Over the last few years, these kinds of companies have come under scrutiny. That led the HHS' Office of the Inspector General to last year issue a special fraud alert calling PODs “inherently suspect” under the anti-kickback statute and a report that found hospitals that purchased implants from PODs reported increases in volumes of spinal surgeries.
The lawsuit is considered significant because "it appears to be the first time any of the government's POD investigations have caused the government to file its own (False Claims Act) lawsuit based on the theory" that a physician's return on the investment is a kickback, Thomas Bulleit, a partner for law firm Ropes & Gray, said in an email.
Court records filed in February indicated that the Justice Department was pursuing a False Claims Act investigation into Dr. Sabit's practices over concerns he hid his financial relationships with a Reliance-affiliated POD.
The government now alleges that four surgeons, including Sabit, who were investors or owners of Reliance-affiliated companies, received payments to perform surgeries using Reliance implants. It also alleges that some of the spinal fusions performed by the surgeons using Reliance implants were medically unnecessary or more extensive than what was medically necessary.
Reliance, based in Bountiful, Utah, was founded in 2006. It created at least 14 PODs that sold devices Reliance purchased from Spinevision, a privately held medical-device manufacturer based in France.
“Most of the allegations are either inaccurate or grossly exaggerated,” said Patric Hooper, a lawyer with Hooper Lundy and Bookman, which represents Reliance Medical.
The Justice Department also said that in July it joined a whistle-blower lawsuit against Sabit that had been filed in 2013.
Sabit's lawyer was not immediately available for comment.
PODs began taking market share from traditional manufacturers a decade ago, in part because they market their products as being less costly than the implants sold by large devicemakers. But the companies have been a cause for concern for the Advanced Medical Technology Association, which represents devicemakers. AdvaMed requested guidance from the government in 2006. By 2011, nearly 20% of the spinal fusion surgeries performed on Medicare beneficiaries used devices sold by PODs.
But the scrutiny and questions about inappropriate payments have led to a slowdown in purchasing from PODs. Some large hospital systems such as Baylor Scott & White and HCA have said they will no longer buy implants from PODs.
Follow Jaimy Lee on Twitter: @MHjlee