Special Fraud Alert: Physician-Owned Entities, 19271-19273 [2013-07394]

Download as PDF Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document. (Catalog of Federal Domestic Assistance Program No. 93.773, Medicare—Hospital Insurance; Program No. 93.774, Medicare— Supplementary Medical Insurance, and Program No. 93.778, Medical Assistance Program) Dated: March 25, 2013 Marilyn Tavenner, Acting Administrator, Centers for Medicare & Medicaid Services. [FR Doc. 2013–07343 Filed 3–28–13; 8:45 am] BILLING CODE 4120–01–P DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration [Docket No. FDA–2007–D–0369; (Formerly Docket No. 2007D–0168)] Draft Guidance for Industry on Bioequivalence Recommendations for Metronidazole Vaginal Gel; Availability AGENCY: Food and Drug Administration, HHS. mstockstill on DSK4VPTVN1PROD with NOTICES ACTION: Notice. SUMMARY: The Food and Drug Administration (FDA) is announcing the availability of a draft guidance for industry entitled ‘‘Bioequivalence Recommendations for Metronidazole Vaginal Gel.’’ The guidance provides specific recommendations on the design of bioequivalence (BE) studies to support abbreviated new drug applications (ANDAs) for metronidazole vaginal gel. DATES: Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comments on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by May 28, 2013. ADDRESSES: Submit written requests for single copies of the draft guidance to the Division of Drug Information, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, rm. 2201, Silver Spring, MD 20993–0002. Send one self-addressed adhesive label to assist that office in processing your requests. See the SUPPLEMENTARY INFORMATION section for electronic access to the draft guidance document. Submit electronic comments on the draft guidance to http:// www.regulations.gov. Submit written comments to the Division of Dockets VerDate Mar<15>2010 17:34 Mar 28, 2013 Jkt 229001 Management (HFA–305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852. FOR FURTHER INFORMATION CONTACT: Kris Andre, Center for Drug Evaluation and Research (HFD–600), Food and Drug Administration, 7519 Standish Pl., Rockville, MD 20855, 240–276–9326. SUPPLEMENTARY INFORMATION: I. Background In the Federal Register of June 11, 2010 (75 FR 33311; FDA–2007–D–0433), FDA announced the availability of a guidance for industry entitled ‘‘Bioequivalence Recommendations for Specific Products,’’ which explained the process that would be used to make product-specific bioequivalence (BE) recommendations available to the public on FDA’s Web site at http://www. fda.gov/Drugs/GuidanceCompliance RegulatoryInformation/Guidances/ default.htm. As described in that guidance, FDA adopted this process as a means to develop and disseminate product-specific BE recommendations and provide a meaningful opportunity for the public to consider and comment on those recommendations. This notice announces the availability of draft BE recommendations for metronidazole vaginal gel. New drug application 020208 for MetroGel-Vaginal (metronidazole) vaginal gel, 0.75%, was initially approved by FDA in August 1992. On October 31, 2006, FDA approved ANDA 077264 for a generic version of MetroGel-Vaginal 0.75% (metronidazole). FDA is now issuing a draft guidance for industry on BE recommendations for generic metronidazole vaginal gel (Draft Metronidazole Vaginal Gel BE Recommendations). In March 2006, Foley & Lardner LLP (the petitioner) submitted a citizen petition requesting that FDA require that any ANDA referencing Metro-Gel Vaginal meet certain conditions, including conditions related to demonstrating BE (Docket No. FDA– 2006–P–0080). FDA is reviewing the issues raised in the petition. FDA will consider any comments on the Draft Metronidazole Vaginal Gel BE Recommendations in responding to the citizen petition. This draft guidance is being issued consistent with FDA’s good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the Agency’s current thinking on the design of BE studies to support ANDAs for metronidazole vaginal gel. It does not create or confer any rights for or on any person and does not operate PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 19271 to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statutes and regulations. II. Comments Interested persons may submit either written comments regarding this document to the Division of Dockets Management (see ADDRESSES) or electronic comments to http:// www.regulations.gov. It is only necessary to send one set of comments. Identify comments with the docket number found in brackets in the heading of this document. Received comments may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to the docket at http:// www.regulations.gov. III. Electronic Access Persons with access to the Internet may obtain the document at either http://www.fda.gov/Drugs/Guidance ComplianceRegulatoryInformation/ Guidances/default.htm or http:// www.regulations.gov. Dated: March 25, 2013. Leslie Kux, Assistant Commissioner for Policy. [FR Doc. 2013–07296 Filed 3–28–13; 8:45 am] BILLING CODE 