Aligned Goals, Trustworthy People Key to Physician-Owned Distributorships

At the 18th Annual Ambulatory Surgery Centers Conference in Chicago on Oct. 28, Mark Farrow, president of Compression Solutions; Richard Kube, MD, CEO, founder and owner of Prairie Spine and Pain Institute; and John C. Steinmann, DO from Renovis Surgical Technologies, discussed physician-owned ancillaries, particularly physician-owned distributorships.

Dr. Steinmann, who is part of a physician-owned distributorship, said this kind of business is a stocking distribution model in which physicians get together, reach a consensus on the design features they want in a product and seek companies that produce them. In this model, the distributorship can sell implants to hospitals at a significantly discounted rate. While there is a risk of violating the Anti-kickback and Stark laws, Dr. Steinmann said that if you operate the business properly the physicians will remain compliant. "You have to set this up right. There is no shortage of people doing it wrong, and it threatens the model," he said.

The "Big Five" orthopedic medical device companies (Biomet, DePuy, Smith & Nephew, Stryker and Zimmer) have focused on these potential regulatory issues in trying to eliminate the model because it threatens their market share, according to Mr. Farrow. "They're not going to go down easy," he said. "If and when you go into [a physician-owned distributorship], you have to keep your eye on the ball because that's your competition."

Dr. Steinmann said the key to remaining compliant is choosing a trustworthy team whose goals are aligned. "The take home lesson is to go into it with the right intent: to save healthcare dollars and maintain [or increase] quality," Dr. Steinmann said. As the integrity of the people in the company is so important, Dr. Steinmann said the model may work best with smaller groups in which one can trust each person.

Dr. Kube works with a model that is similar to a physician-owned distributorship in that it purchases and stocks implants for cases in its medical corporation, but it also works directly with payors. "It's a model where there's not ever a referral that occurs, so there is never a kickback issue that occurs," he said. "It's a nice win-win for [insurance] carriers and ourselves." Dr. Kube, as Dr. Steinmann, emphasized the importance of aligning the goals of everyone in the company to ensure the company is acting ethically and compliantly. "It boils down to having common goals and honorable people you're working with," he said.

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