Kusserow on Compliance: Overlap between physician-owned hospitals and distributers could result in violations of the Stark Laws and Anti-kickback Statute

The HHS Office of Inspector General (OIG) issued a new report about the limited available information to identify physicians who have concurrent ownership interests in physician owned distributors (PODs) and hospitals. The agency raised concerns about the lack of transparency among Medicare providers and the vendors that sell them implantable devices. Lack of transparency of ownership may prevent identification of providers who may be violating the referral and billing prohibitions of the Stark Law or the Anti-Kickback Statute (AKS). This problem may also have implications for patient safety and quality of care, in that physician ownership may affect physicians’ clinical decision making in performing surgeries or ability to choose a device in which they have a financial interest rather than another device that may be more appropriate for the patient.

This new report followed up on its October 2013 report (Spinal Devices Supplied by Physician Owned Distributors: Overview of Prevalence and Use), where it found that PODs supplied the devices used in nearly one in five spinal fusion surgeries that were billed to Medicare. CMS expressed continued interest and concern about the overlap between owners of physician-owned hospitals and PODs of spinal devices. The OIG examined the hospitals used in the prior report that self-identified as physician-owned and reported having purchased spinal devices from PODs. The report also used publicly available information (e.g. websites for hospitals and PODs, as well as state business registration websites) and information from CMS’s Provider Enrollment, Chain and Ownership System (PECOS) to attempt to determine whether a physician had an ownership interest in both a hospital and a POD that sold spinal devices to the hospital.

During data collection for the original report, 119 hospitals self-identified as having purchased spinal devices from PODs. Of these 119 hospitals, 12 self-identified as physician-owned and reported that they purchased spinal devices from 12 PODs. All of these hospitals self-identified as physician-owned on their web sites, and five of them identified physician-owners by name. The report also researched the ownership of the 12 PODs from which the 12 physician-owned hospitals reported having bought spinal devices. Two of these PODs identified physician-owners by name on their websites. The report identified the physician-owners of an additional three PODs from our review of state business registration websites and identified one physician who had an ownership interest in both a hospital and a POD that supplied spinal devices to that hospital. The OIG noted, however, that it is possible that additional physicians had such ownership interests that were not detected using what information it had available.

The results of the study demonstrate a need for increased transparency with regard to ownership information for PODs and, to a lesser extent, of hospitals. The Physician Payments Sunshine Act (Sunshine Act) requires manufacturers and group purchasing organizations to report to CMS any ownership and investment interests held by physicians. The OIG intends to monitor CMS’s implementation of the Sunshine Act and be on guard for those arrangements that may rise to a violation of law or regulations.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.