Physician Owned Distributorships (PODS) Make Waves

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Physician owned distributorships (PODs) have been the source of considerable controversy for years, but now they’ve caught the attention of Congress!

PODs distribute various things, most commonly surgical implants and devices, that are reimbursed by insurers. A patient needs a spinal rod, a surgical implant/device company makes it and a distributor rep distributed it. Device/implant companies usually contract with distributorships to sell their products. Distributorships contract with reps who are paid commissions for sales. Surgeons who actually order the devices sometimes think “Since I’m the one doing the surgery and ordering all this stuff, why don’t I make something from the selling it?” PODs are one way for physicians to financially benefit from the sales of devices and items their patients need, but they have never been more controversial than now.

Conceptually speaking, PODs are controversial because government regulators think physicians who have an economic stake in health care items or services will tend to over utilize them. Moreover, there is a specific concern that allowing physicians to profit from the devices their patients need violates federal anti kickback laws or the Stark prohibition on compensation arrangements.

In 2006, the Office of the Inspector General of HHS and CMS expressed major concerns about PODs, and cited concerns about “improper inducements.” At that time, the OIG stopped short of prohibiting them, but called for heightened scrutiny. CMS itself has stated that PODs “serve little purpose other than providing physicians the opportunity to earn economic benefits in exchange for nothing more than ordering medical devices or other products that the physician-investors use on their own patients.”

Implantable medical devices are unusual in the way they come into use. Unlike DMEPOS, for instance, medical devices are not sold to distributors. They’re sold from the manufacture to the medical facility where the surgery will take place. So, the argument goes, physicians are not actually in a position to drive the sales volume of the implants. The counter: physicians invested in a POD can leverage their hospital admissions to influence the device choice of hospitals and surgery centers.

The biggest legal hurdle for PODs is the federal Anti Kickback Statute, which carries both criminal and civil penalties. Simply put, if even one purpose of an arrangement is to pay for patient referrals, the law is violated. So, the law is arguably violated if one purpose of the POD is to induce physicians to order implants for their patients. Looked at another way, the law is violated if one purpose of a hospital doing business with a POD is to ensure patient referrals by the physician POD investors.

A 1989 OIG Special Fraud Alert on fraudulent physician joint ventures is especially interesting on the fraud and abuse issues in pointing out that the following would indicate unlawful intent to induce patient referrals—

Investor choice. If the only investors chosen are surgeons with an opportunity to refer and if they lack any business or management expertise, the arrangement appears to be a cloaked way to incentivize unlawful referrals (i.e. ordering implants). The key question is whether the business, in selecting investors, is looking to raise capital or to lock in referral sources.

Risk. If the POD investment involves little or no financial risk, the OIG would likely take issue with it.

The bottom line seems to be that if there isn’t a real business, with real financial risk and qualified investors, a POD will likely be viewed as a suspicious arrangement based on locking in patient referrals or physician admitting pressure by physician investors.

In its June, 2011 Inquiry “Physician Owned Distributors (PODs): Overview of Key Issues and Potential Areas for Congressional Oversight,” the U.S. Senate Finance Committee Minority Staff, the Committee reports “A number of legal and ethical concerns have been identified as a result of this initial inquiry into the POD Models.” The Committee reviewed over 1,000 pages of documents and spoke with over 50 people in preparing its report. The Committee cited long-held concerns regarding PODs, and leaned heavily on the 2006 Hogan Lovells (previously Hogan & Hartson) law firm’s anti-POD analysis.

With the Committee’s call for greater OIG and CMS involvement, one thing seems clear: the future of PODs is uncertain. In this era of cost-cutting, it seems clear that PODs are gonna get a haircut and may even lose their head.


Supervisory Requirements for IDTFs

supervisionWe get questions all the time regarding the supervisory requirements for Independent Diagnostic Treatment Facilities (IDTF). Here are some tips in complying with one of the key elements in obtaining and maintaining status as an IDTF and as a Medicare provider.

An IDTF must have one or more supervising physicians who are responsible for the direct and ongoing oversight of the quality of the testing performed, the proper operation and calibration of equipment used to perform tests, and the qualifications of non-physician IDTF personnel who use the equipment. Not every supervising physician has to be responsible for all of these functions. One supervising physician could be responsible for operation and calibration of equipment, while other physicians are responsible for test supervision and the qualifications of non-physician personnel.Continue reading

State Appellate Court Allows Burdensome Discovery Request

On August 10, 2011, the Fourth District Court of Appeals supported one litigant’s huge discovery request on the treating physician. The case (Katzman v. Rediron, No. 4D11-1290, August 10, 2011) arose with the following facts:

1.The doctor agreed to treat the patient under a letter of protection (LOP), which means the doctor would be paid out of the recovery of a lawsuit, not from health insurance proceeds;

2.The doctor allegedly performed a “controversial” surgical procedure, so Rediron’s lawyers wanted to know all sorts of information about how often he has ordered discectomies over the past four years and what he charged in litigation and non-litigation cases;

3.The doctor’s lawyer tried to block Rediron’s discovery request on the grounds that it would be a huge undertaking;

4.The trial court supported the discovery request, which was upheld on appeal.

The court’s analysis is interesting and instructive. The court found the treating physician to be BOTH a fact witness (because he treated the patient) and an expert witness (because he gives opinion testimony re the patient’s condition and injury). The court used their characterization of the doctor as a “hybrid” witness in order to support the trial court’s decision, which granted broad discovery on the issue of the reasonableness of the procedure’s cost and its necessity.

