OIG Medicare/Medicaid Whistleblower Fraud Alert and WSJ on physician medical device distributorship

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The Wall Street Journal

2013-07-26

The Wall Street Journal today published a front page story on the Department of Justice investigation into fraud in physician-owned distributorships of medical devices. Some instances of this type of Medicare/Medicaid fraud is reported by whistleblowers with representation of whistleblower law firms including Sheller, P.C.

Healthcare and other professionals who believe they know of potentially fraudulent activities related to physician-owned entities should contact the Sheller, P.C. Whistleblower Attorney team, 800-883-2299 or fill out the confidential inquiry form on this page. There are advantages to being the “first to file” with an attorney regarding these issues.

On March 26, 2013, the Office of the Inspector General for the Department of Health and Human Services issued a Special Fraud Alert warning for physician-owned entities (PODs) that they could be violating anti-kickback laws by using medical devices in which they have an investment.

The Fraud Alert stated that these entites are “inherently suspect under the (federal) anti-kickback statute.”

“The OIG’s recent Fraud Alert is a stern and straightforward warning to physicians who operate medical device distributorships to think twice before putting patient safety ahead of their own profits” says whistleblower attorney Brian J. McCormick, Jr. of Sheller, P.C. “The Fraud Alert makes it very clear that the opportunity for a referring physician to earn a profit through an investment in a company for which he or she generates business could be considered an illegal payment under the Anti-Kickback statute.”

PODs put patients at risk because they allow doctors to financially profit from the medical devices they use in their patients; the financial incentives created by PODs can lead to unnecessary and invasive procedures for patients, possibly with a device that is not the best choice for them.

The Fraud Alert is a firm and direct warning to physicians who operate medical device distributorships to think twice before putting patient safety ahead of their own profits. The Fraud Alert makes it very clear that the opportunity for a referring physician to earn a profit through an investment company for which he or she generates business could be considered an illegal pament under the anti-kickback statute.

This Fraud Alert was spurred by a bipartisan report from the Senate Finance Committee in June, 2011, see link below.

Wall Street Journal article: Does My Surgeon Profit From My Implants?

by John Carreyrou, July 26, 2013

Physician-owned distributorships, or PODs, began surfacing in medical circles in the middle of the last decade, as doctors looked for ways to increase their income and offset declining reimbursements. They have become common among spine and hip-and-knee surgeons and have started spreading to cardiac surgery.

Because PODs are small, privately held companies, patients have no way of knowing if their surgeon is involved in one, unless the surgeon chooses to disclose it. Few surgeons do so.

Incorporation documents for the PODs in the Reliance Medical Systems network name Adam Pike and Bret Berry or one of their business associates as officers, but make no mention of any surgeons and reveal nothing about their ownership structure. The only clue about the companies’ business is in their names, which all include the terms “Spine,” “Spinal,” “Medical,” or “Surgical.”

The incorporation document for Apex Medical Technologies LLC lists Mr. Pike as a “registered agent” and Pike Industries Inc. and Berry Medical Enterprises Inc. as “managing members/managers.” It lists a post office box number in Jacksonville, Fla., as a mailing address.

People familiar with their operation say Messrs. Pike and Berry shared ownership of each POD with a different group of surgeons. Each investor in the POD owned an equal stake and received an equal monthly profit distribution based on the POD’s overall sales. Although Messrs. Pike and Berry are based in Utah, all the PODs were registered in Florida to minimize their tax liability, one of the people familiar with their operation says.

The earliest of the Reliance PODs, Spine Design Associates LLC, began operating in 2007, people familiar with the matter say. The network eventually grew to comprise at least 11 PODs operating in six states: Utah, California, Texas, Louisiana, Florida and South Carolina. Messrs. Pike and Berry bought all the surgeon investors out late last year when PODs began to draw scrutiny from the Justice Department.

Special Fraud Alert: Physician-Owned Entities” Department of Health & Human Services, Office of the Inspector General, March 26, 2013

Hatch Releases Analysis Outlining Questionable Legality of Physician-Owned Entities” U.S. Senate Committee on Finance, June 9, 2011

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