Sunday, April 3, 2011

Tipping the Odds, or Plain 'Ol Stacking the Deck

On Sunday, April 3rd, Barry Meier published an expose entitled, "Tipping the Odds for a Maker of Heart Devices."  Mr. Meier has been known to report on the potential nefarious backdoor dealings in the medical device industry. Potential is the only word that TSB can use based on the Department of Justice track record, a little more later on the DOJ in this post.  Yet,  this story takes the reader back to our favorite city, the City of Sin, the city whose commercials should feature Elvis singing Viva Lost Wages, the city that is proud to promote, "what goes on in Vegas, stays in Vegas."   Vegas is homogeneous.  Americans walking around in their shorts, a cigarette dangling from their mouth, white socks pulled up to their knees, some ridiculous looking tee shirt and their belly hanging over their belts, and TSB is just describing the women.  A picture tells a story, don't it?  Americans practice paganism paying homage to false gods like Snooki, and the Jersey Shore crowd, the Housewives of Orange County.  And then we wonder why there is an outright dumbing down of America.

But this isn't about middle and lower income America.  This story is about the magnetic field that surrounds Vegas when it comes to physician and company consulting agreements.  Read the following excerpts and one begins to see that wheeling and dealing has become a standard in the medical device industry.  Within the last few years a little known German company by the name Biotronik has taken Vegas by storm, and cornered the market on defibrillators and pacemakers at UMC Hospital.  Prior to 2008, Biotroniks implants were not used at this facility.  So how did Biotronik end up getting 95% of UMC's business last year?  You guessed it, the old fashion way.  TSB can hear most of you screaming "Consulting Agreement."  With consulting fees reaching as high as $5,000 per month, it seems that l'il 'ol Biotronik went from being a nobody to being a somebody in the Vegas market.  Today, a federal investigation is examining Biotronik's sales and marketing practices.

Many of you know that in recent years compensation to physicians have come under intense scrutiny.  How intense is left up to the imagination.  What is utterly ridiculous is how the government once again fails to monitor this practice.  The most recent federal law mandates that companies will have to provide full disclosure by 2013 for any payments to doctors for consulting, and other services.  Of course, the primary culprit in this activity is the salesperson whom Mr. Meier reports find ways to flatter surgeons or fatten their wallets.  The interesting aspect about this expose is some of the comments that are made regarding the salesperson/surgeon relationship.

"One sales person was said to hold a great influence over a doctor."   A svengali or dominatrix?  "He loves his white wine and being entertained." Never have heard that one before?  The most entertaining aspect of this story is that Biotronik officials were quoted as saying,"that Biotronik adhered to  an industry wide code of ethics." Of course, it depends upon which code one adheres to.  Does Biotronik adhere to the written code, or the unwritten code?  There is a difference.  So how does a little 'ol company like Biotronic take on the likes of a Boston Scientific, a Medtronic, a St. Jude? Probably the same exact way that many companies in the spine industry do, by maintaining a culture of compliance and ethics.  With an ASP of $35,000, and commissions of 25% TSB has to wonder, what the hell are we doing selling in the spine industry?  There's gold in 'em hills!

There are many parallels between this story and our industry.  A salesperson or distributor becomes successful with a product, the company begins to feel threatened or starts playing games with the distributors commissions, a new company comes along, the distributor is unhappy, and next thing you know the distributor is working for a new company leveraging their relationships in one's quest for the holiest of holy.  But contrary to what many perceive about TSB, our opinion is that this behavior is not generated by greed, it is provoked by a lack of respect by corporations in general.  TSB is not going to get into the central cast of characters in this investigation but what is interesting is that the Department of Justice continues behaving like a paper lion.  In January,  St. Jude paid a $16 million dollar fine settling federal charges of giving kick backs to doctors so that they would participate in medical studies, only St. Jude's did not admit to any wrong doing.   TSB must admit that is my favorite aspect of all of these settlements.  You are fined, but do not admit to doing anything wrong.   Incredible.

