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NewsNotables – Issue 75

Senators Request Probe of Surgeons

The Wall Street Journal, June 9, 2011

Several U.S. Senators asked the Inspector General of the Department of Health and Human Services to open an investigation into physician owned distributorships (PODs), middleman entities that allow surgeons to profit from the medical devices they use on their patients, to determine whether they are legal. PODs now exist in at least 20 states, with more than 40 operating in California alone. A government report warns that by “creating financial incentives for physician investors to use those devices that give them the greatest financial return, they may violate an anti-kickback statue and other federal fraud and abuse laws.”
Distributorships act as links between medical device makers and hospitals. In exchange for marketing and stocking the devices, they get a cut of each sale. When surgeons own a distributorship, that commission goes into their pockets. Since surgeons often dictate to their hospitals which devices to buy, surgeons involved in PODs can effectively steer business to themselves.

PODs came to national attention earlier this year when The Wall Street Journal reported that a neurosurgeon in Portland, Oregon, who performed multiple spine surgeries on the same patients used spinal implants supplied by a POD called Omega Solutions. Omega documents showed it paid its surgeon investors as much as $500,000 a year to use its products.
The spread of PODs has coincided with an explosion in spinal fusion, a surgery that involves fusing together vertebrae with the help of metal plates, rods, and screws. A study in the Journal of the American Medical Association last year found that complex spinal fusions, in which several vertebrae are fused, increased 15 fold among Medicare patients with spinal stenosis between 2002 and 2007. Spinal fusion went from costing Medicare $343 million in 1997 to costing it $2.12 billion in 2008 (an increase in excess of 500%), according to a Wall Street Journal analysis of Medicare claims data.

Comment: The major concern is that physician investors may profit by steering business to themselves. Another concern is that physicians may perform more procedures than are medically necessary because they can earn extra income each time they implant a device in a patient. Most all companies and philanthropic organizations require employees and directors to sign a “conflict-of-interest” statement prohibiting them from engaging in any activities with the organization that might benefit or appear to benefit themselves. The article didn’t say if such a statement is required where physicians are associated with PODs. If not, I believe this should be required.

Executive Learns From Hack

CEO Now Treats IT Department as Critical to Hyundai Capital’s Operation
The Wall Street Journal, June 21, 2011

Ted Chung, the CEO of South Korea’s largest consumer finance company, Hyundai Capital Services, Inc. , was on a business trip in Denmark in April when he got a call that changed the way he does his job. He received a call saying its computer system had been hacked. The caller threatened to release stolen confidential information if the company didn’t pay him. Over the next two weeks, the company worked with police to track down what turned out to be two groups of hackers, one group from South Korea and one from the Philippines.

The lessons Mr. Chung and his colleagues learned from the experience have led to fundamental changes in the structure of the company, as well as his own thinking about how he leads it. His biggest mistake was that he used to treat the IT department as simply one of many units that helped the company get its main job done. Today he treats it as central to everything the company does. Mr. Chung has spent weeks learning the ins and outs of network architecture, security infrastructure and tradeoffs between data protection and customer satisfaction.

The IT department, which has added a security unit, now reports directly to the CEO. The company has slowed the introduction of several new products to ensure they don’t create new holes in security. The next day, Chung held a news conference to tell customers and investors what happened and what the company knew. That openness put the company under the spotlight of the media and government regulators. Hyundai Capital is still awaiting regulator’s decision on whether to penalize it for having a system susceptible to hacking.

Here are the five lessons from Mr. Chung’s experience:

• Trust the authorities
• Stay open and transparent
• Learn IT and know where vulnerabilities are
• Create a philosophy that drives IT decisions
• Reassess plans for products and services

Comment: I applaud Mr. Chung and Hyundai Capital for their transparency and informing authorities and customers immediately. Technology, both good and bad (hackers), has changed the way we do business and will continue to evolve. It seems that almost every business technology advancement opens the door for those who want to harm the business or profit by finding a way to hack and steal confidential information. Hyundai Capital has learned its lesson well and is on the right path as it provides new products and services.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics

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