OIG Issues Special Fraud Alert: Physician-Owned Distributorships (PODs)

On March 26, 2013 the Department of Health and Human Services, Office of Inspector General (OIG) issued a Special Fraud Alert: Physician-Owned Entities (Alert).  The Alert focuses on the specific attributes and practices of “physician-owned entities that derive revenue from selling, or arranging for 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.” Such entities are commonly referred to as “physician-owned distributorships (“PODs”).  The OIG believes that such arrangements may produce substantial risk of fraud and abuse and pose patient safety dangers.
The Alert echoed past guidance documents regarding physician investments in entities to which they refer and the “the strong potential for improper inducements between and among the physician investors, the entities, device vendors, and device purchasers,” noting that such arrangements “should be closely scrutinized under the fraud and abuse laws.”
The Alert identifies “questionable features” regarding the structure of PODs, including selection of investors who are in a position to generate significant business for the entity, requiring investors who no longer practice in the service area to sell their ownership interests, and distribution of returns on investment substantially in excess of the risk involved.  The OIG believes that PODs exhibiting any of these features potentially raise four major concerns typically associated with kickbacks: “corruption of medical judgment, overutilization, increased costs to the Federal health care programs and beneficiaries, and unfair competition.”
The OIG goes on to express its belief that “PODs are inherently suspect under the anti-kickback statute” and provides a list of “suspect characteristics.”  The Alert emphasizes that the list of suspect characteristics “is not intended to serve as a blueprint for how to structure a lawful POD, as an arrangement may not exhibit any of the suspect characteristics and yet still be found to be unlawful.”