News and Insights

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The Office of Inspector General (OIG) released a Special Fraud Alert for physician-owned distributorships, or “PODs,” on March 26, 2013. The alert concerns physician-owned entities that make money by selling implantable devices ordered by physician-owners. These entities remain inherently suspect under the anti-kickback statute.

The OIG reiterated its previous guidance that the opportunity for a referring physician to earn a profit, including through an ownership interest, could constitute remuneration prohibited by the anti-kickback statute. The OIG discussed questionable methods by which PODs select physician-owners and allocate investment interest among the owners, including:

     (1) selecting investors because they are in a position to generate substantial business for the entity;

     (2) requiring investors who cease practicing in the service area to divest their ownership interests; and

     (3) distributing extraordinary returns on investment compared to the level of risk involved.        

The OIG is concerned that financial incentives arising out of POD ownership by ordering physicians could lead to corrupted medical judgment, overutilization, increased health care costs, and unfair competition. Specifically, the OIG is concerned about “the presence of such financial incentives in the implantable medical device context because such devices typically are ‘physician preference items.’” These concerns are magnified when (1) there are few physician-owners, suggesting a closer connection between the physician’s referrals and the return on investment, and (2) physician-owners change their medical practice habits shortly before or after obtaining ownership interest in a POD.

The alert describes specific characteristics of PODs, generally relating to how a POD interacts with its physician-owners, that draw increased OIG scrutiny. The extent to which PODs comply with the anti-kickback statute depends on the intent of the parties, which may be evidenced by characteristics such as legal structure and operational safeguards. Actual conduct of investors, management entities, suppliers, and customers during implementation and operation of the POD could evidence intent in violation of the anti-kickback statute.

The guidance issued by the OIG in connection with the ambulatory surgical center safe harbor also applies to PODs in that prior notification to patients of a physician’s interest in the POD will not sufficiently minimize abuse.

The alert reiterates the OIG’s concern about the proliferation of PODs. The OIG clarified that PODs are inherently suspect arrangements, and that hospitals or ambulatory surgical centers that enter into arrangements with PODs may also incur liability under the anti-kickback statute. Parties seeking clarification about whether a POD structure is compliant with the anti-kickback statute are encouraged to obtain an advisory opinion.

To read the full alert, click here.

The issue of mobile devices and electronic protected health information (“ePHI”) has become an area of primary concern as health care providers increasingly use mobile devices to communicate with patients or other providers. The Office of the National Coordinator for Health Information Technology, the agency that spearheads the promotion of health information technology, and the Office for Civil Rights, the agency that enforces HIPAA, have taken steps to address this concern.

As the result of a roundtable discussion and public demand, the agencies have developed an educational initiative in accordance with HIPAA’s Privacy and Security Rules. The initiative, Mobile Devices: Know the RISKS. Take the STEPS. PROTECT and SECURE Health Information, offers health care providers and organizations tips on ways to protect their patients’ protected information on laptops, tablets, and smart phones.

The initiative seeks to educate providers on the risks associated with using mobile devices in the office setting, and offers tips to reduce the possibility of improper use or disclosure of the information on the devices, including using encryption software, firewalls, and password protection. The initiative was developed with HIPAA requirements in mind, but it does not guarantee compliance with HIPAA. HIPAA requires providers to assess their security and privacy risks and to develop and implement policies and procedures specific to the use of mobile devices in the office setting.

For more information on this initiative, visit

The government had another record-breaking year in health care fraud enforcement efforts, recovering $4.2 billion for fiscal year 2012. The combined venture by the Department of Health and Human Services (HHS) and the Department of Justice (DOJ) has returned more than $23 billion dollars to Medicare since the inception of the Health Care Fraud and Abuse Program (HCFAC) in 1997.

The government says HCFAC has recovered nearly $8 for every dollar spent in pursing health care fraud over the past three years, which is the “highest three-year average return on investment” in the history of the HCFAC. Officials attribute the success of HCFAC to the Health Care Fraud Prevention and Enforcement Action Team, which was created in 2009 and is tasked with preventing fraud, waste and abuse in the Medicare and Medicaid programs.

In FY 2012, the DOJ opened 1,131 new criminal health care fraud investigations involving 2,148 potential defendants, and opened 885 new civil investigations. HHS credits the recovery of the “stolen or otherwise improperly obtained” funds in large part to actions taken under the False Claims Act and to advanced fraud detection software that has been recently developed and implemented.

Civil investigations yielded approximately $3 billion of the recovered funds, and related primarily to unlawful pricing by pharmaceutical manufacturers, illegal marketing of medical devices and off-label uses of pharmaceutical products, violations of laws against self-referrals and kickbacks, and violations of other Medicare requirements.

To read the HHS news release, click here.

Physicians who treat Medicare patients will see a two percent pay cut come April 1 because of the sweeping cuts mandated by the Budget Control Act of 2011. The so-called “sequester” mandates cutting $85 billion across-the-board from the federal budget, and went into effect on March 1 when Congress failed to reach agreement to prevent these cuts.

The Centers for Medicare and Medicaid Services (“CMS”) says the delay in implementing the two percent pay cut to doctors is due to the time necessary to implement the required changes. CMS estimates that Medicare providers will lose up to $11 billion as a result of the sequester. Medicare providers will recoup only 98 cents on the dollar for services provided to Medicare beneficiaries.

Additionally, a report released by the American Hospital Association, the American Medical Association, and the American Nurses Association says the cuts will have an even broader impact. The report, conducted by the economic research firm Tripp Umbach, concludes that the cuts could lead to a loss of more than 750,000 jobs in the healthcare industry. The research points to reduced purchases of healthcare goods and services, leading to the lay off of workers in the industry.

The National Commission on Physician Payment Reform (“NCPPR”) issued a report this week, calling for changes that will fundamentally change the way doctors get paid. The NCPPR took the position that the traditional “fee-for-service” method for paying physicians should be eliminated within the next ten years.

The bipartisan commission deliberated for a year, concluding with 12 recommendations to reform payment methods. The elimination of the fee-for-service system is the lynchpin of the group’s reform efforts, since the fee-for-service system is the primary compensation system for physicians in this country. The report claims that this system is the chief reason for high healthcare costs and uneven patient care, with an average cost per year for each U.S. citizen at $8,000.

Prior to the elimination of the current system in a decade, the NCPPR is calling for a five-year transition to a blended payment system, which could include payments made by accountable care organizations, bundled payments for patients with multiple conditions, and reimbursement structures of fixed payments and shared savings.

The NCPPR also recommends an increase in annual evaluation and management codes for Medicare and private payors and the elimination of the Sustainable Growth Rate, with the cost to be paid for with cost-savings from the Medicare program as a whole.

To read the full report, click here.