Gov’t Statements

Several governmental entities have expressed concern with PODs. This section summaries key statements and other guidance from government sources. 

• But wait!  DOJ and Reliance appear to have agreed to settle the False Claims Act lawsuit mid-trial.  Though the agreement seems not yet entered into the court’s records, it appears that in exchange for a payment of $1m, the Reliance principals will receive a full release of liability.  Looks like industry stakeholders will not get the benefit of a jury verdict or an opinion to advance the jurisprudence in this area of law.  But this affirms that despite OIG’s greenlight to the physician-owned medical device innovator addressed in A0 22-07, DOJ still takes “real” PODs seriously as potential AKS violations. (May 6, 2022)
• As if determined to show that OIG’s recent Advisory opinion 22-07, greenlighting a physician-owned manufacturer of innovative medical devices, does NOT represent a green light for the traditional physician-owned distributorship (“POD”) that was the subject of OIG’s 2013 Special Fraud Alert, trial in the case of US v. Reliance Medical Systems has begun in the Central District of California.  We have previously reported on the earlier stages of this case, which was filed in 2014 and has been a long time in coming to trial.  Opening arguments indicate that the government will seek to prove that Reliance and its owners offered ownership interests in their device seller to referring physicians as an inducement for them to choose those products in treatment of their patients.  It appears the defense will rely on technical arguments about Medicare payment being made to the purchasing hospitals, not the physicians, and to describe the arrangement as a legitimate investment.  We will continue to monitor the results. (May 5, 2022)
• Advisory Opinion 22-07 (Regarding an arrangement whereby certain physicians have an ownership interest in a medical device company that manufactures products that may be ordered by the physician owners and a physician spouse of one of the physician owners.) April 25, 2022
• POD False Claims Act Case Allowed to Proceed, September 18, 2020
• In this latest anti-kickback law settlement of a case involving a physician-owned distributor of spinal implants. The settlement agreement is not immediately available, but at least based on the U.S. Attorney’s press release, unlike past POD cases, this one doesn’t appear to include allegations of bad behavior (e.g., allegations of medically unnecessary surgeries or malpractice) by the physician-owner, just the fact that the doctor profited from implants ordered for procedures on his own patients, and hid his profits through phony corporate shells.
• Docket
• U.S. Attorney's Press Release
• On Wednesday, Nov. 13, the Department of Justice filed a False Claims Act suit against the physician owner of a physician-owned distributorship (POD) as the next chapter in the Sanford health system settlement.
• Complaint
• DOJ intervenes in South Dakota POD qui tam. At the end of June 2019, a federal district court in South Dakota unsealed a whistleblower case alleging that a physician-owner of a POD had submitted false claims to Medicare, based on unnecessary surgeries and profits from his POD. Importantly, DOJ has filed a notice of intervention in the case, indicating that they take the allegations seriously.
• "On October 5, Staff of the Medicare Payment Advisory Commission (MedPAC) gave a presentation to the commission recommending that dealings with physician-owned distributors of implantable medical devices (PODs) be prohibited under the Stark law.  It appeared from the Commissioners’ reactions that the consensus of the meeting supports the recommendations. Next steps likely involve the incorporation of these recommendations into MedPAC’s next report to Congress."
• "Physician Owned Distributorships: An Update on Key Issues and Areas of Congressional Concern," Senate Finance Committee, Majority Staff, May 2016
• "US v. Reliance Medical Systems, LLC, Apex Medical Technologies, LLC, Kronos Spinal Technologies, LLC, Bret Berry, John Hoffman, Adam Pike, and Aria O. Sabit, M.D., Order Denying Motion to Dismiss"
• "US ex rel. Cary Savitch and Gary Proffett v. Sabait, US Complaint in Intervention"
• "US v. Reliance Medical Systems, LLC, Apex Medical Technologies, LLC, Kronos Spinal Technologies, LLC, Bret Berry, John Hoffman, Adam Pike, and Aria O. Sabit, M.D., U.S. Complaint"
• "US v. Reliance Medical Systems, LLC, Apex Medical Technologies, LLC, Kronos Spinal Technologies, LLC, Bret Berry, John Hoffman, Adam Pike, and Aria O. Sabit, M.D., Notice of Related Cases"
• "OIG Report of 'Spinal Devices Supplied by Physician-Owned Distributors: Overview of Prevalence and Use'," October 2013
• "OIG Special Fraud Alert: Physician-Owned Entities," March 2013
• "OIG response to Senate Letter," September 2011 
• "CMS response to Senate Letter," August 2011 
• "Senate Letter to Daniel Levinson, Inspector General, Department of Health and Human Services, June 2011 (requesting that the OIG investigate the legality of PODs) 
• "Senate Letter to Donald Berwick, Administrator, Centers for Medicare & Medicaid Services, June 2011 (requesting that CMS be certain not to inadvertently provide protection for PODs when drafting the ownership disclosure requirements under the Physician Payments Sunshine Act and when developing final regulations implementing the Accountable Care Organization program) 
• "Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight," Senate Finance Committee, Minority Staff, June 2011 
• "August 2008 Final Inpatient Prospective Payment System Regulations (Declining to adopt the position that POCs and similar physician-owned companies necessarily "perform" DHS and are therefore a DHS "entity" and stating that CMS may issue proposed rulemaking on the issue in the future)
• "April 2008 Proposed Inpatient Prospective Payment System Regulations (Requesting comments on whether physician self-referral rules should address POCs and similar physician-owned companies more specifically or whether the concerns surrounding POCs and similar organizations are better addressed through enforcement of the False Claims Act, the Antikickback statute, and other laws as well as comments on whether and to what degree physician investment in POCs presents risks of overutilization, substandard care, and increased costs to Medicare)
• "Testimony of Gregory Demske, Assistant Inspector General for Legal Affairs, before the U.S. Senate Special Committee on Aging Examining the Relationship Between the Medical Device Industry and Physicians, February 2008)
• "September 2007 Final Regulations to Revise Physician Fee Schedule Payment Policies" (Making no change to proposed definition of DHS "entity")
• "July 2007 Proposed Regulations to Revise Physician Fee Schedule Payment Policies" (Defining "Stark" law DHS "entity" as including both the person or entity that performs DHS as well as the person or entity that submits claims or causes claims to be submitted to Medicare for DHS)
• "Letter from Vicki Robinson," Chief, Industry Guidance Branch, HHS Office of Inspector General, Regarding Response to Request for Guidance Regarding Certain Physician Investments in the Medical Device Industries, October 2006