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OIG Scrutinizes Overlap Between Physician-Owned Hospitals and Physician-Owned Distributors

The government does not like Physician-Owned Hospitals (“POH”). The government also does not like Physician-Owned Distributors (“POD”). The Centers for Medicare and Medicaid Services (“CMS”) and the Office of Inspector General (“OIG”) have taken several steps recently to crack down on what it views as abusive PODs and POHs. In a brand new memorandum report, the OIG reviewed twelve physician owned hospitals to determine the overlap between POHs and PODs of spinal devices. This study was completed as a follow up to the 2013 Spinal Devices Supplied by Physician-Owned Distributors: Overview of Prevalence and Use report. CMS expressed interest in the ownership overlap following discussion related to the 2013 report.

The OIG used publicly available information and information from CMS’s Provider Enrollment Chain and Ownership System (“PECOS”) to determine whether a physician had an ownership interest in both a hospital and a POD that sold spinal devices to the same hospital. The OIG found one physician who had an ownership interest in both a hospital and a POD selling spinal devices to the same hospital. The OIG admits to the possibility of more overlapping ownership than the one instance found, but they state that none were found using the methods applied here.
The limited information available to determine common ownership between hospitals and PODS purportedly raises concerns of transparency among Medicare providers and vendors who sell implantable devices to providers. The government wants transparency to make sure providers do not violate referral and billing prohibitions under the Physician Self-Referral Law (Stark). Transparency also contributes to ensuring providers comply with OIG exclusions and the Anti-Kickback Statute. The OIG states that transparency can also implicate patient safety and quality of care because ownership can impact the clinical decision making of a physician.

Surgical implants, such as the spinal devices manufactured by the PODS in this report, are most commonly physician preference items. Physician preference items are items where the choice of brand and type of device are determined, or strongly influenced, by the physician rather than the hospital where the surgery takes place.

In a March 26, 2013 Special Fraud Alert, the OIG, citing physicians as the gatekeeper as to the brand and type of device, stated that there is a “strong potential for improper inducements between and among the physician investors, entities, device vendors, and device purchasers.” This issue was cited in the 2011 Congressional report titled,Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight which 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 conclusion, the OIG believes that there is limited transparency as to the ownership of PODs and, to a lesser extent, hospitals. The OIG believes that CMS’s Physician Payments Sunshine Act (“Sunshine Act”) (42 CFR §§ 403.900 – 403.914) will increase the availability of information to permit the identification of POD owners. The Sunshine Act requires manufacturers and group purchasing organizations to report ownership and investment interests held by physicians to CMS.

The attorneys at The Health Law Partners have a significant amount of experience counseling physicians, hospitals and medical device manufacturers throughout the United States on the Physician Self-Referral Law, the Anti-Kickback Statute, and the Sunshine Act, among many other state and federal regulations applicable to the field of health care law. We have the experience and knowledge to ensure compliance with these sophisticated health care regulations so as to remedy any issues that may come from the common ownership examined in this OIG report.

For more information please contact Adrienne Dresevic, Esq., at adresevic@thehlp.com or (248) 996-8510 or Clinton Mikel, Esq.

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