The plot thickens when Biotronik makes claims that "entrenched relationships between the bigger producers, implant specialists and hospitals have stymied the company's sales growth."  But wait a minute, maybe Biotronik has a point.  Maybe there is a correlation.  As hospitals have become insulated from allowing free market enterprise, ever hear of the Preferred Vendor List (LOL),  companies and sales people have become much more creative in how they go about entering and preserving their marketshare and livelihood. Physician's who once had freedom of choice to use their vendor of choice, have become vassals and serfs to their lords, the hospital adminitrator.  If the reader doesn't believe it,  spare me a minute.  Last week, while showing a surgeon a product that clinically had therapeutic value over what he was using, the doctor said, "I want to use this on my next patient, unfortunately, if you are not a preferred vendor, you will have to go through the product evaluation committee and get approval in purchasing." At minimum a three month process. And then we wonder why the U.S. healthcare industry is totally out of control.

Once again, the focus of what is wrong with the system is solely placed on the shoulders of the sales representative.  This article talks about sales people earning up to $300,000 per year, playing a variety of roles like technical expert, entertainer, and recruiter.   What's disturbing is that the public's and surgeons perceptions of what most sales people earn is immediately tainted with one stroke of a brush.  Keeping a doctor happy is no different than keeping a consumer happy whether you sell cars, stereos, build homes, or run a hotel.  Unfortunately, once this relationship becomes a dependency, the positive is sometimes outweighed by negative behavior.  But Mr. Meier is behind the curve in reporting on old news.  Those of us that work within the industry have known of many of these scenarios.  Maybe, its time that the media focus on the newest business model that is beginning to take healthcare by storm.  The Physician Owned Distributorship.   So in closing, TSB wants to know who are the companies that are mastering POD's and how is it effecting your ability to do business in your territory.

47 comments:

  1. In my area (Midwest) I have not seen any active POD's yet, although they are all around. I have seen Eminent Spine in my neck of the woods pitching direct to physicians, and I think the Zimmer Spine distributor in my area is likely to do something along those lines. They carry 4-5 different companies products, whatever is cheapest and anything they can to backfill a product they currently don't offer.

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  2. Are most POD's resellers? How much do they pay for sets like lumbar, cervical, posterior cervical and peek? Is this the new game?

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  3. The New Game, ask Robin Young's friend Dr. Steinmann, the self-proclaimed Minister of POD's.

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  4. Anyone think Globus will go public?

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  5. 2:33

    Most PODs are resellers. Depending on what interpretation of the law is used, PODs should generally not take products on consignment. They must try to have a justification for making money and an important way to do that is to take on the risk of purchasing and holding inventory. If they get free inventory through consignments, there is much less argument for getting paid as a "legitimate" business.

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  6. How does the POD compare to a radiologist not being allowed to refer a patient for an MRI or CT to his own imaging center? Amazing how many shady ways people come up with to get therr hands in the cookie jar.

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  7. Any openings in Vegas? Sounds like fun.

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  8. blackstone/orthofix allegedly has a POD in my area. everone knows it & talks about it. Everyone but the DOJ and OIG, anyway.

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  9. I heard the Z Spine distributor in Ohio, allegedly, set up a doc's wife with all the luxury treatment a Vegas hotel could offer while the doc attended a course in Vegas. I guess this is a sign of what's to come from the new Z Spine leadership.

    If you asked them directly, I don't think Z Spine would condone a POD "relationship". But I have no doubt they will look the other way if it meant a temporary halt to their quarter after quarter sales slide. Heck, some of those sales "leaders" wrote the book on that stuff.

    Warsaw doesn't care. Dvorak lays off a couple hundred more, reports anemic Recon growth and gets a 35% pay raise. Life is good.

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  10. The Z Spine distributor I used to work for (in a Midwestern city I won't name) called me two weeks ago, and asked me to go back to work for him. He said that Z Spine is now "aggressively" pursuing competitive reps with established business, and is willing to pay up to 35% commission for the first year, 25% the second year, 15% the third, and 10% thereafter. I just about busted out laughing at the guy. Aside from the fact that they don't have sh*t for products (oh excuse me...they do have PathFinder II now. HAHAHAH!!!), why in the hell would I be willing to give them my business for just one or two years of decent commissions? 4 years from now I would be getting less commission than I am now and that's with a product portfolio that doesn't even offer a complete pedicle screw system. Sequoia is a decent degenerative screw system at best.

