Doctors' financial interests, and potential conflicts, have become public information

Dr. Hamid Abbasi performs a new kind of back surgery that he promotes as offering great results with minimal physical trauma.

The website for his busy neurosurgery practice in Alexandria, Minn., explains that the procedure requires only a small incision and leads to less blood loss than other approaches. Some patients go home the same day, Abbasi says in a video presentation.

There's another benefit for Abbasi: He has received some of the profits from some of his patients' devices, because he's an investor in the distributor that sells them to hospitals. Federal records show that during five months in 2013 the company distributed at least $365,325 in physician payouts — one of the largest sums of its kind in the nation during that period.

This arrangement is among the thousands of financial relationships between doctors and health care companies coming to light through a new federal database that enables the public to see if a physician is profiting by using a certain product. Federal regulators have long been critical of these kinds of arrangements, and Sen. Chuck Grassley, R-Iowa, said he co-authored the bill to create the database partly so the public could scrutinize them.

"These are very significant financial relationships," said Dr. Michael Carome, a former federal health care safety regulator who now directs health research at the Washington advocacy group Public Citizen. "Such relationships could … cause a physician to recommend a particular product, not because they think it's best for the patient, but because they have a financial interest."

The new Open Payments data from the Centers for Medicare and Medicaid Services (CMS) cover many types of financial relationships besides investments, such as consulting deals, free travel for conferences and straight gifts. The disclosure program was created as part of the Affordable Care Act to shed light on hidden financial relationships in medicine — a topic of national urgency as health care consumes a growing share of government, business and household budgets.

The line between relationships that advance the practice of medicine and those that simply advance drug and device companies' interests is blurry. Medicare's fiscal watchdog has warned that some situations create a clear risk of illegalities under the federal Anti-Kickback Statute, which generally outlaws payments that induce or reward someone to refer patients for treatments under government insurance programs.

But defenders of financial relationships between companies and doctors say such collaboration expands access to treatment and benefits patients.

"Just because there is a financial relationship, it doesn't mean there's something improper going on," said John Kelly, a former federal health care prosecutor now in private practice doing defense work. "Although this transparency may shed some light on relationships, what is really going to matter is the conduct of the people involved."

Abbasi, who lives in Edina, declined numerous requests for comment on his investment in ARS Medical, the wholesaler also based in Alexandria that provides the devices he uses.

ARS CEO Chris Murphy said Abbasi's patients are asked to sign standard surgical consent forms, which disclose the doctor's investment interest in ARS devices he puts in their backs. He discussed the arrangement in an interview.

"What we're doing is right. It's ethical. … It's of benefit to patients, and to Minnesota," Murphy said. "In some cases, patients are in and out of the hospital in the same day. That kind of technique and procedure that we are bringing to Minnesota, that is what we are priding ourselves on."

The federal Open Payments database contains 8,216 entries on U.S. doctors investing in and getting dividends from health care companies, including at least 75 physicians in Minnesota. It includes payment information for the last five months of 2013.

Nationally, doctors had investments worth more than $1 billion in device companies and drugmakers at the end of 2013, not including holdings in mutual funds and retirement accounts, which didn't have to be reported because their impact is considered negligible.

Some of the doctor-investors are inventors receiving royalties or early-stage investors benefiting from strategic timing. Some are consultants being compensated in stock. In other cases, the doctors form a holding company to buy devices from a manufacturer and then collect their share of profits on the back end, according to interviews with the doctors and company executives named in the database.

In Minnesota, a 1992 law regulating health care conflicts of interest laid down a broad prohibition on paying doctors to use specific products, but then required the state Health Department to publish detailed rules. Health Department spokesman Scott Smith acknowledged that never happened.

He said the Legislature amended the law seven times over the years to fill in the details, lessening the need for the department to publish rules. The state law also says that Medicare's prohibition on financial kickbacks applies to all Minnesotans, regardless of whether they participate in state health care programs.

A company called Midwest Cryotherapy made the largest number of payments to doctor-owners in Minnesota in the last five months of 2013, according to the database.

It's a partnership including Minnesota urologists that collectively purchases and runs $250,000 cryotherapy machines that kill cancer cells by rapidly freezing and thawing them inside the body.

Hospitals and clinics pay the partnership to rent the machine for cancer treatments. The partnership makes money when doctors, including the owners, refer patients for treatments on them, according to HealthTronics, the Texas-based manufacturer of the machine.

Russell Newman, president of HealthTronics, said in an interview that the monthly payments vary based on the physicians' initial investments and the machine's monthly operating profits.

"We feel pretty comfortable with what we're doing," Newman said. "We are pretty clear in our documents and with our physicians that this is not something that is there for them to take advantage of, and we pursue bad actors and people who are looking to make something other than their best clinical decision."

Newman said the partnerships are careful to make sure their profits fall within the letter of the law and don't influence doctors' referral patterns. All the transactions are at fair-market value, and they don't vary for particular doctors who refer more patients or order pricier services.

In 2013, payments to the doctors averaged about $750 per month, according to figures in the database that were independently verified with the company. The doctors invested an average of $12,500 each, meaning that many made back their investments and started profiting after little more than a year, though some doctors earned smaller returns, an analysis of the data shows.

