Physician-Owned Distributorships Focus of Government Probe

physician_owned_distributors_scrutinyPhysician-Owned Distributorships (PODs), which have been created in least 20 states, just garnered the attention of a government watchdog group, which issued an alert over fraud risks associated with the controversial entities. Most recently, the deals surgeons make with these PODs have prompted a Department of Justice (DOJ) investigation over the influence these entities have over hospital purchasing practices.

In a PODs arrangement, physicians purchase ownership interests in the medical device distributor and share in the profits PODs make through sales to hospitals.

Dr. Aria Sabit, a Michigan spine surgeon, has been the focus of a broader review of the PODs, according to Sabit is a shareholder with Apex Medical Technologies. According to a The Wall Street Journal report, a “person familiar with the matter” said Sabitcontinued to use Apex implants despite the apparent conflict of interest. The report indicated that the neurosurgery medical director at Michigan’s McLaren Lapeer Region hospital had operation and distribution privileges at Detroit Medical Center and the Doctors’ Hospital of Michigan, as well.

The Apex is a relatively unknown spinal device and, in less than one year, Sabit’s use of the device grew to the extent that it drew the attention of hospital staffers. In some cases, results associated with Apex and Dr. Sabit, were horrific and deadly, according to the Journal. Since, Sabit has found himself at the center of a number of investigations conducted by the California medical board, the U.S. Food and Drug Administration (FDA), and the DOJ. More than two-dozen medical malpractice lawsuits have been brought against the doctor, 12 involved the Apex, according to the Journal. The Justice Department probe began when it learned that Dr. Sabit had an ownership interest in the firm that distributed and made money on the Apex, according to those familiar with the matter, the Journal wrote.

Federal prosecutors say Sabit is just one piece of a larger civil investigation into a PODs distributorship that had been operated by two former medical-device company employees, according to those with knowledge of the matter. The network was operated in Utah and involved no less than 11 PODS in six states and led to tens of millions of dollars in investor profits during a six-year time period, according to the Journal.

The use of PODs tied to spine and orthopedic surgery has led to increased criticism over the financial incentives PODs arrangements provide its doctor investors to use devices that afford them with the best financial return. PODs arrangements can lead to violations on an anti-kickback statute, as well as on other federal fraud and abuse laws, in which PODs serve as vehicles offering profits to surgeons for the medical devices they utilize in their surgeries.

The Office of Inspector General recently issued a warning over fraud risks tied to PODs. In its report, the Office indicated that its longstanding 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,” according to a prior Reuters report. “The anti-kickback statute is violated if even one purpose of the remuneration is to induce such referrals” by healthcare professionals involved in PODs, the report indicated. The language in the report “can’t get any more damning,” Dr. Josh Jennings, an analyst with Cowen & Co, told Reuters.

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