Over the last several years, a cottage industry of businesses known as “Physician Owned Distributorships” (“PODs”) has taken root in the medical device world and according to a recent article in the American Medical News is now coming under scrutiny by federal authorities. PODs are typically companies organized by individuals, some or all of whom are physicians who utilize medical devices, to purchase and resell medical devices to end users such as hospitals and surgery centers. By purchasing devices directly from the manufacturer at a wholesale discount and reselling to a hospital at a markup, the PODs are typically able to offer their investors a healthy investment return. However, a bipartisan group of U.S. Senators has expressed concern that physician investors who are also in a position to influence the selection of medical devices by the hospitals where they are on staff, for example, may raise issues under federal fraud and abuse laws. According to the AMA article, the Senators have written letters to both the Centers for Medicare and Medicaid Services and the Department of Health and Human Services asking for the agencies to review the propriety of POD arrangements under the Federal anti-kickback statute.
PODs are only one of the many "investment opportunities" currently available to physicians. Because of their unique ability to direct patients and influence the use of medical products, physicians are often highly sought after as investors in both legitimate and questionable medically-related ventures. While many physician investment opportunities are legitimate and can be properly structured within federal and state fraud and abuse laws, physicians should be wary of investment opportunities which allow them to profit from their own referrals or their ability to influence product or service selection. Arrangements which create financial relationships between physicians and the entities to which they refer or from which they receive referrals may implicate the federal Stark statute, the federal anti-kickback statute and a number of other serious federal and state laws. Accordingly, before committing to healthcare investment, physicians should carefully review the proposed arrangements and seek legal guidance to ensure that they do not run afoul of these complex laws.