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Pressure expected to mount by mid-year; physician beneficiaries of implant company largesse are named

Since my last column, two major developments have occurred: Congress put on hold, at least for now, deep cuts in physician Medicare reimbursements. Separately, five orthopedic total joint vendors settled a major Department of Justice fraud complaint. Each of these events will have ramifications for materials managers in 2008.

Late in the year, physicians gained a reprieve from the draconian, 10 percent payment cuts that had been called for under the Deficit Reduction Act with the president’s signing of Medicare reform legislation. As it currently stands, implementation of the cuts has been postponed until July 1, 2008.

That’s good news, as far as it goes. But it is significant that the cuts have not been eliminated; they are simply postponed. In years past, lobbying efforts were successful in thwarting entirely or significantly reducing cuts to physician income. The fact that this year’s reduction was merely delayed should serve as a red flag for all doctors. It is clear that pressure from the federal government to continually reduce physician fees will continue.

Because physicians will become increasingly concerned as the July 1 implementation date draws near, it is likely they’ll be more distracted and perhaps less inclined to assist with supply cost reductions, particularly in the face of hospital successes. It will therefore behoove materials managers to carefully evaluate where they wish to concentrate their cost-reduction efforts and with whom they will be able to work most effectively.

On a brighter note, the Medicare reform legislation will benefit hospitals by allowing them to recoup more money for inpatient rehabilitation patients and also by extending rural health provisions to aid small hospitals. While this is good news for any hospital, it could potentially cause friction between hospitals and physicians. The bill also extends the State Children’s Health Insurance Program (SCHIP).

Along with the Medicare cut delay, the other big news recently involved a civil settlement reached between the Department of Justice and five major orthopedic vendors: Zimmer, Biomet, Stryker, Smith & Nephew, and Depuy. The companies had been under investigation for alleged violations in the Federal Health Care Anti-Kickback Act and the False Claims Act.

In return for a Justice Department decision to suspend the investigations, the companies – which collectively account for about 94 percent of the U.S. total joint market – agreed to the imposition of corporate integrity agreements and fines totaling $311 million. All of the companies except Stryker will pay a portion of the $311 million in fines. Stryker was exempt from financial penalties because it was the first company to voluntarily cooperate with the Justice Department.

Even with the civil settlements, four of the companies – Depuy, Zimmer, Biomet and Smith & Nephew – continue to face criminal complaints filed by the Justice Department. The complaints allege that the companies used consulting relationships with orthopedic surgeons to induce the doctors to use a particular hip or knee prosthesis. The criminal complaint will be dismissed if each of the companies fully complies with the settlement agreement, according to news reports.

While several of the provisions in the settlement agreement make for interesting reading, one in particular may prove quite useful to materials managers. Specifically, the names of physicians involved in the scheme and the amounts of money they received from each company have been disclosed. Until now, it has been virtually impossible to obtain information about the physicians involved.

For materials managers, gaining insight into the physician-vendor relationship can be extremely valuable and can be a useful tool in countering physician demands regarding specific, high-dollar equipment. In a larger sense, the disclosures surrounding the case ultimately may cast a shadow over physician objectivity when it comes to medical device purchasing decisions. The conflict-of-interest that many materials managers have long suspected has been confirmed. As a result, physician influence on purchasing decisions may be reduced.

One other provision of the settlement that hospital officials should be aware of is the requirement that any physician who has had a consulting agreement with a company must fully disclose this information to patients. The requirement raises a number of questions around the issue of informed consent and the hospital’s role in ensuring adherence to the agreement. Thus, it would behoove each materials manager to determine the involvement of any of the orthopedic surgeons on staff at their facility by visiting company Web sites and communicating that involvement to hospital leadership. The entire settlement agreement can be viewed at THIS LINK.