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PODs Can Violate the Anti-Kickback Statute even if only One Purpose is to Induce Referrals

In the OIG’s Special Fraud Alert titled, “Physician-Owned Entities”  (March 26, 2013), the OIG indicated that it remains suspicious of physician-owned distributors (“PODs”) due to concerns about over-utilization, skewed medical judgment, increased costs to the federal health care programs, and unfair competition. Central to the OIG’s concerns is, “…the strong potential for improper inducements between and among the physician investors, the entities, device vendors, and device purchasers.” It further stated that such ventures, “should be closely scrutinized under the fraud and abuse laws.”

At a time when physicians wish to make money from selling or arranging for the sale of medical devices for use in procedures that they perform on their own patients at hospitals or ambulatory surgical centers (“ASCs”), the OIG views such arrangements as potential vehicles for fraud and abuse as well as risk to patient safety.

“Improper payments to physicians can alter a physician’s judgment about patients’ true healthcare needs and drive up healthcare costs for everyone,” said Assistant Attorney General Stuart F. Delery for the Justice Department’s Civil Division. “The Justice Department is committed to enforcing the laws that prohibit such payments.”

Particular problematic characteristics with PODs under the Anti-Kickback statute are as follows:

  • 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 arrangment 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 re-purchase 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.

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