4160–01–P DEPARTMENT OF HEALTH AND HUMAN SERVICES Office of Inspector General [Docket Number OIG–1302–N] Special Fraud Alert: Physician-Owned Entities Office of Inspector General (OIG), HHS. AGENCY: ACTION: Notice. SUMMARY: This Special Fraud Alert addresses 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 the physician-owners perform on their own patients at hospitals or ambulatory surgical centers (ASCs). These regulations are effective on March 29, 2013. DATES: FOR FURTHER INFORMATION CONTACT: Patrice S. Drew, Department of Health and Human Services, Office of Inspector General, Congressional and Regulatory Affairs, at (202) 619–1368. E:\FR\FM\29MRN1.SGM 29MRN1 19272 Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices I. Introduction This Special Fraud Alert addresses 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 the physician-owners perform on their own patients at hospitals or ambulatory surgical centers (ASCs). These entities frequently are referred to as physician-owned distributorships, or ‘‘PODs.’’ 1 The Office of Inspector General (OIG) has issued a number of guidance documents on the general subject of physician investments in entities to which they refer, including the 1989 Special Fraud Alert on Joint Venture Arrangements 2 and various other publications. OIG also provided guidance specifically addressing physician investments in medical device manufacturers and distributors in an October 6, 2006 letter.3 In that letter, we noted ‘‘the strong potential for improper inducements between and among the physician investors, the entities, device vendors, and device purchasers’’ and stated that such ventures ‘‘should be closely scrutinized under the fraud and abuse laws.’’ 4 This Special Fraud Alert focuses on the specific attributes and practices of PODs that we believe produce substantial fraud and abuse risk and pose dangers to patient safety. mstockstill on DSK4VPTVN1PROD with NOTICES II. The Anti-Kickback Statute One purpose of the anti-kickback statute is to protect patients from inappropriate medical referrals or recommendations by health care professionals who may be unduly influenced by financial incentives. Section 1128B(b) of the Social Security Act (the Act) makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to 1 The physician-owned entities addressed in this Special Fraud Alert are sometimes referred to as ‘‘physician-owned companies’’ or by other terminology. For purposes of this Special Fraud Alert, a ‘‘POD’’ is any physician-owned entity that derives revenue from selling, or arranging for the sale of, implantable medical devices and includes physician-owned entities that purport to design or manufacture, typically under contractual arrangements, their own medical devices or instrumentation. Although this Special Fraud Alert focuses on PODs that derive revenue from selling, or arranging for the sale of, implantable medical devices, the same principles would apply when evaluating arrangements involving other types of physician-owned entities. 2 Special Fraud Alert: Joint Venture Arrangements (August 1989), reprinted at 59 FR 65,372, 65,374 (Dec. 19, 1994). 3 Letter from Vicki Robinson, Chief, Industry Guidance Branch, Department of Health and Human Services, OIG, Response to Request for Guidance Regarding Certain Physician Investments in the Medical Device Industries (Oct. 6, 2006). 4 Id. VerDate Mar<15>2010 17:34 Mar 28, 2013 Jkt 229001 presence of such financial incentives in the implantable medical device context because such devices typically are ‘‘physician preference items,’’ meaning that both the choice of brand and the 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. We do not believe that disclosure to a patient of the physician’s financial interest in a POD is sufficient to address these concerns. As we noted in the preamble to the final regulation for the safe harbor relating to ASCs: induce, or in return for, referrals of items or services reimbursable by a Federal health care program. When remuneration is paid purposefully to induce or reward referrals of items or services payable by a Federal health care program, the anti-kickback statute is violated. By its terms, the statute ascribes criminal liability to parties on both sides of an impermissible ‘‘kickback’’ transaction. Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to 5 years, or both. Conviction will also lead to exclusion from Federal health care programs, including Medicare and Medicaid. OIG may also initiate administrative proceedings to exclude persons from the Federal health care programs or to impose civil money penalties for fraud, kickbacks, and other prohibited activities under sections 1128(b)(7) and 1128A(a)(7) of the Act. * * * disclosure in and of itself does not provide sufficient assurance against fraud and abuse * * * [because] disclosure of financial interest is often part of a testimonial, i.e., a reason why the patient should patronize that facility. Thus, often patients are not put on guard against the potential conflict of interest, i.e., the possible effect of