Recently in Medical Devices Category

November 25, 2014

The Department of Justice Targets Physician-Owned Distributors in Recent False Claims Act Lawsuit

Recently, the Department of Justice ("DOJ") announced that it filed a complaint under the False Claims Act against a spinal implant company, its owners, and two of the company's physician-owned distributors. The DOJ filed another complaint under the False Claims Act in an existing qui tam action against a neurosurgeon investor of one of the company's distributors. Notably, the lawsuit brought against the company, its owners, and two distributors mark the first government-filed False Claims Act lawsuit against a physician-owned distributor ("POD").

The complaints allege that the company's distributors paid physicians to induce them to use the company's spinal implants in their surgeries. For example, the complaints allege that:

• Investment payments to physician investors were based on profits generated for the company by the physician investor (e.g., number of surgeries performed with the company's spinal implants);
• The number of surgeries performed by physician investors dramatically increased after the physicians became investors in the company;
• The company did not allow physicians to become investors unless the hospitals where they performed surgeries agreed to purchase the company's implants;
• The company did not offer investment interests to physicians who will not order a high volume of the implants;
• The company's owners retained - and asserted - the right to repurchase the shares belonging to the company's physician investors if they failed to generate significant profits for the POD;
• Many of the physician investors did not make any initial capital contributions for their investment interests; and
• The physician-investors lied to hospitals with which they were affiliated about their investment interest in the PODs.

These lawsuits were filed approximately a year and a half after the Office of Inspector General, Department of Health and Human Services ("OIG"), published a Special Fraud Alert on the inherently suspect nature of PODs. In the March 2013 Special Fraud Alert (here), the OIG reiterates its longstanding concern about arrangements that corrupt medical judgment and result in over utilization of unnecessary procedures, the use of devices that are not clinically appropriate, and increased costs to federal health care programs and beneficiaries. The OIG also outlined a number of "suspect characteristics" of POD arrangements, such as:

• The size of the investment interest offered to each physician varies with the expected or actual volume or value of devices used by the physician;
• Physician investors are required or pressured into using the POD's devices for their patients;
• The POD retains the right to repurchase the physician investor's interest if the physician fails to refer, recommend, or arrange for the purchase of the POD's devices; and
• The physician-investor fails to disclose to the hospital their ownership interest in the POD.

Since the March 2013 Special Fraud Alert, many providers have continued to assume the risks that accompany a relationship with a POD. Perhaps providers found some comfort in the fact that, until now, there has not been any significant government enforcement in the area. However, the above-mentioned cases evidence the government's intention to act on the warnings it gave in its Special Fraud Alert. Therefore, providers should re-evaluate their relationships with PODs to ensure compliance with the Anti-Kickback Statute and other federal laws.

Additionally, while the government did not name the hospital as a defendant in the above-mentioned case (in part due to the allegations that the physician investors concealed their association with the PODs), the government alleges that the hospital claims resulting from the physician investors' referrals are also false claims. However, under a different (but similar) set of facts, the government may be able to allege that a hospital was put on notice of a physician's investment interest in a POD based on the physician's utilization of a certain device. These cases and the March 2013 Special Fraud Alert should alert hospitals to closely examine their dealings with PODs and physicians who associate with PODs.

As we watch for further government enforcement in this area, we wait to see how aggressively the government will pursue these lawsuits and how far the government's reach will extend to those who enter into dealings, whether directly or indirectly, with PODs. Those considering a relationship with a POD should seek advice from health care legal counsel to decide if, and how, to enter into such a relationship.

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November 21, 2012

CMS Revises DME Face-to-Face Requirements

On November 1, 2012, the Centers for Medicare and Medicaid Services ("CMS") released a final Durable Medical Equipment ("DME") face-to-face policy. As a pre-condition to payment, the rule requires that a beneficiary receive a face-to-face encounter with a Physician, Physician Assistant ("PA"), Nurse Practitioner ("NP"), or Clinical Nurse Specialist ("CNP") within six months prior to a DME order. The encounter must then be documented in the medical record and communicated to the DME provider with the order.

The final rule makes the following key changes:

• Delays implementation of the DME policy until July 1, 2013 and clarifying that the rule will only apply to DME orders made after the implementation date.

• Expands the timeframe between the face-to-face encounter and order of DME to six months, although it eliminates the option of having the face-to-face encounter occur within thirty days following the order.

• Clarifies that Physician Assistants, Nurse Practitioners, and Clinical Nurse Specialists may complete the face-to-face encounter, but the encounter must be documented by a physician.

• Clarifies that orders may be made verbally for items that do not require a written order before dispensing, but the supplier must have a written order and face-to-face documentation before submitting for payment.

• Clarifies that DME orders for beneficiaries discharging from a hospital do not require a separate face-to-face encounter post-hospitalization.

• Written orders do not require "necessary and proper usage instructions" or the diagnosis, although related diagnoses must be in the Beneficiary's medical chart and usage instructions provided to the Beneficiary and/or the Beneficiary's Caregiver.

