Wednesday, January 03, 2007

Physicians As Significant Investors in the Manufacturers of the Devices They Implant

OK, the holidays are over, so it's time to catch up.

Just before the New Year, the New York Times reported on some questionable financial entanglements among spine surgeons and the companies that make the devices they use. The main points are below, somewhat edited and re-ordered as necessary for clarity.

Spinal-fusion surgery is one of the most lucrative areas of medicine. An estimated half-million Americans had the operation this year, generating billions of dollars for hospitals and doctors.

Spinal screws are relatively simple to develop and cost only $65 to $100 to make ... often by a supplier that handles the production of screws for a variety of companies.
A single screw ... sells for about $1000....
Doctors’ taking significant ownership stakes in spinal parts makers, critics say, provides an extra financial incentive for a doctor to recommend a surgery. It may be one of the most distinct examples yet of the way monetary considerations can play a role in the way doctors practice medicine.

Such doctors face 'an awfully pernicious conflict of interest,' said Dr. Richard A. Deyo, a physician and health services professor at the University of Washington in Seattle.

About 30 start-up companies have begun selling spinal devices, including screws, in the last couple of years. And industry experts say about a dozen companies have doctors among their investors. Because most of the companies are private and the relationships are not publicly disclosed, there is no way to know how many spine surgeons around the country are partial owners of device makers.

One of the fastest growing companies is Allez Spine, of Irvine, Calif. It was founded on a business model that called for the 120 doctors who invested in Allez to serve as “its customer base,” according to a lawsuit filed by a former chief executive last April. Those doctors, who pay $50,000 or more to become investors, own two-thirds of the company, according to legal filings.

Selling the company’s screws to its “investor-doctors” was a way to “generate more profits for the company” according to a related lawsuit involving the former executive.

At one midsize Nevada hospital, a surgeon who performs many spinal fusions is an Allez investor who uses the company’s screws, said an administrator.
The identities of most of the surgeons who invest in Allez are not publicly disclosed. And the doctors who could be identified and were called for comment did not return repeated telephone calls.

Some of the new [spinal screw] companies aim to recruit surgeons who perform a high volume of back operations, according to doctors who have been approached. The exact nature of the investment opportunity is left vague in the discussions, the doctors say, with details made available only to those who agree to become investors.

One surgeon described being contacted by Globus Medical, a start-up company in Audobon, Pa. The surgeon said he was not persuaded to use Globus screws and other hardware, despite the sales representative’s mention of the 'good opportunities' available if he were to become a large user.

The policies of Globus forbid its representatives from offering stock to reward surgeons who use their products, said Dave Demski, chief financial officer of Globus.
At Alphatec Holdings, a company in Carlsbad, Calif., doctors are shareholders because they have either invested directly or are paid in stock for consulting, according to filings by Alphatec, which is one of the few publicly held companies among the small start-ups.

The chairman of Alphatec’s scientific advisory board is Dr. Stephen J. Hochschuler, a prominent surgeon who helped start the Texas Back Institute, one of the largest spine clinics in the country.

For his work as an adviser, Dr. Hochschuler received a restricted stock grant that was worth about $640,000 when Alphatec went public in June, according to the company’s public filings. Because the share price has fallen, the grant — which vests over five years — is currently now worth only about $270,000.

Dr. Hochschuler, in a written response to an interview request, said doctors should work closely with device companies like Alphatec.

Some surgeons who have bought Alphatec stock argue that their holdings are no different than their investments in any other company.

Dr. E. Claiborne Irby Jr., a surgeon in Richmond, Va., who invested in Alphatec before it went public, says he uses its devices, but not exclusively. 'I don’t change anything I do because of any kind of investment,' he said.

But federal regulators and law-enforcement officials are on the lookout for surgeons who step over the line.

Doctors 'are supposed to make the decision based on the best interest of the patient,' said Peter Winn, a lawyer in the United States attorney’s office in Seattle, who has aired his concerns in a speech to spine surgeons.

To do otherwise, he said in an interview, 'is a violation of the ethical rules, and it has been since the time of Hippocrates.'

It seems that there are an endless variety of schemes out there to financially entangle physicians with the companies that make the products they may use or prescribe for patients. It raises the question of whether physicians who own a significant proportion of a particular company can make decisions for patients about whether to use that company's products without being influenced by the consequences of such decisions on the physicians' own pocket-books?

This is just more evidence of the pervasive web of conflicts of interest that has seemingly caught up many physicians and other influential people in health care. The physicians involved ought to remember that their duties are to the patients first. They ought to select implantable devices first according to their ratios of benefits/harms for patients, and maybe second, according to price. The manufacturers of spinal devices, and other health care corporations should not put physicians in positions in which the decisions they make for patients could be influenced by the effect of these decisions on their investments.

Finally, I can't help wondering if conflicts of interest could also somehow be affecting what appears to be ridiculously high prices charged for simple pieces of hardware whose manufacture is out-sourced, and which seemingly could not have entailed much in the way of research and development costs?


Anonymous said...

What is disappointing is the constant flow of these stories that range not from a single physician or company but reach into our premier medical and research facilities. Last year it was the Cleveland Clinic, we have the ongoing story in New Jersey.

We are told doctor's answer to a higher calling, but when we pull back the curtain we find the Great Oz is really just a man using smoke and mirrors. Nothing has changed much in the last 100 years. We still have people selling snake oil under the guise of cure-alls for what the market will bear.

Steve Lucas

Fred Goldstein said...

Its not going to change because the characteristics of the people who go into healthcare and particularly doctors changed drastically in the 70's, in line with the great growth of MBA type programs on the business side of the healthcare industry.

I remember as an administrator of a small rural Northern California Hospital in the mid 80's that I was able to successfully recruit an older Orthopedic Surgeon to the county who was looking for a little slower pace. Before recruiting him there was no orthopedic surgeon within 40 miles of the facility. As a small hospital we were very stretched to provide him with equipment. He met with me one day, proceeded to look through the list of equipment he needed and told me what could be purchased at the local hardware store versus from the Medical catalog to save us some money. Today the Orthopod pulls out the glossy catalog from the company he owns and orders $1000 screws, then he tells you "maybe I should order a few extra just in case"!