financial considerations on the physician’s medical judgment. III. Physician-Owned Distributorships Longstanding OIG guidance makes clear that the opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute illegal remuneration under the anti-kickback statute. The anti-kickback statute is violated if even one purpose of the remuneration is to induce such referrals. OIG has repeatedly expressed concerns about arrangements that exhibit questionable features with regard to the selection and retention of investors, the solicitation of capital contributions, and the distribution of profits. Such questionable features may include, but are not limited to: (1) Selecting investors because they are in a position to generate substantial business for the entity, (2) requiring investors who cease practicing in the service area to divest their ownership interests, and (3) distributing extraordinary returns on investment compared to the level of risk involved. PODs that exhibit any of these or other questionable features potentially raise four major concerns typically associated with kickbacks—corruption of medical judgment, overutilization, increased costs to the Federal health care programs and beneficiaries, and unfair competition. This is because the financial incentives PODs offer to their physician-owners may induce the physicians both to perform more procedures (or more extensive procedures) than are medically necessary and to use the devices the PODs sell in lieu of other, potentially more clinically appropriate, devices. We are particularly concerned about the See 64 FR 63,518, 63,536 (Nov. 19, 1999). Although these statements were made with respect to ASCs, the same principles apply in the POD context. OIG recognizes that the lawfulness of any particular POD under the antikickback statute depends on the intent of the parties. Such intent may be evidenced by a POD’s characteristics, including the details of its legal structure; its operational safeguards; and the actual conduct of its investors, management entities, suppliers, and customers during the implementation phase and ongoing operations. Nonetheless, we believe that PODs are inherently suspect under the antikickback statute. We are particularly concerned when PODs, or their physician-owners, exhibit any of the following suspect characteristics: • The size of the investment offered to each physician varies with the expected or actual volume or value of devices used by the physician. • Distributions are not made in proportion to ownership interest, or physician-owners pay different prices for their ownership interests, because of the expected or actual volume or value of devices used by the physicians. • Physician-owners condition their referrals to hospitals or ASCs on their purchase of the POD’s devices through coercion or promises, for example, by stating or implying they will perform surgeries or refer patients elsewhere if a hospital or an ASC does not purchase devices from the POD, by promising or implying they will move surgeries to the hospital or ASC if it purchases devices from the POD, or by requiring a hospital or an ASC to enter into an exclusive purchase arrangement with the POD. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM 29MRN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices • Physician-owners are required, pressured, or actively encouraged to refer, recommend, or arrange for the purchase of the devices sold by the POD or, conversely, are threatened with, or experience, negative repercussions (e.g., decreased distributions, required divestiture) for failing to use the POD’s devices for their patients. • The POD retains the right to repurchase a physician-owner’s interest for the physician’s failure or inability (through relocation, retirement, or otherwise) to refer, recommend, or arrange for the purchase of the POD’s devices. • The POD is a shell entity that does not conduct appropriate product evaluations, maintain or manage sufficient inventory in its own facility, or employ or otherwise contract with personnel necessary for operations. • The POD does not maintain continuous oversight of all distribution functions. • When a hospital or an ASC requires physicians to disclose conflicts of interest, the POD’s physician-owners either fail to inform the hospital or ASC of, or actively conceal through misrepresentations, their ownership interest in the POD. These criteria are not intended to serve as a blueprint for how to structure a lawful POD, as an arrangement may not exhibit any of the above suspect characteristics and yet still be found to be unlawful. Other characteristics not listed above may increase the risk of fraud and abuse associated with a particular POD or provide evidence of unlawful intent. For example, a POD that exclusively serves its physicianowners’ patient base poses a higher risk of fraud and abuse than a POD that sells to hospitals and ASCs on the basis of referrals from nonowner physicians. The anti-kickback statute is not a prohibition on the generation of profits; however, PODs that generate