“Quasi-POD” Charged With False Claims

The specter of PODs (Physician-Owned Distributors) was back in court recently as a federal district judge denied a motion to dismiss a False Claims Act case against a physician and his fiancée who owned a spinal implant distributorship.

In U.S. ex rel. Cairns v D.S. Med, LLC, (DS Medical), the government alleges that the joint venture ownership of the distributorship by a referring physician’s fiancée and the physician resulted in Anti-Kickback violations. The physician allegedly instructed the hospital at which he practiced to purchase spinal implants from DS Medical for use on his patients, including Medicare and Medicaid beneficiaries.

Tom Bulleit of the law firm of Ropes & Gray, and a long-time device manufacture industry lawyer, wrote that while the government’s complaint didn’t allege that the physician was the legal owner of the distributorship, the complaint “relies on a less direct financial relationship that has only some of the indicia of ownership to show that profits from the physician’s self-referral constituted kickbacks.”

Bulleit says the evidence of kickbacks rests on the allegation that the physician and fiancée, identified in the complaint as the sole investor and owner of DS Medical, had been engaged to be married since at least 2008, implying that they should be treated, for remuneration purposes, as family members.

The physician, according to Bulleit, operated the distributorship as a joint venture with his fiancée, “although the term does not appear to be employed to indicate any legal ownership interest by the physician. Rather, the character of the joint venture arose from facts such as the physician’s participation in management of DS Medical, his sharing of employees and contractors with DS Medical, and the lease of space by DS Medical from the physician’s practice.”

Further, says Bulleit, funds from DS Medical were used to purchase items for the physician and his fiancée, including a home, multiple other properties, and cars.

To demonstrate that the government thinks of this as a POD case, Bulleit says the allegations of kickbacks “read as if taken from the OIG’s 2013 Special Fraud Alert.”

For instance:

• DS Medical was the physician’s nearly exclusive source of spinal implants.
• The physician was the only “true” physician customer.
• DS Medical had little financial risk when it began operations, and few startup costs; it allegedly had profit margins of 95%.
• The physician allegedly began using more spinal implants after DS Medical began operations.
• DS Medical allegedly helped the physician profit from decisions about choice of implants.
• The physician maintained significant influence over his hospital regarding choice of implants.

Bulleit adds that this government action in a “quasi-ownership” situation indicates that the government won’t be fooled by “form-over-substance” changes to the POD business model. He also notes that this case comes out of Missouri, whereas previous false claims cases were only reported out of California.