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How to Do Physician-Owned Distributorships the Right Way

Written by  Laura Dyrda | Tuesday, 01 November 2011 15:27
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At the 18th Annual Ambulatory Surgery Centers Conference in Chicago on Oct. 28, John C. Steinmann, DO, of Renovis Surgical Technologies, discussed the right and wrong ways to engage in physician-owned distributorships. "Orthopedic surgeons should consider physician-owned distributorships because it is socially conscious and you can make the process more value-driven," he said. "With reimbursement going down, it can be a valued ancillary. It works off the premise that you do better if you perform volume pricing, effective negotiation, eliminate non-value added cost, pay reasonable salaries, allow only reasonable price increases and foster competition."
In the model Dr. Steinmann proposed, surgeons hire their own sales representative, make a consensus on what type of implants they use and then purchase implants in volume from device companies. Then, they negotiate contracts with the hospitals to provide those implants.

The right type of POD will include:
•    Significant inventory purchase
•    Substantial surgeon investment
•    Financial risk
•    Active surgeon involvement
•    Transparency with disclosures
•    Written contracts with the hospitals and vendors
•    Comply with Stark and Anti-Kickback statute

Dr. Steinmann dispelled several misconceptions about PODs, including the notion that they are illegal and unethical. If they are done right, PODs are not a conflict of interest, do not incentivize the use of substandard products and are not going to be eliminated by the government. He cautions physicians involved in PODs never to change referral patterns based on distributorship acceptance and to keep prices similar among all hospitals involved. "Physicians must see themselves as an investor creating a real business that may provide a return on investment and not as a physician who will be paid for generating business," he said.

He also discussed the political landscape surrounding PODs. While many unfavorable stories have been published in the lay media shedding a negative light on PODs, the Senate Finance Committee recently recognized the value of PODs in a decision rendered last month. They said each situation had to be looked at individually to determine whether the intent was good or bad. The American Association of Surgeon Distributors has been founded to establish a set of standards to govern legal and ethical use of PODs.

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