disproportionately high rates of return for physician-owners may trigger heightened scrutiny. Because the investment risk associated with PODs is often minimal, a high rate of return increases both the likelihood that one purpose of the arrangement is to enable the physician-owners to profit from their ability to dictate the implantable devices to be purchased for their patients and the potential that the physician-owner’s medical judgment will be distorted by financial incentives. Our concerns are magnified in cases when the physician-owners: (1) are few in number, such that the volume or value of a particular physician-owner’s recommendations or referrals closely correlates to that physician-owner’s VerDate Mar<15>2010 17:34 Mar 28, 2013 Jkt 229001 return on investment, or (2) alter their medical practice after or shortly before investing in the POD (for example, by performing more surgeries, or more extensive surgeries, or by switching to using their PODs’ devices on an exclusive, or nearly exclusive basis). We are aware that some PODs purport to design or manufacture their own devices. OIG does not wish to discourage innovation; however, claims—particularly unsubstantiated claims—by physician-owners regarding the superiority of devices designed or manufactured by their PODs do not disprove unlawful intent. The risk of fraud and abuse is particularly high in circumstances when such physiciansowners are the sole (or nearly the sole) users of the devices sold or manufactured by their PODs. Finally, because the anti-kickback statute ascribes criminal liability to parties on both sides of an impermissible ‘‘kickback’’ transaction, hospitals and ASCs that enter into arrangements with PODs also may be at risk under the statute. In evaluating these arrangements, OIG will consider whether one purpose underlying a hospital’s or an ASC’s decision to purchase devices from a POD is to maintain or secure referrals from the POD’s physician-owners. IV. Conclusion OIG is concerned about the proliferation of PODs. This Special Fraud Alert reiterates our longstanding position that the opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute illegal remuneration under the anti-kickback statute. OIG views PODs as inherently suspect under the anti-kickback statute. Should a POD, or an actual or potential physician-owner, continue to have questions about the structure of a particular POD arrangement, the OIG Advisory Opinion process remains available. Information about the process may be found at: http://oig.hhs.gov/ faqs/advisory-opinions-faq.asp. To report suspected fraud involving physician-owned entities, contact the OIG Hotline at http://oig.hhs.gov/fraud/ report-fraud/index.asp or by phone at 1–800–447–8477 (1–800–HHS–TIPS). Dated: March 26, 2013. Daniel R. Levinson, Inspector General. [FR Doc. 2013–07394 Filed 3–28–13; 8:45 am] BILLING CODE 4152–01–P PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 19273 DEPARTMENT OF HEALTH AND HUMAN SERVICES National Institutes of Health Proposed Collection; 60-day Comment Request: Quantification of Behavioral and Physiological Effects of Drugs Using a Mobile Scalable Device Summary: In compliance with the requirement of Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, for opportunity for public comment on proposed data collection projects, the National Institute on Drug Abuse (NIDA), the National Institutes of Health (NIH), will publish periodic summaries of proposed projects to be submitted to the Office of Management and Budget (OMB) for review and approval. Written comments and/or suggestions from the public and affected agencies are invited on one or more of the following points: (1) Whether the proposed collection of information is necessary for the proper performance of the function of the agency, including whether the information will have practical utility; (2) The accuracy of the agency’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) Ways to enhance the quality, utility, and clarity of the information to be collected; and (4) Ways to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology. To Submit Comments and For Further Information: To obtain a copy of the data collection plans and instruments, submit comments in writing, or request more information on the proposed project, contact NIDA Program Official: Dr. Steve Gust, National Institute on Drug Abuse, 6001 Executive Blvd., Bethesda, MD 20892, or call non-tollfree number (301) 443–6480 or Email your request, including your address to: sgust@nida.nih.gov. Formal requests for additional plans and instruments must be requested in writing. Comments Due Date: Comments regarding this information collection are best assured of having their full effect if received within 60-days of the date of this publication. Proposed Collection: Quantification of Behavioral and Physiological Effects of Drugs Using a Mobile Scalable Device, 0925-New, National Institute on Drug Abuse (NIDA), National Institutes of Health (NIH). Need and Use of Information Collection: This study will examine the E:\FR\FM\29MRN1.SGM 29MRN1