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October 5, 2012

OIG Work Plan 2013

On October 3, 2012, the OIG released its Work Plan for the FY of 2013. Throughout the week, we will be posting on various aspects of the Work Plan pertinent to our clients and our readers in the following areas:

• Hospitals
• Home Health Agencies
• Hospices
• Evaluation and Management Services
• Imaging Services
• Diagnostic Testing
• Sleep Testing
• Medical Equipment and Supplies
• Medicare Audits and the Appeals Processes

Check back every day for updates!

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June 5, 2012

In Office DME Arrangements Should be Carefully Reviewed by Legal Counsel

In their June newsletter, The Record, Blue Cross Blue Shield of Michigan (BCBSM) recommended that physicians "consult with their legal counsel periodically." The problem that BCBSM identified is the situation where physicians prescribe and dispense durable medical equipment and prosthetics and orthotics items in order to provide a means for their patients to be ambulatory prior to leaving the physician's office. BCBSM has encouraged this practice; however, they warn physicians that certain practices may run afoul to local, state and federal laws. In particular, physicians should worry about the Stark and anti-kickback laws that prohibit self-referrals. Therefore, as BCBSM concludes, it is important for physicians to consult with their legal counsel to ensure compliance with the law. This is especially important when physicians provide durable medical equipment to patients directly from their office. Legal counsel should carefully review such practices to ensure compliance with the Stark law.

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April 11, 2012

New Hampshire House Passes Sweeping Rules Regarding Physician Relationships with Medical Device Companies


On March 29, 2012, with veritably no debate and less fan-fare, the New Hampshire House of Representatives recommended for passage HB 1725. HB 1725 is broad-reaching, and would prohibit all medical practitioners from prescribing or referring any FDA class II or class III implantable device in cases where they would gain profit, directly or indirectly from the sale of the device, or from performing any procedure involving the device. HB 1725 is currently being fast-tracked - the New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725 on April 19, 2012.

Supporters of the bill assert that it is necessary to protect New Hampshire from the perceived problems associated with physician-owned distributors ("PODs"), which appears to be pre-textual insofar as it is believed that no PODs are currently operating in New Hampshire, though supporters have argued the law is necessary as a preventative measure. As drafted, however, the bill goes significantly further than merely outlawing PODs; HB 1725 would essentially prohibit physicians from continuing to practice in their specialty in New Hampshire if they have legitimately developed medical devices and received payment for the same. Thus, even in the absence of any potential abuse or evidence of over-utilization, those physicians would effectively be barred from practice in the State.

Opponents of the bill argue that it could have significant unintended patient safety implications, as New Hampshire would effectively have outlawed the process by which physicians and legitimate medical device manufacturers continuously develop, promote, test, obtain feedback on, and improve life-saving medical devices. Additionally, HB 1725 could have significant chilling and anti-competitive effects on innovators, small businesses/medical device startup companies, and hospitals that employ physicians who develop intellectual property (such as university hospitals and others who engage in significant research and pay royalties to physicians).

Most of the potentially negative effects of HB 1725 occur because of the breadth of the bill, its lack of exceptions, and the fact that it layers upon a statutory definition in New Hampshire's current "self-referral" law, which currently merely requires disclosure of certain ownership interests to patients (a la the Stark In Office Ancillary Services exception's disclosure requirement for certain imaging services). That statute defines an "ownership interest" broadly as being:

"any and all ownership interest by a health care practitioner or such person's spouse or child, including, but not limited to, any membership, proprietary interest, stock interest, partnership interest, co-ownership in any form, or any profit-sharing arrangement. It shall not include ownership of investment securities purchased by the practitioner on terms available to the general public and which are publicly traded."

HB 1725, as drafted, would prevent a practicing physician (or their spouse/children) from receiving royalties for intellectual property that they have developed and licensed to a medical device manufacturer. Further, an innovative and entrepreneurial physician would be subject to liability if they, or their spouse or children, decided to create or invest in a medical device company for otherwise legal purposes. HB 1725, as drafted, does not distinguish between legitimate physician/medical device company interactions (e.g., bona fide businesses, as opposed to a marketing tool of a device manufacturer, or a sham entity designed to provider remuneration to referring physicians), and creates a near-absolute prohibition on physicians capitalizing on their intellectual property while continuing to practice in their field of specialty.

Opponents of the bill include the New Hampshire Medical Society, which questions the need for the legislation as no PODs currently exist within the state, and is concerned about the effect the law may have on medical innovation and legitimate cost savings vehicles, including ACOs and other payment/purchasing modalities. The Medical Society has further questioned whether the bill is necessary given developments in Federal law, and whether the legislature would be better off amending the bill to include the guidelines adopted by the AMA instead of a wholesale restriction on such activities.

To date, the legislative passage of New Hampshire's HB 1725 has not been widely publicized. The next significant legislative step occurs on April 19, 2012, when New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725.

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