Reliance Medical Systems, a custom implant and surgical tool manufacturer, has challenged the Office of the Inspector General's (OIG) efforts to eliminate physician-owned distributorships (PODs) on unique grounds, claiming that the decision violates the company's first amendment rights. This could prove to be a very important case for physicians and manufacturers, particularly in more elective therapeutic fields.

First, a little background. PODs are physician-owned entities that derive revenue from selling medical devices out of office. The OIG has claimed that PODs are inherently suspect due to the strong incentive for payments of kick-backs to physicians on referrals, a criticism first offered by the Senate Finance Committee in a June 2011 report. More recently, this concern was underlined in an additional OIG report demonstrating a strong correlation between PODs and the number of spinal fusions undertaken by an office, an apprehension that the OIG believes puts patients health at risk and places an unnecessary burden on taxpayers.

But, putting aside the potential for occasional abuses, PODs do have several benefits according to some. Dr. Robert Haralson, a medical director for orthopedic brace manufacturing giant DeRoyal Industries, feels PODs offer potential savings to patients by allowing the physician to purchase directly from the manufacturer, thus eliminating any middle men. Dr. John Steinmann agrees, feeling that PODs would replace distributors and allow smaller offices to compete in a bundled payment environment, while also encouraging the growth of smaller manufacturers.

MRG's reports have been on top of this trend for years. Our US Markets for Orthopedic Bracing Devices 2011 report identified stock-and-bill programs (a POD by any other name) as an important market driver that was being hampered by increasingly stringent legal requirements. While there is some debate as to how much PODs will assist smaller manufacturers in the US marketplace if they do not possess the capital to develop a diverse enough product-line to respond to changing patient demands and function as a physician's sole supplier, there is no doubt that these businesses promote unit adoption in more elective therapeutic areas by allowing the physician to assist the patient in navigating what be kindly characterized as a reimbursement labyrinth. Although the overall benefits of PODs can be difficult to measure, with proper oversight, the worst abuses of PODs can be contained, and the artificial inflation of implant prices through distributorships can be restrained, benefiting the patient and the US economy as a whole.

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