OIG Continues Scrutiny of Physician-Owned Distributors of Spinal Devices with New Report: Overlap Between Physician Owned Hospitals and PODs

Last week, the Department of Health and Human Services Office of Inspector General (OIG) followed up on its recent scrutiny into physician-owned distributorships (PODS) with a study entitled “Overlap Between Physician-Owned Hospitals and Physician-Owned Distributors.” In it, OIG reviewed 12 hospitals that had self-identified as physician-owned and reported having purchased spinal devices from PODs. The agency used publicly available information, including the Web sites for hospitals and PODs, as well as State business registration websites, and information from CMS’s Provider Enrollment, Chain and Ownership System (PECOS) to attempt to determine whether a physician had an ownership interest in both a hospital and a POD that sold spinal devices to the hospital.

In their report (available here) OIG notes that they identified one physician with an ownership interest in both a hospital and a POD. However, OIG concluded that “[t]he limited information that is available to identify physicians who have concurrent ownership interests in PODs and hospitals raises concern about transparency among Medicare providers and the vendors that sell them implantable devices.” Transparency, according to OIG, is important to ensure that providers do not violate the Anti-Kickback Statute or the Stark Law, and also helps to ensure public safety. “One of the primary criticisms of PODs is that ownership may affect physicians’ clinical decisionmaking, such as influencing them to perform unnecessary surgeries or to choose a device in which they have a financial interest rather than another device that may be more appropriate for the patient,” OIG writes.

Open Payments

A noteworthy aspect of the report is the government’s continued articulation that Open Payments will be a useful enforcement tool. OIG writes that “there is limited transparency with regard to ownership information for PODs and, to a lesser extent, of hospitals. CMS’s implementation of the Physician Payments Sunshine Act (Sunshine Act) may improve the information available to identify the physician-owners of PODs.”

The Sunshine Act requires manufacturers and group purchasing organizations to report to CMS any ownership and investment interests that are held by physicians. CMS has published two sets of data so far, most recently 2014 transfers of value and ownership interests. “OIG will monitor CMS’s Sunshine Act database and determine how best to assess its impact on transparency within Medicare,” the agency concludes.

OIG also states that their report is being issued directly in final form because it contains no recommendations. If you have comments or questions about this report, please provide them within 60 days. Please refer to report number OEI-01-14-00270 in all correspondence.

Recent Scrutiny Into PODs

PODs, which are medical device distributors that are owned, at least in part, by physicians who use the devices, have attracted scrutiny from Congress and the HHS-OIG. A 2011 Congressional report entitled Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight stated that “[t]he very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain.” In 2013, the HHS-OIG issued a Special Fraud Alert specifically targeting physician-owned entities as well, stating that PODs “are inherently suspicious under the anti-kickback statute.”

In 2014, the Department of Justice sued Reliance Medical Systems over an alleged kickback scheme involving PODs, whereby physician investors would be paid based on the number of Reliance spinal implants they used. On May 22, one of the neurosurgeons named in the complaint, Dr. Aria Sabit, admitted that the financial incentives provided by the PODs “caused him to compromise his medical judgment and cause serious bodily injury to his patients by performing medically unnecessary spine surgeries on some of the patients in whom he implanted [the] spinal implant devices,” states DOJ.