Surgeons performing a surgery

The HHS Office of Inspector General issued a Special Fraud Alert on March 26 focusing on specific attributes of physician-owned distributorships (PODs) that  it believes “produce substantial fraud and abuse risk and pose dangers to patient safety.”

PODs, as defined by the OIG, are “physician-owned entities that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician owners in procedures the physician owners perform on their own patients at hospitals or ambulatory surgery centers.”

Because the OIG views PODs as “inherently suspect under the anti-kickback statute,” one should not be lulled into thinking that just because the Fraud Alert focused principally on implantable medical devices that the OIG is only interested in those types of arrangements. Nothing could be further from the truth because the OIG stated that the principle set forth in the Fraud Alert “would apply when evaluating arrangements involving other types of physician-owned entities.

The OIG listed eight characteristics of suspect POD’s that are likely to attract more scrutiny:

  1. The size of the investment offered to each investment varies with the expected or actual volume or value of devices used by the physician.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. The POD does not maintain continuous oversight of all distribution functions.
  8. 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.

Physicians who are invested in PODs or other joint ventures should have those arrangements reviewed by legal counsel to ensure that they continue to remain compliant with state and federal laws.

For the complete fraud alert, click here.