Overview

It is now widely-recognized that significant legal and ethical concerns arise from the inherent conflict of interest that exists when referring physicians secure a revenue stream from the implantable medical devices they order for their own patients through ownership in medical device supply chain companies, now generally known as, physician-owned distributors (PODs). Whether structured as sellers (manufacturers or buy-and-resell distributors), group purchasing organizations, independent sales agent distributors, or in some other form, these physician-owned entities put at risk the participating physicians, the hospitals where they refer their implant procedures, and the medical device manufacturers who deal with them.

As recognized repeatedly by the HHS Office of Inspector General (OIG) and the Centers for Medicare and Medicaid Services (CMS), the POD business model of giving referring physicians a profit from the medical devices they order to implant in their patients presents serious concerns of patient and health care program abuse under the federal Anti-kickback and "Stark" laws. The concern with physician investment in PODs is particularly evident in the implantable medical device space, where physician preference drives implant ordering. In these situations, a physician has a strong incentive to direct implant ordering towards the entity in which he or she has a financial stake. 

Legal developments in the last year have highlighted the risks of investing in, selling through, or buying from, PODS. In early 2013, OIG issued a Special Fraud Alert stating that the POD business model is "inherently suspect" under the Anti-kickback law. Later last year, OIG issued a report demonstrating that PODs do not result in lower implant costs, and do increase implant utilization. In addition, a number of hospitals systems have adopted polices prohibiting purchase from PODs where the ordering physicist is an owner (read more at Inside HSCA Guest Blog; Compliance Today - subscription required). The Department of Justice is engaged in an investigation of a former physician-owner, his POD, and the implicated hospital, see Ropes & Gray alert, and a court recently dismissed the POD's lawsuit claiming that OIG's Special Fraud Alert was outside OIG's authority, see Ropes & Gray alert. 

Ropes & Gray client, the Quality Implant Coalition (QuIC), has taken a strong stance against PODs, and Ropes & Gray partner Tom Bulleit has been a leading author and advocate in this area.