5 Thoughts on Physician-Owned Distributorships

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Here are five thoughts on physician-owned distributorships.

1. The government has now issued two negative reports on PODs.
First, a 2011 congressional report titled "Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight," by the Senate Finance Committee Minority Staff chaired by Orrin Hatch (R-Utah), who seems pretty closely aligned with the medical device industry. This is of import, because the larger medical device industry is aligned against PODs.

The report states, "The 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."

Second, the OIG issued a special fraud alert on March 26, 2013 addressing PODs, focusing on the specific attributes it believes produce fraud and abuse risk. "Longstanding OIG guidance makes clear 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," states the report. "The anti-kickback statute is violated even if one purpose of the remuneration is to induce such referrals."

2. When the government issues strong statements against a practice, the most conservative position is to stay out of that practice.
Senator Orrin's report states, "It appears that hospitals and physicians, like medical manufacturers, would benefit greatly from clear legal guidance regarding doing business with PODs. The most consistent comment from individuals interviewed by the Committee on this topic was 'it was unclear to them if PODs were legal or illegal.' As a result, potential physician investors typically choose the legal theory that best supports their inclination to join or refrain from joining a POD entity."

3. If engaging in the practice, its critical one be able to demonstrate that it has real value and that it is not a means to reward referrals or extort kickbacks.
The OIG special fraud alert advises, "In evaluating these arrangements, OIG will consider whether one purpose underlying a hospital's or ASC's decision to purchase devices from a POD is to maintain or secure referrals from the POD's physician owners."

4. A POD and buyer — such as a hospital or ASC — should be able to demonstrate at a minimum that the POD provides a real cost-savings for the facility and does not include explicit or implicit requirement to purchase from the POD in exchange for the surgeons' cases. Ideally, the physician would not refer Medicare or Medicare business to the facility and the POD would be a true distributorship engaged with providers beyond those to which the physician refers, so it's a business not just based on the physician's referrals.

5. Even with right safeguards, there is not insignificant risk to the use of PODs.
While the OIG statement recognizes the potential for lawful PODs under the anti-kickback statute, the special fraud alert states, "We believe that PODs are inherently suspect under the anti-kickback statute."

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22 Advisory Opinions Issues by the Office of Inspector General

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