On April 20, the U.S. Department of Health and Human Services' Office of Inspector General (OIG) issued a favorable opinion regarding an arrangement where physicians with an ownership interest in a medical device company would order products manufactured by the company for use in surgeries personally performed and recommend such products to hospitals and ambulatory surgery centers (ASCs) for purchase.
The opinion is notable because over the years, OIG has identified physician investments in medical device companies as creating a strong potential for improper inducements between physician-investors, the entities and hospitals/ASCs. In 2013, the OIG issued a Special Fraud Alert in which it called physician-owned entities that derive revenue from selling or arranging for the sale of devices ordered by their physician owners "inherently suspect" under the federal anti-kickback statute. In this most recent opinion, the OIG opined that although the arrangement would generate prohibited remuneration under that statute (assuming requisite intent), it would not impose administrative sanctions because the proposed arrangement includes safeguards that mitigate the fraud and abuse risks identified in the Special Fraud Alert as follows:
The opinion may be relied upon only by the requestors and is limited to the specific facts of the proposed arrangement. However, it lends support to physician entrepreneurs and innovators seeking to invest in medical device startups and may open doors to health systems that have been reluctant to purchase devices from physician-owned manufacturers. Day Pitney lawyers are available to assist you in structuring physician investments in entities such as medical device manufacturers and evaluating the adequacy of safeguards in physician ownership arrangements.
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