OIG Advisory Opinion On The Federal Anti-Kickback Statute

On April 25, 2022, the Workplace of Inspector Basic (“OIG”) issued Advisory Opinion No. 22-07 which evaluated the danger of fraud and abuse underneath the federal anti-kickback statute (“AKS”) posed by an association involving physician-ownership of a medical gadget firm. The opinion recognized six traits of the association which enormously decreased the danger of fraud and abuse.

At challenge within the opinion is an association (the “Association”) by which three physicians who’re members of a medical group (the “Physicians”) have an possession curiosity in a medical gadget firm (the “Firm”) by way of two irrevocable trusts (the “Trusts”). Doctor A shaped the Firm to develop his upper-extremity surgical innovations into medical gadgets offered available on the market. Doctor B is Doctor A’s daughter and Doctor C is Doctor B’s husband. The Firm manufactures gadgets for surgical procedures that could be ordered by the Physicians.

The OIG opined on whether or not the Association would represent grounds for the imposition of sanctions underneath the AKS. Underneath the AKS, it’s a felony offense to knowingly and willfully provide, pay, solicit, or obtain any renumeration to induce, or in return for, the referral of a person to an individual for the furnishing of, or arranging for the furnishing of, any merchandise or service reimbursable underneath a federal well being care program.

The OIG concluded that the AKS is implicated by the Association as a result of (1) the Physicians are beneficiaries of the Trusts which maintain an possession curiosity within the Firm, (2) the Physicians order merchandise from the Firm that could be reimbursable by federal well being care packages, and (3) the Physicians could advocate the Firm’s merchandise to others. Traditionally, the OIG has been involved with fraud and abuse points associated to physician-owned entities that derive income from promoting medical gadgets ordered by their physician-owners for procedures carried out by the physician-owners.

Though doubtlessly relevant, the OIG concluded that the Association didn’t fulfill the ‘small entity funding’ secure harbor as a result of the Trusts collectively maintain greater than 40 p.c of the funding pursuits within the Firm, and the Physicians affiliated with the Trusts are ready to make or affect referrals to the Firm. Within the absence of secure harbor safety, the OIG evaluated the Association primarily based on the totality of the details and circumstances.

The OIG concluded that the Association poses a low threat of fraud and abuse and doesn’t increase issues of suspect conduct underneath the AKS. In making this willpower, the OIG recognized six harm-reducing traits of the Association.

1. Enterprise Legitimacy of the Firm

The OIG discovered the Firm has a number of traits which cut back the danger that the Firm exists solely as a shell entity. The Firm develops gadgets that are offered in nationwide and worldwide markets, employs dozens of people, and is chargeable for the full-range of operations associated to a authentic medical gadget firm. Moreover, the Firm’s enterprise is rooted within the advertising and marketing and promoting of gadgets invented by Doctor A and the Physicians’ possession pursuits within the Firm stem from Doctor A’s innovations.

2. Mode of Revenue Distributions

The opinion famous the AKS is designed to forestall overutilization or inappropriate utilization, corrupt decision-making, elevated prices to federal well being care packages, and unfair competitors. The way by which the Association makes revenue distributions reduces the probability of these harms occurring. The Association reduces any distributions to the Trusts by a carve-out quantity (equal to the quantity of income generated by orders from any Doctor or different medical group member that may in any other case be owed to the Trusts) which decreases the Physicians’ monetary incentives to order the Firm’s merchandise. Additional, Doctor and non-physician homeowners are handled equally with regard to the Firm’s revenue distribution. Lastly, the Firm licensed it can make any future revenue distribution in direct proportion to every proprietor’s curiosity within the Firm.

3. Restricted Enterprise Generated by the Doctor-House owners

The danger of fraud and abuse is decreased as a result of the Physicians will not be the only real and even major supply of enterprise for the Firm. The Physicians and different medical group members generated lower than 1% of all gross income of Firm gross sales in america for the earlier three years. The Firm licensed that the proportion of orders by the medical group has been reducing for the previous seven years, and can proceed to take action, because the Firm expands its gross sales in nationwide and worldwide markets.

4. Nature of the Possession Curiosity

The character of the Physicians’ possession units the Association other than different physician-owned entity preparations. The Firm licensed the grant of majority possession curiosity and preferential voting rights to Doctor A was not due to any previous or anticipated orders or suggestions from any of the Physicians. Slightly, it was in trade for Doctor A assigning possession to the Firm of a considerable portfolio of proprietary know-how. The possession curiosity held by the Trusts just isn’t contingent on the Doctor or medical group producing enterprise for the Firm. The Firm has not reserved the appropriate to repurchase the Trusts’ possession curiosity and doesn’t require that the Trusts divest their possession curiosity if the Physicians now not order from the Firm or observe drugs. Lastly, the Firm licensed that whereas it creates day by day and month-to-month gross sales experiences, it doesn’t use these experiences to encourage orders from the Physicians or the medical group.

5. No Doctor Affect on ASC and Hospital Purchases

Though the Physicians order Firm merchandise for surgical procedures they carry out at hospitals and ambulatory surgical facilities (“ASCs”) in addition to advocate Firm merchandise, they licensed they won’t in any other case try and affect hospitals or ASCs to buy Firm merchandise. The Physicians additionally licensed they don’t, and won’t, situation referrals to hospitals or ASCs on the acquisition of Firm merchandise and that they select merchandise for medical procedures primarily based on a affected person’s distinctive medical wants.

6. Transparency Concerning Possession Curiosity

The Physicians’ possession disclosures to sufferers, amenities, and the general public along with the Association’s different safeguards additional reduces the Association’s threat of fraud and abuse. Every affected person is given written discover of every Doctor’s possession curiosity within the Firm previous to present process a surgical procedure involving a Firm product. All ASCs by which the Physicians carry out surgical procedures have been knowledgeable of the possession pursuits and the Physicians licensed they’ll notify some other amenities they observe at in the way forward for their possession pursuits. Disclosures are additionally supplied when a Firm product is the topic of any educational presentation, lecture or peer-reviewed publication by a Doctor.

Primarily based on these details, the OIG opined that though the Association would generate prohibited renumeration underneath the AKS if the requisite intent had been current, no administrative sanctions can be imposed because of the Association’s low threat of fraud and abuse.

Regardless of the OIG’s approval of the Association, conventional physician-owned distributorships stay underneath scrutiny. In Might 2022, Reliance Medical Methods, a spinal implant maker, settled a False Claims Act case in opposition to it. In United States of America vs. Reliance Medical Methods, the federal government alleged the homeowners of Reliance Medical Methods paid unlawful kickbacks to surgeons who used the corporate’s merchandise in spinal surgical procedures on Medicare sufferers. The homeowners of Reliance Medical Methods shaped two middleman corporations, that are “physician-owned distributorships”, from which physicians ordered the gadgets.

 

Arushi Pandya is a regulation clerk within the agency’s Washington, D.C. location and contributed to this text.