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Physician-Owned Distributorships Often Profit-, Not Patient-Focused, Center of Controversy, Probes, Litigation

Jul 26, 2013

Questionable ethical practices and potential kickback violations have been long seen in the healthcare community. Most recently, Physician-Owned Distributorships (PODS), which have been established in at least 20 states, were the focus of a government watchdog group alert over fraud risks associated with the entities. Now, deals surgeons make with these PODS have become the focus of a Department of Justice investigation.

In one case highlighted by The Wall Street Journal, Aria Sabit, a surgeon from Afghanistan who recently relocated to California, began implanting his patients with an unknown spinal device. In just a few months, his volume of usage of the device—branded Apex—spiked and, in some cases the results were horrifying and deadly, drawing the attention of hospital staffers.

In less than one year, Dr. Sabit, who is now practicing medicine in Michigan, is at the center of investigations conducted by the California medical board, the U.S. Food and Drug Administration (FDA), and the Department of Justice (DOJ). He was also involved in more than two-dozen medical malpractice lawsuits; 12 involved procedures with the obscure implants, the Journal pointed out.

The Justice Department probe began once it learned Dr. Sabit had an ownership interest in the firm that distributed and made money off the Apex spinal device, according to those familiar with the matter, the Journal wrote.

PODS use associated with spine and orthopedic surgery have been the focus of criticism over the financial incentives the arrangements provide doctor investors to use those devices that provide them with the best financial return. The arrangements can lead to violations on an anti-kickback statute and other federal fraud and abuse laws with the PODS serving as outfits that offer profits to surgeons for the medical devices they use on their patients.

Earlier this year, the Office of Inspector General issued a warning about fraud risks associated with PODs, which involve physicians purchasing ownership interests in a medical device distributor and sharing in PODS profits made through sales to hospitals. In its report, the Office of Inspector General said its longstanding guidance “makes clear that the opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute illegal remuneration under the anti-kickback statute,” according to a prior Reuters report.

“The anti-kickback statute is violated if even one purpose of the remuneration is to induce such referrals” by healthcare professionals involved in such PODs, the report said. The language in the report “can’t get any more damning,” Dr. Josh Jennings, a Cowen & Co analyst, told Reuters.

According to federal prosecutors, Dr. Sabit is just one aspect of a larger civil investigation into a PODS distributorship operated by two former medical-device company employees, those with knowledge of the matter told the Journal. The network was operated in Utah and included at least 11 PODS in six states and led to tens of millions of dollars in investor profits over six years, according to the Journal.

The financial relationships between the drug and medical device industries and the health care industry have been leading to enormous and growing controversy. Critics maintain that these types of relationships create conflicts of interest and could improperly influence everything from research findings to prescribing practices, with patients no longer of primary concern in health care decisions.

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