OIG: Doc-owned distributorships rife with fraud potential

The U.S. Department of Health & Human Services' Office of Inspector General warns that physician-owned distributorships (PODs) that sell implantable medical devices are full of opportunities to enrich referring physicians with illegal kickbacks.

PODs are "inherently suspect under the anti-kickback statute," according to an OIG special fraud alert, published yesterday. Concerned about the proliferation of such distributorships, OIG highlighted POD characteristics it said "produce substantial fraud and abuse risk and pose dangers to patient safety."

The alert reiterated concerns about distributorships that select investors in a position to generate substantial business, require investors to divest their ownership interests if they stop practicing in service area and that distribute "extraordinary returns" on investment in relation to the risk.

"PODs that exhibit any of these or other questionable 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," OIG said.

The OIG expressed particular concerned about financial incentives for implantable medical devices because physicians, not hospitals or ambulatory surgical centers, generally determine the brand and type of device used.

The alert warned of "suspect characteristics" including the size of physician investment varying based on the volume of device usage, physician-owners coercing surgical centers to use their devices by threatening to refer patients elsewhere, threats against physician-owners that don't use the POD's devices for their patients, and failure to disclose ownership interests to hospitals or surgical centers.

Meanwhile, a survey published last year by Health Affairs found nearly 40 percent of physician respondents did not think they should be required to reveal their financial ties to drug and device manufacturers.

Although its impact addressed professional relationships beyond physician ownership in distributorships, the Physician Sunshine Act drew criticism last year from dozens of physician organizations concerned about its affect on physician careers. The measure requires disclosure of financial transactions between drug and device manufacturers and physicians. The rules, approved earlier this year, take effect Aug. 1.

To learn more:
- read the OIG alert (.pdf)