The Department of Justice (DOJ) recently instituted False Claims Act allegations against spinal implant company Reliance Medical Systems, its owners, and two Reliance distributorships because the company allegedly made improper payments to surgeons to induce them to use Reliance devices in their procedures. Assistant Attorney General Stuart F. Delery for the Justice Department’s Civil Division stated:
Improper payments to physicians can alter a physician’s judgment about patients’ true health care needs and drive up health care costs for everyone.
Reliance is what is known as a “physician-owned distributorship” (POD) – a type of company that has garnered attention from the U.S. Department of Health & Human Services Office of the Inspector General as “inherently suspect” under the Anti-Kickback Statute. PODs are physician-owned entities that derive their revenue from selling medical devices ordered by their physician-owners for use in the procedures that the physician-owners perform. Patients are put at risk by PODs 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. PODs are prevalent in the fields of spinal surgery and joint replacements, and they are increasing in the field of cardiology. All of these fields are areas in which Medicare spends substantial dollars.
Under the anti-kickback statute, any person or entity who receives, pays, offers or solicits anything of value in order to induce or reward the ordering or referral of products and services covered by federal health care programs can face civil penalties and treble damages under the False Claims Act. According to the DOJ allegations, Reliance used its distributorships to funnel improper payments to surgeons for using Reliance devices in their surgeries. For example, the complaints allege that Dr. Aria Sabit (also a defendant) began using Reliance devices only after acquiring an ownership interest in a Reliance distributorship and receiving payments from the sale of Reliance devices.
After acquiring ownership in the company, Dr. Sabit used Reliance devices in nearly 90 percent of his spinal surgeries. The government contends that financial incentives caused Dr. Sabit to perform medically unnecessary or excessive surgeries – even on patients who did not need spinal implants – in violation of the False Claims Act.
The whistleblower provision of the False Claims Act is a key tool in combatting health care fraud such as that perpetrated by PODs. Some of the allegations raised in the DOJ’s recent action were first raised in a separate lawsuit filed under the whistleblower provision of the False Claims Act. The whistleblower provision allows private citizens with knowledge of fraudulent activities to bring suit on behalf of the government and ultimately share in the recovery. The government can intervene in the whistleblower suit, as it chose to do in this case.
Although PODs are not illegal per se, these entities require increased scrutiny in order to prevent fraud and improper billing. As the physician-owned business model becomes more prevalent, the potential for fraud and abuse of federal and state health care programs greatly increases. If you need more information or have questions on this subject, contact Leslie Pescia, a lawyer in our firm’s Consumer Fraud Section, at 800-898-2034 or by email at Leslie.Pescia@beasleyallen.com.
Sources: The American Academy of Orthopedic Surgeons, United States Department of Justice
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