OIG issues special fraud alert regarding PODs

The Office of the Inspector General of the Health and Human Services Department has cautioned that physician-owned distributorships (PODs) are “inherently suspect” under the anti-kickback statute and on Tuesday issued a “special fraud alert” that lists suspicious characteristics that may increase the risk of fraud and abuse.

The alert focused on physician-owned businesses that obtain revenue from selling, or setting up the sale of, implantable medical devices ordered by their physician owners to use in procedures they perform on their patients at hospitals or ambulatory surgical centers.

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“The opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute illegal remuneration under the anti-kickback statute,” said the IG report

One of the purposes of the anti-kickback statute is to protect patients from inappropriate medical referrals or recommendations by healthcare professionals who may be unduly influenced by financial incentives.

The inspector general has cautioned about arrangements that raise red flags, including the selection and retention of investors because they can generate substantial business for the physician-owned business and the distribution of very high returns on investment compared with the level of risk involved. 

The financial incentives that PODs offer to their physician owners may cause them to perform more medically unnecessary procedures and to use the devices the PODs sell instead of other potentially more appropriate devices.

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“We are particularly concerned about the presence of such financial incentives in the implantable medical device context because such devices typically are ‘physician preference items,’ meaning that both the choice of brand and the type of device may be made or strongly influenced by the physician, rather than being controlled by the hospital or ambulatory surgical center where the procedure is performed,” the report said.

The IG provided characteristics of PODs or their physician-owners that it considers suspicious, including:

• The investment size offered to each physician varies with anticipated 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 interest because of volume or value of devices used by the physician