Physician Owned Distributors (“PODs”) of medical implantable devices are increasingly the subject of both governmental scrutiny and False Claims Act cases. PODs are companies created to sell medical implants to hospitals, and are by definition owned, in whole or in part, by the physicians who may use the implants at the hospitals that purchase the medical devices. Allegations against PODs and their investor-physicians typically include allegations of violating the False Claims Act based on Anti-Kickback violations and that certain surgeries performed by physician owners of a POD may be medically unnecessary. The government has alleged in some complaints that Medicare claims submitted by hospitals for the related hospital services also were tainted by kickbacks by PODs to the PODs’ physician owners and accordingly were false claims. The False Claims Act exposure for a hospital may be significant, and could be considered in the hospital purchasing process for medical devices. Potential allegations that surgical cases (i.e., spinal infusions) are medically unnecessary may seem like a stretch, but are being brought today in complaints filed by the government under the False Claims Act. As a result, when a hospital does business with a POD, in addition to insuring that the agreement complies with an applicable exception to the Stark Law and safe harbor to the AKS, a hospital may also want to implement a process for reviewing potential quality cases through the hospital’s compliance program to prepare for any potential allegations that some surgeries were medically unnecessary. A thorough process of reviewing selection and purchasing medical devices by a hospital from a POD or similarly physician-owned vendors could go a long way toward addressing potential compliance issues for Hospitals under the False Claims Act.

The following is a report issued by the OIG on October 23, 2013 regarding spinal devices supplied by physician-owned distributors. Read the full report here.

Written by: Clay Countryman