Senate Finance Committee Ranking Member Orrin Hatch (R-Utah). (Mandel Ngan/AFP/Getty Images)

A government study of Medicare billings shows that financial incentives for doctors may be driving some of the rapid rise in spinal fusion surgery.

The report, conducted by the Office of Inspector General of the Department of Health and Human Services, focuses on the “proliferation” of companies that are owned by physicians and sell equipment for spinal fusions — screws, rods and plates. Such equipment costs more than $11,000 per spinal fusion, according to the report.

Six months after a hospital began to purchase spinal devices from a physician-owned distributorship, the number of spinal fusions performed jumped 21 percent on average, more than twice as fast as at other hospitals, according to the report.

“With this report, HHS’s inspector general has produced data that clearly demonstrate a direct correlation between the perverse financial incentives created by physician-owned distributorships and the rise in these highly invasive spinal surgeries,” said Sen. Orrin G. Hatch (R-Utah), the ranking member of the Senate Finance Committee, which has tracked the issue. “Given the impact of these surgeries on seniors and their health, the structure of these entities needs to be further scrutinized.”

Doctors who are investors in such companies stand to benefit when more spinal fusions are performed, according to the report, which was released last month after an examination of 1,000 Medicare patient records.

A Florida case study in surgical necessity

The average hospital performed 62 spinal fusion surgeries per 1,000 surgical patients before beginning to purchase devices from the physician-owned companies; that figure climbed to 75 spinal surgeries per 1,000 surgical patients afterward.

Government health authorities expressed skepticism about the virtue of these physician-owned distributorships as far back as 2006, but they have continued to grow.

“We are aware of an apparent proliferation of physician investments in medical device and distribution entities,” Vicki L. Robinson, chief of the Industry Guidance Branch of the Office of Inspector General, wrote then. “Given the strong potential for improper inducements . . . we believe these ventures should be closely scrutinized under the fraud and abuse laws.”

In 2011, a Senate inquiry led by Hatch reported that “the lure of financial incentives and lack of regulatory oversight appears to be driving huge increases in the number of physician-owned distributorships so that they are now a significant national presence.” In March of this year, a special fraud alert from the Office of Inspector General found that the distributorships are “inherently suspect.”

Nearly one in five spinal fusions sampled in the study involved equipment purchased from distributors that were co-owned by physicians, according to the Office of Inspector General study.

But the rise of physician-owned distributors doesn’t seem to be big enough by itself to explain the vast climb in the number of spinal fusions, and much of the surge in spinal fusions predates the growth of physician-owned distributors. Over 15 years, the number of spinal fusion surgeries has risen more than fourfold, from 98,000 in 1996 to 465,000 in 2011.

Most hospitals began buying spinal equipment from physician-owned companies after 2005, according to the report. Today, about two-thirds of hospitals purchase at least some spinal devices from outlets owned by physicians operating in their hospitals, according to the report.

Matthew Umhofer, a California lawyer who represents a physician-owned distributorship that has sued the Office of Inspector General for finding the outfits “inherently suspect,” dismissed the notion that the distributors cause doctors to do unnecessary surgery.

He said hospitals may attract more spinal fusion surgery after they start buying from a ­physician-owned distributorship because more surgeons want to work at the hospital.

“Physicians already have an incentive to do surgery — Medicare and insurers pay them for each surgery they do,” he said. “We trust doctors to use their judgment. The question is: Does this particular type of business heighten the incentive to move an otherwise honest doctor in the direction of unnecessary surgery? The report suggests that it doesn’t.”

Experts have advanced an array of reasons to explain the boom in spinal fusion surgery, including the aging of the population, a growing demand for mobility among older people and improvements in the surgical techniques.

But critics of the procedure have noted that there is an intrinsic economic incentive for surgeons to perform them, and The Washington Post reported last month that, based on an analysis of 125,000 patient records, roughly half the tremendous rise in spinal fusions in Florida involved patients with diagnoses that experts and professional societies say should not routinely be treated with spinal fusion.

A simpler procedure known as a decompression often offers patients without complications as much benefit as a fusion and poses fewer risks, doctors said. But the decompression might yield a surgeon roughly $1,000, while a complex fusion would garner as much as $6,000.