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Special Fraud Alert on Physician-Owned Distributorships

On March 24, 2013, the Office of the Inspector General (“OIG”) issued a Special Fraud Alert addressing its concern about the proliferation of physician-owned distributorships (PODS). PODs are physician-owned entities that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers (ASCs). During the last several years, there has been a lot of discussion in the healthcare community about whether or not PODs violate the Anti-Kickback Statue, but until now, there has been little guidance from either CMS or the OIG.

In the Special Fraud Alert, the OIG reiterates its longstanding position that “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.” In addition, the OIG concludes that PODs are “inherently suspect under the anti-kickback statute.” The Special Fraud Alert provides a list of characteristics making any POD suspect which leaves open the possibility that a POD without any of the listed characteristics would not violate Anti-Kickback Statute.

The listed characteristics are all familiar red flags which have been cited many times by the OIG as indicative of a potentially abusive physician investment or arrangement. Although the OIG does not go so far as to make PODs a per se violation of the Anti-Kickback statute, the language of the Special Fraud Alert is strong. The OIG restates its longstanding guidance “that 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. The Anti-Kickback Statute is violated if even one purpose of the remuneration is to induce such referrals.”

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