In a lawsuit filed in U.S. District Court in Los Angeles, Reliance says it wants to restart its physician-ownership model, but “it cannot speak with physicians about the formation of a physician-owned entity out of concern that any such entity formed will be 'inherently suspected' of violating laws that carry severe criminal and civil penalties,” the lawsuit says.
The HHS Office of Inspector General published a special alert in March declaring that all hospitals and surgical centers should use extreme caution when buying devices from companies in which doctors profit personally by ordering devices, known as physician-owned distributorships.
That kind of arrangement is “inherently suspect” under the Anti-Kickback Statute, which makes it illegal to buy or sell Medicare patient referrals, including equipment, the OIG's fraud alert said. Such conduct is outlawed because it could be an inducement for overuse of products and services, raising costs for Medicare.
Physician-owned distributorships argue that they are cheaper and more efficient than larger devicemakers because they can sell commonly used products directly to a hospital without costly marketing and sales fees. Orthopedic devices are particularly common business lines for PODs.
Since the OIG's alert last March, some health systems, including Intermountain Healthcare in Utah, have decided to stop doing business with physician-owned distributorships.
Danielle Sloane, a healthcare attorney with Bass, Berry & Sims, confirmed that the OIG's alert has seemed to tamp down interest in doing business with physician-owned distributorships, which are often referred to as PODs.
“The alert that came out from the OIG has already had a major impact,” she said. “Hospitals are significantly more skeptical about contracting with PODs, because they have exposure under the anti-kickback law.”
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