Surgical Chicanery: Selling Spines for Fun and Profit

When it comes to the pitfalls of healthcare, your education starts here

When it comes to the pitfalls of healthcare, your education starts here

So your doctor just told you that you need spinal surgery. If you’re smart, your first response will be this question:

“How much money will you personally make, from the surgical implant manufacturer?”

Because since the early 1990’s, this country has experienced a tidal wave in the proliferation of what are known as Physician Owned Distributorships. Which means it is entirely possible your surgeon gains a measure of wealth by recommending your upcoming operation, and by installing a surgical device he personally profits by sticking it into you.

Physician Owned Distributorships are medical equipment businesses which enable doctors to both invest in and distribute mechanical devices. And because the MD is an investor as well as the implant “distributor” he or she is in a remarkable position to increase income on multiple levels, by recommending as well as “selling” the surgery they perform on you. It is not rocket science to see that being in this position creates perverse financial incentives to perform unnecessary operations – over and over and over.

And the best available data * indicates U.S. physicians perform 7,000 unnecessary operations every single day. They kill a jaw-dropping 250 citizens each week.

Physician Owned Distributorships  – PODs – first popped up in California 12 years ago and can now be found nationwide. Nobody seems to know where they all are nor exactly how many exist – because like so many other niches of healthcare, the U.S. government does not regulate them.

However, the Department of Health and Human Services has voiced concerns over PODs, recognizing what is clearly a conflict of interest. One obvious scenario is where physicians receive cash payments after referring patients to hospitals, which purchase the very same hardware those physicians distribute. That is called racketeering, and it is a federal crime.


“We are very concerned by the use of PODs in the health care industry. It could drive unnecessary services, leading to patients getting care they don’t need. It could ultimately drive up medical costs.” (Troy Barksy, Esq. former Health and Human Services’ Office of General Counsel)  


Feeble Enforcement

In the Twilight Zone called healthcare, PODs function in the foggy areas where laws don’t exist. The Department of Justice is currently investigating a company called Reliance Medical Systems for example, and whether they made illegal payments to 3 dozen doctors. Reliance reports they are no longer owned by physicians as they once were, and claims that its business approach is legal.

One of Reliant’s 35 MDs was Doctor Aria Sabit, who at one time was a spinal surgeon in Ventura California. When the law discovered Sabit was a crook, he moved to Michigan. Federal investigators revealed that Sabit’s rate of spinal device surgeries involving “cage” configured implants increased 400% after he became an investor. Detectives learned also that Sabit was paid $360,000 a year by Reliant as a device “distributor.”

Because of the scrutiny, some national hospital management ccompanies such as Hospital Corporation of America and Tenet, have chosen to avoid using PODs completely, to avoid investigative headaches.

Industry Giants Have Little to Fear

Physician Owned Distributorships are changing the landscape of the spinal-device marketplace. The industry has experienced a stunning growth in sales – from $250,000,000 1994 to $7,000,000,000 in 2010, according to Stan Mendenhall, editor of the Orthopedic Network News. Much of that growth is the direct result of ridiculous markups in surgical hardware.

For example, an “average pedicle screw” — used in spinal surgeries — costs about $60 to make, while the average selling price “is over $1,000,” Mendenhall said.

Historically there have been 5 key manufacturers dominating the spinal hardware business. But as PODs have proliferated, the big-5 market share has dropped from 85% to 65%, according to Orthopedic Network News.

Federal Scrutiny is Weak at Best

Utah Senator Orrin Hatch has been an outspoken critic of PODs and joined four other senators in requesting that the HHS’ Inspector General investigate the distributorships four years ago. The Inspector General issued a report last October which found – surprise, surprise – that PODs were linked to higher rates of spinal surgeries. Who would have thought?


“Unfortunately my suspicions of physicians using PODs were confirmed. PODs can lead to overuse and unnecessary procedures for patients who really might not need them.” (Senator Orrin Hatch)


The report’s findings were based on questionnaires submitted to 596 hospitals, 589 of which responded. Investigators also looked at Medicare claims for spinals surgeries, and found the following:

  • One in five spinal fusion surgeries billed to Medicare in 2012 used POD devices
  • Spinal fusions doubled at hospitals that used PODS compared with those that did not
  • Spinal surgeries tripled after hospitals began purchasing from a POD
  • Surgeries that used POD devices used fewer devices but did not have lower costs


“Somebody needs to go to jail. because fining doctors isn’t going to do it. Fines are a lot less than what they would make in a year, so why would they care about getting fined?” (Dr. Scott Lederhaus, President of the Association of Medical Ethics and critic of Physician Owned Distributorships)


To report suspected fraud involving physician-owned entities, contact the OIG Hotline at or by phone at 1-800-447-8477 (1-800-HHS-TIPS)



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