Agencies

[Federal Register Volume 78, Number 61 (Friday, March 29, 2013)]
[Notices]
[Pages 19271-19273]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07394]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

[Docket Number OIG-1302-N]


Special Fraud Alert: Physician-Owned Entities

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This Special Fraud Alert addresses 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 the physician-owners perform on their own patients at 
hospitals or ambulatory surgical centers (ASCs).

DATES: These regulations are effective on March 29, 2013.

FOR FURTHER INFORMATION CONTACT: Patrice S. Drew, Department of Health 
and Human Services, Office of Inspector General, Congressional and 
Regulatory Affairs, at (202) 619-1368.

[[Page 19272]]

I. Introduction

    This Special Fraud Alert addresses 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 
the physician-owners perform on their own patients at hospitals or 
ambulatory surgical centers (ASCs). These entities frequently are 
referred to as physician-owned distributorships, or ``PODs.'' \1\ The 
Office of Inspector General (OIG) has issued a number of guidance 
documents on the general subject of physician investments in entities 
to which they refer, including the 1989 Special Fraud Alert on Joint 
Venture Arrangements \2\ and various other publications. OIG also 
provided guidance specifically addressing physician investments in 
medical device manufacturers and distributors in an October 6, 2006 
letter.\3\ In that letter, we noted ``the strong potential for improper 
inducements between and among the physician investors, the entities, 
device vendors, and device purchasers'' and stated that such ventures 
``should be closely scrutinized under the fraud and abuse laws.'' \4\ 
This Special Fraud Alert focuses on the specific attributes and 
practices of PODs that we believe produce substantial fraud and abuse 
risk and pose dangers to patient safety.
---------------------------------------------------------------------------

    \1\ The physician-owned entities addressed in this Special Fraud 
Alert are sometimes referred to as ``physician-owned companies'' or 
by other terminology. For purposes of this Special Fraud Alert, a 
``POD'' is any physician-owned entity that derives revenue from 
selling, or arranging for the sale of, implantable medical devices 
and includes physician-owned entities that purport to design or 
manufacture, typically under contractual arrangements, their own 
medical devices or instrumentation. Although this Special Fraud 
Alert focuses on PODs that derive revenue from selling, or arranging 
for the sale of, implantable medical devices, the same principles 
would apply when evaluating arrangements involving other types of 
physician-owned entities.
    \2\ Special Fraud Alert: Joint Venture Arrangements (August 
1989), reprinted at 59 FR 65,372, 65,374 (Dec. 19, 1994).
    \3\ Letter from Vicki Robinson, Chief, Industry Guidance Branch, 
Department of Health and Human Services, OIG, Response to Request 
for Guidance Regarding Certain Physician Investments in the Medical 
Device Industries (Oct. 6, 2006).
    \4\ Id.
---------------------------------------------------------------------------

II. The Anti-Kickback Statute

    One purpose of the anti-kickback statute is to protect patients 
from inappropriate medical referrals or recommendations by health care 
professionals who may be unduly influenced by financial incentives. 
Section 1128B(b) of the Social Security Act (the Act) makes it a 
criminal offense to knowingly and willfully offer, pay, solicit, or 
receive any remuneration to induce, or in return for, referrals of 
items or services reimbursable by a Federal health care program. When 
remuneration is paid purposefully to induce or reward referrals of 
items or services payable by a Federal health care program, the anti-
kickback statute is violated. By its terms, the statute ascribes 
criminal liability to parties on both sides of an impermissible 
``kickback'' transaction. Violation of the statute constitutes a felony 
punishable by a maximum fine of $25,000, imprisonment up to 5 years, or 
both. Conviction will also lead to exclusion from Federal health care 
programs, including Medicare and Medicaid. OIG may also initiate 
administrative proceedings to exclude persons from the Federal health 
care programs or to impose civil money penalties for fraud, kickbacks, 
and other prohibited activities under sections 1128(b)(7) and 
1128A(a)(7) of the Act.

