Surgeon-Ownership of Medical Device Firms Raises Troubling Questions

It seems a number of surgeons are benefiting financially by using medical devices marketed by companies they own. However, while the practice may good for a surgeon’s wallet, many worry that patients aren’t faring so well.

According to a report published by The Wall Street Journal over the weekend, surgeon-owned firms claim they help lower health care costs because they don’t employ marketing and sales staffs, and they charge hospitals less than established medical-device makers do. But some patient advocates are concerned that the situation creates a conflict-of-interest that could endanger patients. In June, five U.S. senators asked the Inspector General of the Department of Health and Human Services to open an investigation into physician-owned device companies, citing concerns that the surgeons involved have a financial incentive to “perform more procedures than are medically necessary,” the Journal said.

“Patients are having huge operations that are un-indicated because of this,” Scott Lederhaus, a neurosurgeon in Pomona, Calif., and member of the Association for Medical Ethics, an organization of doctors that focuses on conflicts of interest, told the Journal.

The Journal article points to a couple of troubling incidents where doctors’ investments in medical device firms’ appeared to be influencing their practice of medicine. Starting in the summer 2007, for example, a company called Spinal USA began recruiting surgeons in Alabama to invest in the company. The company eventually brought eight Huntsville surgeons on board. According to the Journal, it wasn’t long before the number of spine surgeries performed at Huntsville’s two hospitals spiked:

“At Huntsville Hospital, one of the city’s two hospitals, 351 spinal-fusion surgeries were performed on Medicare patients in 2009, up from 333 in 2006, before Spinal USA came to town, a Wall Street Journal analysis of Medicare claims data shows. At Crestwood Medical Center, the city’s other hospital, there were 187 such operations on Medicare patients in 2009, up from 107 in 2006, the analysis shows. Huntsville Hospital says it spent $5.6 million on Spinal USA products in its most recent fiscal year.”

According to the Journal, a federal antikickback law that forbids device makers from paying surgeons for using their products doesn’t specifically address the issue of surgeons using medical devices made by companies they co-own. However, Health and Human Service’s Office of the Inspector General has issued regulatory guidance for complying with the statute, and t advises that no more than 40% of a company be owned “by investors who are in a position” to “generate business” for it.

Spinal USA’s majority owners are surgeons, though according to the Journal, it is working on bringing on “outside” investors. However the company maintains that more than 60% of the company’s business is generated by surgeons who aren’t owners.

Spinal USA would not tell the Journal how much its surgeon-owners earn from the company. But in a bankruptcy petition, one such doctor stated that he received $26,000 a month from his stake Spinal USA up until November 2008.

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