PODs Beware: OIG Releases Special Fraud Alert

by Polsinelli

The Office of the Inspector General (OIG) released a Special Fraud Alert on March 26, 2013 warning that physician-owned distributorships (PODs) are "inherently suspect" under the Anti-Kickback Statute (AKS). Generally speaking, the Anti-Kickback Statute prohibits any remuneration made to purposefully induce or reward physician referrals that are reimbursable by a federal healthcare program. The OIG expressed concern that the various financial incentives available to physician-owners of PODs could induce physicians to perform more procedures or increase the use of devices sold by the POD. These financial incentives could constitute illegal remuneration under the AKS.

The Fraud Alert stresses that disproportionately high rates of return for physician-owners may indicate that the POD arrangement serves as an avenue for physicians to profit, particularly given the influence physicians have in selecting which devices are used for their patients. The Fraud Alert also focuses on other attributes and practices of PODs that contribute to their significant fraud and abuse risk, especially those PODs dealing with implantable medical devices. The OIG is most concerned with PODs that:

  • Vary the size or price of investment interests offered to a physician with the expected or actual volume or value of devices used by the physician;
  • Make distributions that are un-proportional to a physician's ownership interest as a result of the expected or actual volume or value of devices used by the physician;
  • Have physician-owners who condition referrals to hospitals or ASCs based on purchasing the POD's devices;
  • Require or even actively encourage physician-owners to refer, recommend, or arrange for the purchase of the POD's devices;
  • Penalize physician-owners for not using the POD's devices;
  • Retain repurchasing rights of the physician-owner's interest if the physician does not refer, recommend, or arrange for the purchase of the POD's devices;
  • Are shell businesses with minimal inventory, management, or personnel;
  • Do not maintain constant oversight of distributions; and,
  • Have physician owners that fail to inform any hospital or ASC of their ownership interest when required to disclose conflicts of interests.

Despite focusing overwhelmingly on the fraud and abuse risk associated with PODs, the Alert puts other healthcare providers on notice too—the OIG indicated that the same concerns apply to other physician-owned entities. Further, the Alert reminds providers that AKS liability attaches to both sides of a transaction. Those hospitals and ASCs that enter into arrangements with PODs may be at risk too.

What Providers Should Know

  • Because physician-owners of PODs have an opportunity to earn profits as referring physicians, providers must be aware that such arrangements could violate the AKS.
  • PODs should carefully determine whether they exhibit any of the characteristics listed in the Alert, as these may attract more scrutiny from the OIG.
  • Hospitals and ASCs should also be aware of their potential AKS liability when purchasing devices from physician-owned PODs.

For More Information

The Fraud Alert can be found by clicking here. For further information, please contact:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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