OIG: PODs “Inherently Suspect”

On Tuesday, the federal Office of the Inspector General (“OIG”) issued a Special Fraud Alert (“Fraud Alert”) detailing the OIG’s concerns with Physician-Owned Entities.  Specifically, the alert dealt with physician-owned distributorships, or PODs.  PODs are typically entities that make money by selling or arranging for the sale of implantable medical devices.

The United States Senate Finance Committee produced a report on PODs (“Senate Report”) in June of 2011.  According to the Senate Report, PODs are structured to give physicians who choose the medical devices that they implant in patients some payment derived from the profits that the sale of the devices generate.  Senate Report at 2.  For example, a surgeon who chooses a certain kind of stent may receive  a payment from the stent manufacturer based upon the sale of the stent.  The Senate Report indicated that PODs have proliferated among surgeons and surgical practices as reimbursements have declined.  Senate Report at 3.

As the Senate Report points out, PODs seem to create financial incentives for the doctors involved to choose medical devices that will generate payments for themselves.  Senate Report at 5.  The Committee that authored the report was troubled by anecdotal evidence that surgeons, who happened to be members of PODs, performed multiple expensive and risky procedures using implants for which the POD was compensated.  Senate Report at 5.  The Report concluded that PODs stood on uncertain legal ground in the quick-moving health care arena; the Committee specifically charged the OIG with addressing this issue.  Senate Report at 8.

The OIG’s recent Fraud Alert responds to this charge and indicates that PODs pose major problems, including the corruption of medical judgment, the overutilization of medical procedures, increased costs to Federal health care programs, and unfair competition.  Fraud Alert at 2.  Although intent is the determining factor in assessing whether a given POD is lawful under the federal anti-kickback statute, OIG concluded that PODs are “inherently suspect under the anti-kickback statute.”  Fraud Alert at 3.

OIG sets out a list of eight characteristics that it considers “suspect” in a POD, most of which indicate that referrals or the volume of referrals are the primary reason a physician involved with the POD might use a given device.  Fraud Alert at 3.  OIG does also make clear that this is not an exhaustive list.  Fraud Alert at 3-4.

The Special Fraud alert is available here.

The Senate Report is available here.

Caitlin Monjeau contributed this post.