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  11. After reading this and so many articles similar to it, I, for the first time of over a decade and half of work in the industry have lost any semblance of pride (naive as I may have been way back when) in my profession, 'medical device'.

    Why? I think it's represented in what seems to be subtly lacking in TSBs analysis. UMC, Makker, New York Times and the WSJ. This isn't about one doc, a facility run amok, or a company that cut ethical corners. This is about providing the anatomy of a broken system in piecemeal fashion, with metronome-like regularity and with the intent of showing the public just how bad, absurd and expensive it has become. I'd call it sensationalism, but TSB himself predicted the next of many by lines.

    Any one with a modicum of practical sense and experience has the capacity to realize that journalists could filll thousands of column inches on stories that would leave even our own relatives with that uniquely instinctual feeling of getting $@#!-ed. In other words, this isn't about 'J-MAK' per se, this is about making sure the public writ large and their elected officials 'get-mad and get-it!'

    Got doubts? Ask yourself, seriously, how does an obscure neurosurgeon from Portland OR make the front page of the WSJ health section? Is he really that exceptional?

    Unfortunately, the good surgeons, the good people, the near-term innovation with promise I fear, are destined to become merely collateral damage the longer we fruitlessly waste time searching, dissecting the subtle bias or inaccuracies of this or that article.

    I don't believe, I know, the jig is up. Time is better spent thinking forward, because I guarantee that someday soon, a company will approach the market in a way that will leave most thinking that what they're doing won't work, and a more sophisticated few wondering why they didn't think if it. It will be legit, it will be centered around distribution and portfolio and wiring company architecture to excel in the new environment and it will be game changing.

    It ain't PODs, but thankfully it is the American way.

    'History, will teach us nothing." - Sting

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  12. Whatever happened to the Blackstone investigation? Has the FBI and the DOJ dropped the ball on that debacle. And then the industry, public and a lame duck government wonders why this nonsense spreads like a tsunami. But then, Obama announced his candidacy this morning and is looking to raise a billion dollars. Maybe this elections theme will not be Hope it will be "we are looking for more dopes.'

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  13. I think TranS1 is starting to do a bunch of PODs.

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  14. They should be able to, look how many docs are involved with that company. That's how many of these companies smaller companies survive.
    I think I'll write a book call Death of a Salesman.

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  15. 9:11 - Which poses the question . . . Why value does a Zimmer Spine distributor bring? It doesn't sound like much. If you're lucky you'll get a call from someone who knows even less about Spine and the Spine business (A Zimmer Spine "Area Vice President")

    Sequoia is great if your SPD department likes a 33 pound instrument tray and your surgeon prefers screw heads that detach from shank every now and then ... you know, just to keep it interesting.

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  16. Skeet skeet skeet!!!!!

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  17. I know of a few POD in my area. Blackstone, Alphatec,Spinal Elements.....

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  18. I feel like this wouldn't be a good topic without a "Does anyone think or know when Globus is going public?" post thrown in there for good measure. Thanks 4:31

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  19. Most of us hope that the "jig is up" on the POD model. I have a good healthcare attorney friend who is actually setting up a few of these POD's as I write this. I inquired as to what his crystal ball showed him with the future of POD and his response was typical attorney speak....."Well if the OIG ever gets around to going after this model they won't be able to put handcuffs on all these docs so instead they will put out an advisory opinion stating that the OIG looks unfavorably upon these types of arrangements. Then at that time the surgeons can all start unwinding their own PODs."
    I sure wish I could have the federal government give me a warning before they were going to arrest me!!

    BTW, if any of you want to laugh, call up the OIG tipline and try to see what happens when you are trying to report a dirty doc......it is a joke! First of all you will never, ever speak to a live person, and secondly they are so busy trying to track down providers bilking millions of dollars in false adult diaper and motorized wheelchair claims that by the time they get to your tip, you'll be 6' under.

