Physician-Owned Distributorships: Suspect Entities and Health Care Fraud

Sadly, it doesn’t feel unusual for someone accused of a crime to continue suspect behavior. As pending litigation against a surgeon already embroiled in health care fraud litigation became even more complex last week, it also continued to break new legal ground with allegations involving a specific form of business entity known as a physician-owned distributorship. Also known as “PODs,” these entities raise some major red flags that can point to both criminal and civil wrongdoing. While the current case is the first publicly noted health care fraud case involving PODs, our San Francisco health care fraud attorney expects that litigation will continue as long as the suspect devices are used by those who put profit over patient care.

Man Faces Health Care Fraud Charges in Both California and Michigan
A report in the journal Modern Healthcare details expanded claims filed against a doctor in Michigan who has already been stripped of his license here in California. Dr. Aria O. Sabit stands accused of committing fraud, violating naturalization laws, and performing spinal fusion surgeries in which he did not actually implant promised medical devices. When some patients in Michigan who had undergone surgery with Sabit had continued pain and sought second opinions, they were told that medical devices had not actually been placed during the initial surgeries, even though bills for the devices had been filed with government and private insurers. Sabit also, per the recently filed suit, failed to inform citizenship officials of prior felony-level health care fraud charges that would have rendered him ineligible for naturalization.

The complaint filed in a federal court in Michigan last week also looks back to Sabit’s days in California. He is currently the subject of two suits in our state. One suit, started by a private whistleblower, alleges that Sabit performed unnecessary surgeries. The second involves Sabit’s financial interest in Apex Medical Technologies, a POD that distributed medical devices sold by Reliance Medical Systems. In this second suit, the Justice Department alleges that Sabit and two other doctors performed medically unnecessary surgeries in order to profit off of kickbacks Reliance paid to the distributorship.

PODs Considered Inherently Suspect by Federal Authorities
The suit is the first example of a False Claims Act involving the POD set-up. While some suggest that PODs are a tool that encourages innovation and lowers costs, detractors say they may encourage doctors to perform unnecessary procedures and may lead to above-market prices on certain goods. In 2013, the Department of Health and Human Services issued a Special Fraud Alert suggesting PODS may create improper profit inducements and detailing attributes that may make the POD system particularly prone to fraud and abuse. The Alert warns that PODs may violate anti-kickback laws and raise four major concerns: 1) corrupting medical judgment, 1) encouraging overutilization, 3) permitting unfair competition, and 4) causing an increase in costs for federal health care programs. DHHS specifically suggests disclosing a doctor’s interest is not a sufficient solution to these concerns.

Whether a POD violates the law depends on the intent of those involved as evidenced by the characteristics of the entity. While not all PODs are fraudulent, the Alert calls the structure inherently suspect, especially if they provide disproportionately high returns for the physician-owners. Other suspect attributes include offering greater investment shares to doctors based on the volume of POD-distributed devices used, practitioner-owners conditioning referrals on the use of such devices, and failing to operate as a true entity with sufficient operations and corporate oversight.

Fighting All Forms of Health Care and Government Fraud
No one should be permitted to use legal business entities, structures often created to help foster business and the American dream, for illegal ends. We can and should hold medical professionals to a particularly high standard of honesty, especially when an illegal scheme compromises their medical judgment and puts not only money but also lives at risk. The False Claims Act, discussed often in these pages, is one tool that the honest among us have for tackling the problems created by entities that exist as a tool for carrying out health care fraud or other scams to defraud government programs.

If you suspect a POD or other business entity is being used as a way to accomplish health care fraud or other forms of fraud on government programs, call our office and speak with our knowledgeable fraudulent health care business lawyer in San Francisco, Santa Rosa, Oakland, or another California location convenient for you. We can help guide you through the law and explain how you can be part of the fight against health care fraud. We will also explain the tools in our arsenal that allow us to protect and compensate whistleblowers for their role in such matters.

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