Doctor-owned device distributors fraught with fraud risk, HHS warns

Physician-owned medical device distributors are under fire, with the government issuing a "special fraud alert" warning that some may be reliant on kickbacks.

Are you curious about the suspect operations under scrutiny? The document, issued by the Office of Inspector General at the Department of Health and Human Services, doesn't identify specific companies. But as Bloomberg notes, the warning focuses particularly on implantable devices, with a worry that doctors handling the implant surgery also have ownership stakes in the distributor that sells the device.

Cowen & Co. analyst Dr. Josh Jennings told Reuters that the report will likely discourage hospitals from relying on physician-owned medical device distributors, even if they get better prices. Doctors themselves may avoid the business arrangement as a result, he added, despite the potential for greater profit.

They are a fairly common part of the process--medical device companies work with distributors that in turn sell those devices to hospitals and other providers. And federal regulators are scrutinizing those that are physician-owned because the dynamic heightens the risk for abuse by having doctors on both sides of the operation.

Among the practices HHS is scrutinizing: whether physicians will either imply or say that they will give patient business to hospitals or outpatient care centers if they buy their products.

Bloomberg contacted Utah Sen. Orrin Hatch for comment. Hatch, the head Republican on the Senate Finance Committee, said the warning brings home the risk to both patient safety and having "millions of dollars lost to fraud." He told the news agency that he will "continue to scrutinize these high-risk structures and demand answers from HHS." Hatch's staff found that as of 2011 physician-owned medical device distributors had expanded to at least 20 states, with a focus on spine and joint implants.

- read Bloomberg's take
- here's Reuters' report
- check out the HHS warning (PDF)

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