Blog: Focus On Regulation | 23 April 2013

POD Promoter “Spin” Notwithstanding, OIG’s Special Fraud Alert on PODs Puts Current POD-Hospital/ASC/Manufacturer Relationships at Risk

As noted in our recent post, OIG’s recent Special Fraud Alert on Physician-Owned Entities is the strongest statement to date that investing in or doing business with a physician-owned distributor, or POD, is a significant Antikickback law risk, not only for the POD and its physician-investors but for the hospitals and ASCs that purchase from PODs and the manufacturers that sell to them. Some PODs and their promoters have reacted to the Fraud Alert by attempting to reassure investors, and the hospitals, ASCs, and manufacturers with which they do business, that the Fraud Alert is just predictable “business as usual” from OIG and if a POD was “legal” before the Fraud Alert, it is still legal.  Both of these assertions seriously understate the risks to POD participants, suppliers and customers. Simply put, by identifying as “inherently suspect” features that are present in all PODs, the Fraud Alert puts to rest any myth that the POD business model can be pursued safely or lawfully. • Not Business As Usual

• Any Special Fraud Alert is a remarkable event; OIG has issued only 14 such pronouncements in almost 25 years.
• Every other Special Fraud Alert issued by OIG has been accompanied by significant enforcement efforts and penalties.

• Not Predictable or Ordinary

• Prior OIG advice identified certain “suspect features,” but never before has OIG called a physician-owned business model “inherently suspect” under the AKL.
• Prior Fraud Alerts have identified characteristics that are indicative of unlawful intent but that often can be avoided with proper business structuring, thereby providing a roadmap for constructing at least a presumptively lawful business by omitting the suspect characteristics.
• Here, OIG says specifically that its listing of “inherently suspect” features does not provide a roadmap to a lawful POD. To emphasize that point, it identifies as “inherently suspect” characteristics that are inherently present in all PODs, such as serving the physician-investors’ patient base nearly exclusively, obtaining a shift of substantially all of the physician-investors’ business in connection with their investment, and investor-physicians referring their implant cases nearly exclusively to hospitals and ASCs who purchase through the POD.

• If You Thought it Was Legal Before, You Can’t Think That Anymore.

• Because all PODs provide investor-physicians with “remuneration,” the defense against illegality under the AKL has always been simply about whether the requisite unlawful intent to induce referrals was present.
• The Fraud Alert makes clear that the intent to induce is inherent in the basic features of any POD’s business: if you are involved with a POD that looks like any other POD, that is enough to show that you have the intent that violates the AKL.
• By putting the industry on notice that it interprets the law in this way, OIG essentially has eliminated the only defense available to PODs, and the investor-physicians, hospitals/ASCs, and manufacturers that deal with them.
• This open and notorious statement that evidence of unlawful intent exists in the very nature of the POD business model also effectively eliminates any comfort that previously might have been derived from a legal opinion advising otherwise.

The Special Fraud Alert should be viewed as a game-changer, not only for the future of the POD business model, but for those who have basked in the belief that because OIG had not specifically said “no,” their current dealings with PODs must be permissible.   No one who has read the Fraud Alert can think that any longer. For a fuller discussion, see our Health Alert on this topic.