The OIG has issued a Special Fraud Alert, dated March 26, 2013, describing specific attributes and practices of Physician Owned Distributorships (PODs) believed to produce substantial fraud and abuse risk and pose dangers to patient safety.

PODs are physician owned entities that derive revenue from selling or arranging for the sale of implantable medical devices ordered by their physician owners for use in procedures that the physician owners perform on their own patients at hospitals or ambulatory surgery centers (ASCs). 

OIG believes PODs create a risk of fraud in the following areas:

·         Corruption of medical judgment;

·         Overutilization;

·         Increased costs to the Federal Healthcare Programs; and

·         Unfair competition.

There is an interesting tension or contradiction created by the OIGs assumption of overutilization. While it is acceptable for physicians to prescribe the procedures they perform that use the devices and for which the physicians receive professional fees, and the hospitals that employ them receive facility fees, but there is an unacceptable risk of fraud and abuse for the incidentals associated with the procedures. Another contrary example is gain sharing when hospitals and physicians are entitled to engage in monitored collective practices to standardize procedures, purchase supplies and equipment, and divide the savings via “gain sharing arrangement.”

OIG is especially concerned regarding PODs that have questionable ownership recruitment practices, such as:

·         Selecting investors because they are in a position to generate substantial business for the entity

·         Requiring investors who cease practicing in the service area to divest their ownership interests

·         Distributing extraordinary returns on investment compared to the level of risk involved

Furthermore, the OIG is particularly concerned about the presence of such financial incentives in the implantable medical device context, because such devices are typically “physician preference items” meaning that both the choice of brand and type of device may be made or strongly influenced by the physician, rather than being controlled by the hospital or ASC where the procedure is performed. However, on the contrary, it is typically acceptable for hospitals to participate in group purchasing organizations, or the hospitals get to select the devices. 

The Special Fraud Alert contains a list of eight specific characteristics the OIG deems to be potentially fraudulent, which can be viewed by clicking above.