PODS (Physician-Owned Distributorships) at the Center of Growing Controversy, Probes, and Mounting Litigation and Injury Reports

physician_distributors_conflict_of_interestThe healthcare community has recently been the focus of controversy concerning questionable ethical practices and potential kickback violations. Physician-Owned Distributorships (PODS), which have been created in least 20 states, recently garnered the attention of a government watchdog group, which issued an alert over fraud risks associated with the entities. Most recently, the deals surgeons make with these PODS have prompted a Department of Justice (DOJ) investigation.

The Wall Street Journal just highlighted the case of Aria Sabit, a surgeon from Afghanistan who relocated to California and is now practicing medicine in Michigan. Dr. Sabit was implanting patients with an unknown spinal device—Apex. In less than his year, his use of the Apex device spiked 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.

In under a year, Dr. Sabit, 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 and 12 of those 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.

PODS use associated with spine and orthopedic surgery have 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, with PODS serving as outfits that offer 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 a PODS arrangement, physicians purchase ownership interests in the medical device distributor and share in PODS profits that made through sales to hospitals. In its report, the Office of Inspector General stated 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.

Federal prosecutors say Dr. 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 in a six-year time period, according to the Journal.

The financial relationships between the drug and medical device industries and the health care industry led to enormous and growing controversy. Critics maintain that these types of relationships create conflicts of interest and could improperly influence everything from research findings to prescribing practices, with patients no longer the primary concern in health care decisions.

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