March 27, 2013 / 2:01 PM / in 5 years

U.S. regulator issues fraud alert on doctor-owned distributors

March 27 (Reuters) - A U.S. government watchdog has issued a warning about the risk for fraud in arrangements under which doctors buy an ownership interest in a medical device distributor and then share in its profits from sales to hospitals.

In a March 26 report, the Office of Inspector General said 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.”

It what is known as a Special Fraud Alert, the regulator was addressing Physician Owned Distributors, called PODs, which are most commonly used in orthopedics.

“The anti-kickback statute is violated if even one purpose of the remuneration is to induce such referrals,” the report said.

In a research note, Cowen & Co brokerage said, “We believe the strong language in the OIG’s Special Fraud Alert will serve as a disincentive for hospitals to utilize and physicians to join PODs.”

Wells Fargo said it believes OIG is taking a critical view of the POD business model and that any curtailment of PODs would be a positive development for the large manufacturers of spinal devices, including Medtronic Inc, Johnson & Johnson, and Nuvasive Inc.

These big companies do not participate in PODs.

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