The Office of Inspector General for the Department of Health and Human Services (“OIG”) recently issued a Special Fraud Alert addressing physician-owned entities that derive revenue from the sale of implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers. According to OIG, certain aspects of these physician-owned distributorships (“POD”) “produce substantial fraud and abuse risk and pose dangers to patient safety.”
The concern described in the Special Fraud Alert relates to potential violations of the federal anti-kickback statute that occur “when remuneration is paid purposefully to induce or reward referrals of items or services payable by a Federal health care program.”
As described by OIG, longstanding guidance “makes clear that the 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 anti-kickback statute is violated if even one purpose of the remuneration is to induce such referrals.”
Whether a particular POD violates the anti-kickback statute depends on the intent of the parties. However, OIG considers PODs to be “inherently suspect under the anti-kickback statute,” particularly those that contain any of these characteristics:
- The size of the investment offered to each physician varies with the expected or actual volume or value of devices used by the physician.
- Distributions are not made in proportion to ownership interest, or physician-owners pay different prices for their ownership interests, because of the expected or actual volume or value of devices used by the physicians.
- Physician-owners condition their referrals to hospitals or ASCs on their purchase of the POD’s devices through coercion or promises, for example, by stating or implying they will perform surgeries or refer patients elsewhere if a hospital or an ASC does not purchase devices from the POD, by promising or implying they will move surgeries to the hospital or ASC if it purchases devices from the POD, or by requiring a hospital or an ASC to enter into an exclusive purchase arrangement with the POD.
- Physician-owners are required, pressured, or actively encouraged to refer, recommend, or arrange for the purchase of the devices sold by the POD or, conversely, are threatened with, or experience, negative repercussions (e.g., decreased distributions, required divestiture) for failing to use the POD’s devices for their patients.
- The POD retains the right to repurchase a physician-owner’s interest for the physician’s failure or inability (through relocation, retirement, or otherwise) to refer, recommend, or arrange for the purchase of the POD’s devices.
- The POD is a shell entity that does not conduct appropriate product evaluations, maintain or manage sufficient inventory in its own facility, or employ or otherwise contract with personnel necessary for operations.
- The POD does not maintain continuous oversight of all distribution functions.
- When a hospital or an ASC requires physicians to disclose conflicts of interest, the POD’s physician-owners either fail to inform the hospital or ASC of, or actively conceal through misrepresentations, their ownership interest in the POD.
The Special Fraud Alert specifically states that the list above is not intended to be exhaustive, and that other characteristics “may increase the risk of fraud and abuse associated with a particular POD or provide evidence of unlawful intent.” Moreover, OIG emphasized that the anti-kickback statute proscribes conduct on both sides of an illegal transaction, noting that hospitals and ambulatory surgical centers that enter into arrangements with PODs may also be subject to liability.
For more information on this Special Fraud Alert, click here:
https://oig.hhs.gov/fraud/docs/alertsandbulletins/2013/POD_Special_Fraud_Alert.pdf