The Minnesota partnership is among a national network of such groups that was disclosed for the first time in the Open Payments data. Across the country, more than 400 doctors have pooled their money into 19 partnerships that buy the HealthTronics machines.

Doctors say it's necessary to buy the machines because hospitals already offer a range of options to treat prostate cancer, and they're wary of investing in another piece of equipment. Those involved with the partnerships say they're aware of their ethical and legal duties involving patient referrals.

"If a physician's recommendations to a patient are altered by ownership exclusively, that is an unacceptable situation," said Dr. Aaron Milbank, a St. Paul urologist who invested $9,200 in Midwest Cryotherapy in 2007 but was on pace to earn only $800 in profits in 2013. "If there is any conflict of interest, it is certainly not affecting what we are recommending to our patients."

Far more public attention has been devoted to the ethics of physician ownership of spinal-surgery device companies.

In 2013, Medicare's fiscal watchdog office published the results of an investigation that found hospitals tend to ramp up their number of spinal surgeries on federally insured patients after they start buying the devices from companies owned by doctors.

"Certainly, I think ownership does, in part, drive overuse," said Dr. Richard Deyo, a physician at Oregon Health and Science University who has published works on overuse of spinal surgery.

A surgeon named Dr. Aria Sabit was sued in California by the Justice Department last September for taking profits from sales of spinal devices — payments from a device distributor that the government said were "kickbacks" giving him an incentive to do medically unnecessary back surgeries. Sabit denies the allegations, saying many are "simply untrue" and intended to damage his career. Federal authorities also sued the companies that imported the devices and paid physician-investors who implanted them. The companies deny the allegations.

The judge on Friday granted a government request to put the case on hold while prosecutors in Michigan move forward on a "parallel" criminal case and investigation that has already resulted in health care fraud charges against Sabit. He denies the Michigan charges.

The companies that paid Sabit don't appear in the 2013 Open Payments data, and neither do more than a dozen other physician-owned distributors that the Star Tribune identified across the country. A spokesman at CMS, the federal agency, said in an e-mail that agents are tracking down non-reporters and may issue fines of $10,000 to $100,000 for each instance of noncompliance.

Of the device distributors that paid physician-investors and did report the payments, ARS Medical paid out one of the highest sums in the nation.

ARS sells equipment for a relatively new minimally invasive spinal-fusion technique called oblique lateral lumbar interbody fusion. The distributor buys its supplies from an independent manufacturer and then resells them to health care providers.

ARS Medical made two payments totaling $365,325 in the last five months of 2013. The Open Payments data also say one physician initially invested $210,436 in the company.

The database does not list the physician's name. The ARS Medical website said it had just one physician-investor, and ARS' major customer, Douglas County Hospital in Alexandria, confirmed that it knew Abbasi was the investor.

"Douglas County Hospital became aware of Dr. Abbasi's ownership in ARS Medical in October of 2012," hospital spokesman Edward Reif said in an e-mail. "At that time, we conducted a thorough review to confirm that our pricing for products was comparable to similar products sold by other manufacturers."

The hospital did $2.2 million worth of business with ARS in 2013. Last month, Reif said the hospital stopped buying devices from ARS to lower costs. It now buys them directly from a manufacturer instead.

Other medical institutions say they don't buy devices from holding companies owned by doctors. Mayo Clinic, Fairview Health Services, Allina Health and HealthPartners all said in e-mails that they're not engaged in the practice, although they declined to make executives available for interviews on the topic.

Distributorships come in many forms, and Murphy says ARS Medical's model actually reduces the proportion of patients who get surgery. Sending the profits from device sales to a doctor-owner instead of a big brand-name device company can allow the physician to do fewer surgeries without taking a big hit on income.

"Your criteria for surgery can be much more strict. You need to do less surgeries to make the same amount of money," Murphy said in the phone interview.

Medicare billing records compiled by not-for-profit investigative journalism group ProPublica show that Abbasi was among Minnesota's busiest neurosurgeons in 2012, the most recent year with data available.

In Minnesota, ethics rules enforced by the state Board of Medical Practice require doctors to disclose financial conflicts of interest to patients or face penalties against their medical licenses.

ARS and Midwest Cryotherapy say their physicians always tell patients about their financial ties. Columbia University researcher Susan Chimonas said such disclosure is "practically universal at this point."

But it's not clear that regulators are paying attention to the issue, given that rules to implement the 1992 conflict-of-interest law never appeared, and state Health Department staff could only recall "a handful" of complaints in the past decade.

Grassley, the Iowa senator who co-authored the Physician Payments Sunshine Act that created the Open Payments program, said he hopes the database will spur discussion about doctors who hold a financial interest in products they recommend for patients.

For patients, the information is perhaps most useful in helping them decide whether to seek second opinions.

"My advice would always be, ask lots of questions," said David Glaser, a longtime health care regulatory attorney in Minneapolis. "Ask why they are an owner in it. Their answer might be, 'Hey, I think this is a really good thing.' … If you have any doubts, ask another physician what they think. Get a second opinion."

Joe Carlson • 612-673-4779 Twitter: @_JoeCarlson