Cord Blood CEO Raises Questions About Physician Payments

The head of one of the nation's major cord blood banks has asked his competitors to stop paying fees to physicians for referring and gathering specimens from their patients.

The request was made last month by Martin Smithmyer, chief executive officer of the New York City-based Americord Registry. Smithmyer equated the payments to physician kickbacks, which are mostly banned under federal law but are not addressed in the cord blood or tissue banking sectors specifically.

"There is a long history between some of the largest cord blood banks and hundreds of obstetricians and gynecologists," Smithmyer said. "This results not only in millions of dollars exchanged between private banks and doctors, but situations where trusted healthcare professionals are recommending cord blood banks based on compensation rather than objective evaluation."

Cord blood banks store both blood from umbilical cords and placental tissue from newborns at the behest of their parents. Both the blood and tissue may be used for genetic and other medical therapies if the child has a serious medical issue in the future.

The banks have both close and peripheral ties to the lab sector. Virtually all perform laboratory testing on samples they receive to detect any presence of disease, with Americord performing this task at an affiliated facility in Indianapolis. And one of the largest of such banks, ViaCord, is owned by PerkinElmer, the large laboratory concern.

Americord has always been fairly vocal about its refusal to pay physicians for tissue gathering and referral, but Smithmyer said in an interview that the pending $700 million acquisition of Cord Blood Registry by pharmaceutical giant AMAG Pharmaceuticals convinced him to push the issue even further. Cord Blood Registry is the largest such bank in the U.S., managing about 600,000 samples. AMAG, which is also in the midst of becoming a publicly- traded company, said the deal would immediately be accretive to its bottom line.

Laboratory operators and pharmaceutical firms are barred by anti-kickback laws from making such payments. Virginia-based Health Diagnostic Laboratory recently settled a federal lawsuit accusing it of violating anti-kickback laws by paying physicians a $30 fee, ostensibly to collect and forward blood samples for testing.

Smithmyer said in an interview he feared that the same sales force that is representing AMAG's pharmaceutical lines would be used for cord blood and placental tissue.

And according to Smithmyer, the payments are anything but token. He claimed that medical practices were being paid anywhere from $200 to $700 in collection fees per sample. For the most part, the work of gathering samples and placing them in samples cases took just a few minutes.

"Exchanging money between private companies and independent physicians creates a quid pro quo and an unprincipled system within health care," said Peter Francis, president of Clinical Laboratory Sales Training in Maryland. Although Francis noted that he's not familiar with the cord blood banking sector, he observed that such payments "(engender) an air of unscrupulous business dealings."

ViaCord confirmed that it pays physicians to gather the specimens, but denied they were kickbacks. "None of the payments that are made are provided in exchange for recommending or providing favorable status to ViaCord's offerings—they are payments for medical services that are rendered at the time of delivery," spokesperson Elizabeth Gray said in an email. She noted that testing occurs at a PerkinElmer laboratory in Ohio. She would not disclose how much physicians are paid for collection services.

A Cord Blood Registry spokesperson did not respond to a request seeking comment.

Takeaway: The issue of physician payments in the cord blood banking business could become more visible in the coming months.