OIG Says Physician-Owned Distributors of Medical Devices Pose High Risk of Fraud and Abuse

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Robinson Bradshaw Publication
March 27, 2013

The Office of the Inspector General issued a Special Fraud Alert on March 26, 2013, reiterating its long-standing view that physician-owned distributors of medical devices (commonly used in orthopedics) are “inherently suspect” under the federal Anti-Kickback Statute. This guidance makes clear that revenue generated through a POD could be considered illegal remuneration under the AKS, particularly if the POD chooses physician-investors based on their ability to provide business to the POD or if the POD mandates that physicians who stop practicing give up their ownership stakes.

Definition of “POD” and OIG Concern

The alert defines a “POD” as any physician-owned entity that derives revenue from selling, or arranging the sale of, implantable medical devices ordered by the physician-owners that are then used in procedures performed by the physician-owners in hospitals or ambulatory surgical centers. According to the OIG, PODs may offer their physician-owners financial incentives to perform more—or more extensive—procedures than are medically necessary and to use the POD’s devices instead of other devices that may be more clinically appropriate. The OIG also says that a physician’s disclosure to patients of his or her involvement in a POD will not be enough to alleviate OIG concerns over the arrangements.

Suspect Characteristics of PODs

The alert lists eight POD characteristics that could present a higher risk of fraud and abuse, including:

The alert also associates PODs that have a high return on investment rate with an increased risk of fraud and abuse.

Although the alert is focused on PODs of implantable medical devices, the OIG clarifies that “the same principles would apply when evaluating arrangements involving other types of physician-owned [entities]” (emphasis added).

Scrutinize POD Arrangements

This alert, which is the first issued by the OIG since 2010, signals the OIG’s clear enforcement position on PODs. Hospitals, ASCs and other providers that do business with PODs are well-advised to conduct a priority legal analysis of their POD arrangements. Otherwise, such providers may be at risk of violating the AKS, since the AKS imposes criminal and civil penalties on both sides of the impermissible “kickback” relationship.

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