III. Physician-Owned Distributorships

    Longstanding OIG guidance makes clear that the opportunity for a 
referring physician to earn a profit, including through an investment 
in an entity for which he or she generates business, could constitute 
illegal remuneration under the anti-kickback statute. The anti-kickback 
statute is violated if even one purpose of the remuneration is to 
induce such referrals.
    OIG has repeatedly expressed concerns about arrangements that 
exhibit questionable features with regard to the selection and 
retention of investors, the solicitation of capital contributions, and 
the distribution of profits. Such questionable features may include, 
but are not limited to: (1) Selecting investors because they are in a 
position to generate substantial business for the entity, (2) requiring 
investors who cease practicing in the service area to divest their 
ownership interests, and (3) distributing extraordinary returns on 
investment compared to the level of risk involved.
    PODs that exhibit any of these or other questionable features 
potentially raise four major concerns typically associated with 
kickbacks--corruption of medical judgment, overutilization, increased 
costs to the Federal health care programs and beneficiaries, and unfair 
competition. This is because the financial incentives PODs offer to 
their physician-owners may induce the physicians both to perform more 
procedures (or more extensive procedures) than are medically necessary 
and to use the devices the PODs sell in lieu of other, potentially more 
clinically appropriate, devices. We are particularly concerned about 
the presence of such financial incentives in the implantable medical 
device context because such devices typically are ``physician 
preference items,'' meaning that both the choice of brand and the 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.
    We do not believe that disclosure to a patient of the physician's 
financial interest in a POD is sufficient to address these concerns. As 
we noted in the preamble to the final regulation for the safe harbor 
relating to ASCs:

    * * * disclosure in and of itself does not provide sufficient 
assurance against fraud and abuse * * * [because] disclosure of 
financial interest is often part of a testimonial, i.e., a reason 
why the patient should patronize that facility. Thus, often patients 
are not put on guard against the potential conflict of interest, 
i.e., the possible effect of financial considerations on the 
physician's medical judgment.

See 64 FR 63,518, 63,536 (Nov. 19, 1999). Although these statements 
were made with respect to ASCs, the same principles apply in the POD 
context.
    OIG recognizes that the lawfulness of any particular POD under the 
anti-kickback statute depends on the intent of the parties. Such intent 
may be evidenced by a POD's characteristics, including the details of 
its legal structure; its operational safeguards; and the actual conduct 
of its investors, management entities, suppliers, and customers during 
the implementation phase and ongoing operations. Nonetheless, we 
believe that PODs are inherently suspect under the anti-kickback 
statute. We are particularly concerned when PODs, or their physician-
owners, exhibit any of the following suspect characteristics:
     The size of the investment offered to each physician 
varies with the expected or actual volume or value of devices used by 
the physician.
     Distributions are not made in proportion to ownership 
interest, or physician-owners pay different prices for their ownership 
interests, because of the expected or actual volume or value of devices 
used by the physicians.
     Physician-owners condition their referrals to hospitals or 
ASCs on their purchase of the POD's devices through coercion or 
promises, for example, by stating or implying they will perform 
surgeries or refer patients elsewhere if a hospital or an ASC does not 
purchase devices from the POD, by promising or implying they will move 
surgeries to the hospital or ASC if it purchases devices from the POD, 
or by requiring a hospital or an ASC to enter into an exclusive 
purchase arrangement with the POD.

