OIG Leery of Physician-Owned Device Companies
Special fraud alert highlights concerns about "inherently suspect" arrangements.
Published: March 27, 2013
Calling physician-owned device companies "inherently suspect under the antikickback statue," the Department of Health and Human Services of the Office of Inspector General has issued a Special Fraud Alert on the subject. The alert addresses physician-owned distributorships (PODs) that profit from selling implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or surgical centers.
HHS has issued several advisories on the business models of PODs, including a 2006 letter in which it noted "the strong potential for improper inducements between and among the physician investors, the entities, device vendors, and device purchasers" and stated that such ventures "should be closely scrutinized under the fraud and abuse laws." The new Special Fraud Alert focuses on the specific attributes and practices of PODs that HHS believes pose "substantial fraud and abuse risk and pose dangers to patient safety," including the following characteristics:
- varying investment sizes offered to physicians based on expected or actual volume of device usage;
- distributions made according to volume of device usage rather than in proportion to ownership interest;
- surgical case referrals made on the condition of purchase of the POD's devices;
- pressuring physician-owners to refer, recommend or arrange for the purchase of the POD's devices;
- retention by the POD of the rights to repurchase a physician-owner's interest for failure or inability to refer, recommend or arrange for the purchase of the POD's devices;
- failure by physician-owners to disclose the POD as a conflict of interest with hospitals or ASCs.
HHS says it's "concerned about the proliferation of PODs," that mere disclosure to the facility is not enough to address its concerns, and that "[T]he opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute illegal remuneration under the anti-kickback statute." The agency encourages physician-owners in PODs to seek guidance whenever possible under the OIG Advisory Opinion process.
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