 (N.D. Ga. 1994); Shalala v. RadiationCare, No. 1 :94-CV-3339-RCF, 1995 U.S. Dist. LEXIS 749 (N. D. Ga. 1995). 

In the course of 7 years of litigation against the Hanlester laboratory network that yielded only a partial victory – investment interests are remuneration under the AKL, but some defendants were acquitted – OIG convinced Congress to act against physician self-referral more directly, and the Stark law was born.  See, e.g., Office of Inspector General (OIG),Financial Arrangements Between Physicians and Health Care Businesses: Report to Congress (May 1989); General Accounting Office,Referrals to Physician-Owned Imaging Facilities Warrant HCFA’s Scrutiny; Report to the Chairman, Subcommittee on Health (Oct. 1994). 

Stark effectively stopped, or at least severely regulated and restricted, physician self-referral for certain “designated health services.”  Where self-referral crept back in to exempt certain services from Stark (e.g., physician-owned mobile providers), the government continued to pursue cases under the antikickback law, and obtained a settlement against a physician-owned mobile laser provider as recently as 2010.  See OIG Press Release, OIG Enters into $7.3 Million Civil Monetary Penalty Settlement with Physician-Owned Enterprise (July 8, 2010). See also, American Lithotripsy Society v. Thompson, 215 F.Supp.2d 23 (2002) (holding that lithotripsy is not a Stark DHS); 69 Fed. Reg. 16054, 16105 (Mar. 26, 2004) (“in light of the unique legislative history regarding the application of [the Stark law] to lithotripsy, we will not consider lithotripsy an ‘inpatient or outpatient service’ for purposes of [the Stark law].”).

PODs are easier to disapprove than any of these earlier models, since at least those involved regulated providers furnishing healthcare services. And as CMS has made clear, PODs also raise concerns under the Stark law.  See, e.g., 73 Fed. Reg. 23527, 23694-23695 (April 30, 2008) (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 . . . that the physician-investors use on their own patients” and in many instances would not qualify for an exception from the Stark law’s self-referral prohibition).  Accordingly, as OIG’s recent pronouncements make clear, the physician-owned supply chain is doomed to wither under the continued scrutiny of  enforcers, whistleblowers, and perhaps most important, hospital customers who will not want to put themselves at risk by purchasing from a self-referring POD.  But these developments do beg the question, what next?  In this regard, I offer a few possibilities:

  •  Gainsharing Makes a Comeback. Hospital-physician gainsharing never really went away, and OIG has approved numerous programs that allow procedural physicians to share in the concrete savings to which they contribute by adopting cost-reducing treatment protocols. The withering of the physician-owned supply chain will re-invigorate interest in these programs.
  • ACO Waivers Arrive. As the Affordable Care Act continues to encourage hospitals and physicians to work together to control costs through bundled payment arrangements, there will be an increasing array of physician-incentive plans tested.  For recognized ACO’s, some of these will be protected at least temporarily under waivers from the AKL and the Stark law.
  •  ACO-type Arrangements Proliferate. Even outside the context of CMS-recognized ACOs, hospitals and physicians will explore shared savings arrangements that are based on similar principles. Providers, drug/device companies, and payors will work more closely to achieve arrangements that properly incentivize physicians through the existing managed care safe harbors: 42 C.F.R. 1001.952(m) (“price reductions offered to health plans”), (t) (“price reductions offered to eligible managed care organizations”), and especially (u) (“price reductions offered by contractors with substantial financial risk to managed care organizations”).
Now that OIG’s pronouncements have made clear that PODs are not an acceptable or lawful answer to rising healthcare costs, hospitals, physicians, and implantable device makers can be expected to begin more serious efforts at shared savings and other arrangements that will at once bring about greater cost control and continue to encourage the product and service innovation that represent the best of American medicine.

- Tom Bulleit, Partner, Ropes & Gray


HSCA Applauds FDA, GAO, House Energy and Commerce Committee for Leadership, New Reports on Efforts to Combat Critical Prescription Drug Shortages

The House Energy and Commerce Committee Subcommittee on Health convened a hearing yesterday to examine recent efforts to address prescription drug shortages, during which the Committee considered new drug shortage reports from the U.S. Government Accountability Office (GAO) and the Food and Drug Administration (FDA).

Healthcare Supply Chain Association President Curtis Rooney released the following statement after the hearing:

“HSCA applauds FDA, GAO and the House Energy and Commerce Committee for their leadership on the critical issue of prescription drug shortages and the new reports highlighting the actions that healthcare stakeholders have taken to mitigate the impact of this ongoing public health threat. GPOs have continuously worked in close collaboration with hospitals, manufacturers, distributors, Congress, HHS and FDA to help promote patient access to the life-saving drugs they need.

“GPOs have been leaders in helping to combat generic drug shortages and are already taking a variety of innovative steps to help reduce their impact. On a daily basis, GPOs balance the need to ensure access to drugs with the need to provide the best value to hospitals and healthcare providers. The GPO contracting process provides stability and predictability to hospitals and to the market; GPOs help hospitals and healthcare providers source and safely migrate to alternative products when shortages arise; and the voluntary GPO contracting process gives significant flexibility to both hospitals and manufacturers. For example, when drug manufacturers experience shocks to production, such as higher input price, they have the ability to quickly adjust their contract price as needed to continue production of that drug. As a result, GPOs manage thousands of price changes annually.

“Hospitals rely on GPOs to drive down costs and deliver the best products at the best value. Although GPOs don’t manufacture, compound or take title to any drugs, we have worked tirelessly with our hospital partners to expand the number of suppliers, to help manage existing supply, and to help ensure that patients get the medications they need when they need them.

“The GAO and FDA today reaffirmed that the root causes of drug shortages are manufacturing problems, quality issues, and barriers to getting new suppliers on line when supply is disrupted. Drug shortages are a complex challenge with no overnight fix, but GPOs are committed to continuing to be part of the solution.”

For the full HSCA press release, click here.

For more details on the steps that GPOs have taken to help mitigate the impact of drug shortages, please visit