[[Page 19273]]

     Physician-owners are required, pressured, or actively 
encouraged to refer, recommend, or arrange for the purchase of the 
devices sold by the POD or, conversely, are threatened with, or 
experience, negative repercussions (e.g., decreased distributions, 
required divestiture) for failing to use the POD's devices for their 
patients.
     The POD retains the right to repurchase a physician-
owner's interest for the physician's failure or inability (through 
relocation, retirement, or otherwise) to refer, recommend, or arrange 
for the purchase of the POD's devices.
     The POD is a shell entity that does not conduct 
appropriate product evaluations, maintain or manage sufficient 
inventory in its own facility, or employ or otherwise contract with 
personnel necessary for operations.
     The POD does not maintain continuous oversight of all 
distribution functions.
     When a hospital or an ASC requires physicians to disclose 
conflicts of interest, the POD's physician-owners either fail to inform 
the hospital or ASC of, or actively conceal through misrepresentations, 
their ownership interest in the POD.
    These criteria are not intended to serve as a blueprint for how to 
structure a lawful POD, as an arrangement may not exhibit any of the 
above suspect characteristics and yet still be found to be unlawful. 
Other characteristics not listed above may increase the risk of fraud 
and abuse associated with a particular POD or provide evidence of 
unlawful intent. For example, a POD that exclusively serves its 
physician-owners' patient base poses a higher risk of fraud and abuse 
than a POD that sells to hospitals and ASCs on the basis of referrals 
from nonowner physicians.
    The anti-kickback statute is not a prohibition on the generation of 
profits; however, PODs that generate disproportionately high rates of 
return for physician-owners may trigger heightened scrutiny. Because 
the investment risk associated with PODs is often minimal, a high rate 
of return increases both the likelihood that one purpose of the 
arrangement is to enable the physician-owners to profit from their 
ability to dictate the implantable devices to be purchased for their 
patients and the potential that the physician-owner's medical judgment 
will be distorted by financial incentives. Our concerns are magnified 
in cases when the physician-owners: (1) are few in number, such that 
the volume or value of a particular physician-owner's recommendations 
or referrals closely correlates to that physician-owner's return on 
investment, or (2) alter their medical practice after or shortly before 
investing in the POD (for example, by performing more surgeries, or 
more extensive surgeries, or by switching to using their PODs' devices 
on an exclusive, or nearly exclusive basis).
    We are aware that some PODs purport to design or manufacture their 
own devices. OIG does not wish to discourage innovation; however, 
claims--particularly unsubstantiated claims--by physician-owners 
regarding the superiority of devices designed or manufactured by their 
PODs do not disprove unlawful intent. The risk of fraud and abuse is 
particularly high in circumstances when such physicians-owners are the 
sole (or nearly the sole) users of the devices sold or manufactured by 
their PODs.
    Finally, because the anti-kickback statute ascribes criminal 
liability to parties on both sides of an impermissible ``kickback'' 
transaction, hospitals and ASCs that enter into arrangements with PODs 
also may be at risk under the statute. In evaluating these 
arrangements, OIG will consider whether one purpose underlying a 
hospital's or an ASC's decision to purchase devices from a POD is to 
maintain or secure referrals from the POD's physician-owners.

IV. Conclusion

    OIG is concerned about the proliferation of PODs. This Special 
Fraud Alert reiterates our longstanding position that the opportunity 
for a referring physician to earn a profit, including through an 
investment in an entity for which he or she generates business, could 
constitute illegal remuneration under the anti-kickback statute. OIG 
views PODs as inherently suspect under the anti-kickback statute. 
Should a POD, or an actual or potential physician-owner, continue to 
have questions about the structure of a particular POD arrangement, the 
OIG Advisory Opinion process remains available. Information about the 
process may be found at: http://oig.hhs.gov/faqs/advisory-opinions-faq.asp.
    To report suspected fraud involving physician-owned entities, 
contact the OIG Hotline at http://oig.hhs.gov/fraud/report-fraud/index.asp or by phone at 1-800-447-8477 (1-800-HHS-TIPS).

    Dated: March 26, 2013.
Daniel R. Levinson,
Inspector General.
[FR Doc. 2013-07394 Filed 3-28-13; 8:45 am]
BILLING CODE 4152-01-P