Life Science Compliance Update

August 17, 2015

OIG Continues Scrutiny of Physician-Owned Distributors of Spinal Devices with New Report: Overlap Between Physician Owned Hospitals and PODs


Last week, the Department of Health and Human Services Office of Inspector General (OIG) followed up on its recent scrutiny into physician-owned distributorships (PODS) with a study entitled “Overlap Between Physician-Owned Hospitals and Physician-Owned Distributors.” In it, OIG reviewed 12 hospitals that had self-identified as physician-owned and reported having purchased spinal devices from PODs. The agency used publicly available information, including the Web sites for hospitals and PODs, as well as State business registration websites, and information from CMS's Provider Enrollment, Chain and Ownership System (PECOS) to attempt to determine whether a physician had an ownership interest in both a hospital and a POD that sold spinal devices to the hospital.

In their report (available here) OIG notes that they identified one physician with an ownership interest in both a hospital and a POD. However, OIG concluded that “[t]he limited information that is available to identify physicians who have concurrent ownership interests in PODs and hospitals raises concern about transparency among Medicare providers and the vendors that sell them implantable devices.” Transparency, according to OIG, is important to ensure that providers do not violate the Anti-Kickback Statute or the Stark Law, and also helps to ensure public safety. “One of the primary criticisms of PODs is that ownership may affect physicians’ clinical decisionmaking, such as influencing them to perform unnecessary surgeries or to choose a device in which they have a financial interest rather than another device that may be more appropriate for the patient,” OIG writes.

Open Payments

A noteworthy aspect of the report is the government’s continued articulation that Open Payments will be a useful enforcement tool. OIG writes that “there is limited transparency with regard to ownership information for PODs and, to a lesser extent, of hospitals. CMS’s implementation of the Physician Payments Sunshine Act (Sunshine Act) may improve the information available to identify the physician-owners of PODs.”

The Sunshine Act requires manufacturers and group purchasing organizations to report to CMS any ownership and investment interests that are held by physicians. CMS has published two sets of data so far, most recently 2014 transfers of value and ownership interests. “OIG will monitor CMS’s Sunshine Act database and determine how best to assess its impact on transparency within Medicare,” the agency concludes.

OIG also states that their report is being issued directly in final form because it contains no recommendations. If you have comments or questions about this report, please provide them within 60 days. Please refer to report number OEI-01-14-00270 in all correspondence.

Recent Scrutiny Into PODs

PODs, which are medical device distributors that are owned, at least in part, by physicians who use the devices, have attracted scrutiny from Congress and the HHS-OIG. A 2011 Congressional report entitled Physician Owned Distributors (PODs): An Overview of Key Issues and Potential Areas for Congressional Oversight stated that “[t]he very nature of PODs seem to create financial incentives for physician investors to use those devices that give them the greatest financial return and that, in the process, patient treatment decisions may be based on personal financial gain.” In 2013, the HHS-OIG issued a Special Fraud Alert specifically targeting physician-owned entities as well, stating that PODs “are inherently suspicious under the anti-kickback statute.”

In 2014, the Department of Justice sued Reliance Medical Systems over an alleged kickback scheme involving PODs, whereby physician investors would be paid based on the number of Reliance spinal implants they used. On May 22, one of the neurosurgeons named in the complaint, Dr. Aria Sabit, admitted that the financial incentives provided by the PODs "caused him to compromise his medical judgment and cause serious bodily injury to his patients by performing medically unnecessary spine surgeries on some of the patients in whom he implanted [the] spinal implant devices," states DOJ

August 06, 2015

“Barred But Still Billing,” OIG Report Finds That Providers Terminated From One State Medicaid Continue Participating in Other States


The Office of Inspector General of the U.S. Department of Health and Human Services recently released a report seeking to find out the extent to which individual providers who are terminated for cause from one or more State Medicaid programs continue participating in Medicaid in other States. OIG also looked into the amount Medicaid paid to such providers, if any, for services performed after termination. The agency then identified a number of challenges that states face in ensuring that terminated providers do not continue to participate in other state Medicaid programs.

View OIG’s Press Release here

View OIG’s full report here.

OIG noted that before the passage of the Patient Protection and Affordable Care Act (ACA), if a State terminated the participation of a provider from its Medicaid program, the provider could potentially participate in another State's Medicaid program, leaving the second State's program vulnerable to the same issues of fraud and waste that got the provider terminated in the first place. To prevent this from happening, the ACA requires that each State terminate a provider's participation in the State Medicaid program if that provider is terminated for cause (i.e., for reasons of fraud, integrity, or quality) from another State Medicaid program.

OIG outlines how this would work:

In practical terms, after a State terminates a provider for cause, other States’ implementation of section 6501 of the ACA involves three steps: learning, identifying, and acting. First, a State agency must learn about providers who were terminated for cause from Medicare or other State Medicaid or CHIP programs. Second, the agency must identify whether any of those terminated providers are participating in the State’s Medicaid program, taking steps to verify a provider’s identity, if it is in question. Third, the agency must act appropriately to terminate the provider’s participation in its own State Medicaid program.

However, the report stated that 295 providers terminated from Medicaid for fraud, misuse, or abuse in 2011 (after the ACA came into effect) continued to participate in other states' programs. OIG found that 94 of these providers received payments from state Medicaid programs, totaling $7.4 million. 

While OIG identified these issues, they noted that states face some considerable challenges in ensuring banned providers do not continue participating in other Medicaid programs. These include:

  • The lack of a comprehensive centralized data source that identifies providers terminated for cause, which creates challenges for State agencies seeking to learn about such providers.
  • Lack of uniform terminology in existing data sources regarding the reasons for provider terminations, which can create challenges in differentiating provider termination status.
  • State Medicaid agencies that do not enroll all providers can face challenges in identifying their managed care providers and terminating Medicaid participation
  • The active status of a provider’s professional license can cause misunderstanding for some State Medicaid agency staff n making their decisions about whether to terminate a provider.

This report followed an OIG inquiry last year. In March 2014, the agency recommended that CMS require State Medicaid agencies to report all for cause terminations. "We reiterate this prior recommendation as we found the lack of a comprehensive data source of providers terminated for cause creates a challenge for State Medicaid agencies," stated OIG.

To address the remaining issues identified in this report, OIG recommend that CMS:

  • (1) work with States to develop uniform terminology to clearly denote for cause terminations,
  • (2) require that State Medicaid programs enroll all providers participating in Medicaid managed care, and
  • (3) furnish guidance to State agencies that termination is not contingent upon the provider's active licensure status. 

    CMS concurred with the recommendations, OIG noted. 


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