Discovery is something that can be used to harass and press someone into settlement. Hence, there are guidelines directed to ensuring that discovery requests are reasonable. That said, physicians who treat patients in lawsuits have a unique role that may expose them to greater than normal discovery requests.

Moreover, with this opinion, the old argument in bodily injury cases “What does reasonableness and necessity matter. It’s a BI lawsuit” will likely hold less water as all payers (including those who pay in BI lawsuits) are looking to reduce costs.


Path Lab Proposal Shot Down by OIG

The Office of Inspector General of the Department of Health and Human Services recently (October 11, 2011) shook its head at a proposal involving a pathology lab management services business that was to be owned by physicians. The proposed arrangement had the following features:

1.A path lab management business (“Manager”) would be formed and the business would be owned by doctors;
2.The Manager would provide a list of management services to a path lab;
3.The path lab (“Lab”) would not be owned by the doctors that own the Manager;
4.The Manager would provide a fixed amount of hours of services each year and would receive a percentage of the Lab’s income (fixed percentage in advance) and that fee would approximate the Lab’s use of the Manager’s services for the year;
5.The physician Manager investors would be in a position to refer to the Lab;
6.The ownership interests of the physician investors in the Manager would exceed forty percent (40%);
7.More than forty percent (40%) of the Lab’s revenues would come from the physician investors.

The OIG decided that the proposed arrangement posed more than a minimal risk of violating the Anti Kickback statute. The OIG also said the manager cannot refer its own patients or generate business in connection with the proposed arrangement. The OIG focused on the following points in its advisory opinion:

1.The Manager’s “usage fees” to the Lab are percentage based and not flat and set in advance;
2.The ownership interests of the doctor investors in the Manager would exceed what is specified in the so called “small entity” Safe Harbor;
3.The physician owners of the Manager have no experience in managing a lab, but are in a position to generate referrals to it.

Though the regulatory Safe Harbors (to the Anti Kickback Statute) are illustrative of permissible arrangements, the OIG is clearly sticking very close to them. where federal or state healthcare program dollars are involved, physician investors would do well to make sure they are Safe Harbor compliant.


Pain Management Regulations Affect More Than Pain Management Specialists

The recently passed House Bill 7095 affects more than just pain management specialists.  Practitioners who prescribe controlled substances for individuals with “chronic nonmalignant pain” also are required to comply with new state regulations, including designation “as a controlled substance prescribing practitioner on the physician’s practitioner profile”“with the state Board of Medicine by January 1, 2012. What follows is a bulleted summary of the new regulations.

Prescription s for controlled substances must be either written or electronic.  Telephone prescriptions no longer are allowed.

Written Prescriptions for Controlled Substances

  • Must have quantity in textual and numerical format
  • Must be dated with the abbreviated month written out
  • Must be written on a standardized counterfeit-proof prescription pad produced by a DOH approved vendor

Physicians who prescribe any controlled substance for the treatment of “chronic nonmalignant pain” must designate him or herself as a controlled substance prescribing physician on the physician’s practitioner profile and must comply with statutory requirements and applicable board rulesContinue reading

Appeals Court Strikes Down Individual Mandate in Reform Law

Via Modern Healthcare, Joe Carlson

In a 304-page opinion, the 11th U.S. Circuit Court of Appeals in Atlanta on Friday struck down the individual insurance mandate in the Patient Protection and Affordable Care Act, but allowed the rest of the sweeping law to stand.

In its decision, a divided three-judge panel of the federal appeals court ruled in favor of 26 states that had joined a lawsuit in Pensacola, Fla., which argued the reform law should be struck down because it relies on an unconstitutional expansion of federal power.

The ruling means that the Supreme Court will now have the classic split in the circuit courts that it often relies on when deciding whether to take on a case. The 6th Circuit Court of Appeals upheld the law in June, and the losers in that case filed for permission last month to have their case heard by the Supreme Court.

Read more: http://www.modernhealthcare.com/article/20110812/NEWS/308119930#ixzz1VCtydEqc
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Clinical Research Organizations (CROs) and Referring Physicians

The two business drivers of CROs are (1) pharmaceutical companies that want studies, and (2) referring physicians.  Though CROs will enter into advertising programs designed to educate and attract study participants (often paid for by Pharma), CROs are often frustrated in generating community physician referrals.  One of the main obstacles is the federal Anti Kickback Statute (AKS), which forbids payment of any kind in exchange for patient referrals.  CROs will be glad to know, however, that one of the AKS regulatory exceptions (Safe Harbors) in particular, the “Personal Services Exception” does allow CROs to enter into compensation arrangements with referring physicians.  Though the purpose cannot be to induce patient referrals, if the Safe Harbor is complied with, the CRO can have a compensation arrangement with a physician who refers.

The Safe Harbor essentially requires the following:

  1. That the arrangement be for necessary services (not some cloaked way to pay for patient referrals);
  2. The doctor’s duties have to be in writing;
  3. There has to be a written agreement between the parties;
  4. The agreement must have a 12 month term (though it could be terminated within that period of time);
  5. Compensation must be set in advance, be consistent with fair market value and not vary based on the value or volume of business between the CRO and the referring doctor.