    No wonder these surgeons are not worried about prosecution.

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  20. 12:01

    Thanks for the post. Makes complete sense.

    I am curious what 'your' crystal ball is on the products involved after the 'great unwind'.

    I'm not necessarily interested in the legal perspective but more the market blowback. My gut tells me the 'taint' generated around these brands could be severe?

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  21. For those of you who are saying that the Orthofix/Blackstone distributor has a POD, please let us know what city.If you can't name the city, then please shut your pie hole. Orthofix does not, nor will they condone such arrangements from their distributors.

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  22. What about South Texas? Ring any bells?

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  23. Noone cares if Globus is going publc

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  24. Concur on S Texas.

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  25. What city in South Texas and which docs and what company is selling to them?

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  26. What about Allez spine? A group of brilliant surgeons drove that into the ground. Now they have renamed themselves Phygen and license products from...drum roll please..........Alphatec amongst others. Does anyone see this business lasting more than 2 years?

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  27. Phygen or physician generated Income and alphatec is a perfect marriage. This one will fall.

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  28. There are 2 reasons POD's resell. First, it creates a need for capital to buy the sets. If there was no need for capital, it would be hard explaining why you needed any investor, much less a surgeon investor.

    Second, it insulates the manufacturer. If they simply sell to the entity, they can not be prosecuted for any payments to doctors who are invested and implanting the products. They simply sell the product at wholesale. That, to me, is a clear sign that the POD is crossing the line by paying the docs on profits, but the manufacturers, won't even pay commission to the entity because some of that will end up in a docs pocket.

    The company they use doesn't matter. They are going to switch product lines, it is a requisite to make the POD model work. Don't get mad at Orthofix or Alphatec, there are dozens out there and and they will simply pick the one the like best or make the most margin on. The docs are the ones you should be pissed at, you were gonna lose that business anyway, those companies are just making a thinner dime.

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  29. I whip my hair back and forth.

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  30. Isn't it ironic or moronic that POD stands for the following:

    Payable on Death
    Pay on Demand
    Problem of the Day
    Point of Destruction
    Parts on Demand

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  31. In my territory, PODs involving Theken, Spinal Elements, and Phygen account for >50% of spinal surgeries performed. At least they're smart enough not to use their products on Medicare patients.

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  32. corpus christi, tx
    stefan konaiewicz
    spinal interests/x-spine

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  33. Keep your eye on Nuvasive to be acquired this year:

    http://www.thestreet.com/story/11071142/6/a-fund-managers-top-takeover-stocks.html

    Orthofix is a prime candidate to buy them. This would certainly put an end to the speculation of Orthofix going down the road of PODs,,

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  34. @ 1:23

    are you serious? Are you naive, or are you just covering up? Have you ever been to Chicago?

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  35. Aren't those the old Blackstone surgeons?

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  36. What's the name of Makker's POD?

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  37. http://www.jamesmakker.com/about/

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  38. Orthofix Spinal Implants and PODs....... You can take the girl out of the trailer park but you can't take the trailer park out of the girl.

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  39. How about the enforcement of Stark II violations. TSB start a blog asking names of distributors and the doctors family member they are paying to cover the cases. This would be a very interesting list of who is who...

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  40. Utah is "ground zero" for PODS. Almost every surgeon outside the University is invovled in one, and they're making more money from the PODS then they do as surgeons.

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  41. What are the limitations for Stark II? example of nepotism here so blatant it's laughable.

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  42. As for the aboved mentioned South Texas doctor, he has no financial ties with a POD. Never bought in due to concern over gray areas.

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  43. Sounds like a lot of people CTA especially if the DOJ is monitoring this blog

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  44. I currently work for an Orthofix distributor and love the culture at Orthofix. We actually spent a lot of time with our compliance officer discussing PODs and hopefullly their demise at the NSM. If Orthofix is actively involved in a POD I would certainly like to know where and will quickly be looking for new employment if this is true.

    The Portland AWreck scenario sounds just like the Globus "relationships" in my neck of the woods. Surprised they were not involved there too.

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