DEPARTMENT OF HEALTH AND HUMAN SERVICES 
OFFICE OF INSPECTOR GENERAL 
WASHINGTON, DC  20201 
AUG  1 3 2015 
TO: 	 Andrew M. Slavitt 

Acting Administrator 

Centers for Medicare & Medicaid Services 

FROM:  Suzanne l'd11rrin 

D~p.t;tt)l Inspector General 

for Evaluation and Inspections 

SUBJECT: 	 Memorandum Report:  Overlap Between Physician-Owned Hospitals and 
Physician-Owned Distributors, OEI-01-14-00270 
This memorandum provides the results of OIG's examination of overlap between 
physician-owned hospitals and physician-owned distributors (PODs) of spinal devices. 
This work follows up on our October 2013 report Spinal Devices Supplied by 
Physician-Owned Distributors:  Overview ofPrevalence and Use (OEI-01-11-00660), 
which found that PODs supplied the devices used in nearly one in five spinal fusion 
surgeries that were billed to Medicare. 
METHODOLOGY . 
. When we met with the Centers for Medicare & Medicaid Services (CMS) in 
September 2013 to discuss a draft of the report, CMS staff expressed interest in the 
overlap between owners of physician-owned hospitals and PODs of spinal devices.  We 
agreed to analyze the. extent to which such overlap exists.  We used publicly available 
information (such as the Web sites for hospitals and PODs, as well as State business 
registration websites) and information from CMS' s Provider Emollment, Chain and 
Ownership System (PECOS) to attempt to determine whether a physician had an 
ownership interest ih both a hospital and a POD that sold spinal devices to the hospital. 
This study was conducted in accordance with the Quality Standards for Inspection and 

Evaluation issued by the Council ofthe Inspectors General. on Integrity and Efficiency. 
 Page 2  Andrew M. Slavitt 
 
RESULTS 
 
Using available information, we identified one physician with an ownership interest 
in both a hospital and a POD 
 
During data collection for the original report, 119 hospitals self-identified as having 
purchased spinal devices from PODs.  Of these 119 hospitals, 12 self-identified as 
physician-owned and reported that they purchased spinal devices from 12 PODs.1 All of 
these hospitals self-identified as physician-owned on their Web sites, and five of them 
identified physician-owners by name.   
 
We also researched the ownership of the 12 PODs from which the 12 physician-owned 
hospitals reported having bought spinal devices.  Two of these PODs identified 
physician-owners by name on their Web sites. We identified the physician-owners of an 
additional three PODs from our review of State business registration websites. 
 
Using the physician ownership information we gathered on hospitals and PODs, we 
identified one physician who had an ownership interest in both a hospital and a POD that 
supplied spinal devices to that hospital.2  However, it is possible that additional 
physicians had such ownership interests that we could not detect using the available 
information. 
 
Available information about ownership interests is limited and raises concerns 
about lack of transparency 
 
The limited information that is available to identify physicians who have concurrent 
ownership interests in PODs and hospitals raises concern about transparency among 
Medicare providers and the vendors that sell them implantable devices.  Transparency of 
ownership is important for the Department of Health and Human Services to ensure that 
providers do not violate the referral and billing prohibitions of the Stark Law (also known 
as the Physician Self-Referral Law) and that they comply with OIG exclusions and the 
Anti-Kickback Statute. Additionally, the transparency of ownership information may 
have implications for patient safety and quality of care.  One of the primary criticisms of  
PODs is that ownership may affect physicians clinical decisionmaking, such as 
influencing them to perform unnecessary surgeries or to choose a device in which they 
have a financial interest rather than another device that may be more appropriate for the 
patient. 
 
In 2013, OIG released a Special Fraud Alert on Physician Owned Entities that described a 
number of characteristics of concern.3  OIG is particularly concerned about PODs 
becauseas the Special Fraud Alert statedsurgical implants typically are physician 
                                                 
1 Two PODs sold spinal devices to multiple hospitals included in this analysis. 

2 This physician was listed as a physician-owner of a hospital both  on the hospitals Web site and in CMS 

PECOS data. 
 
3 OIG,  Special Fraud Alert:  Physician Owned  Entities (March 2013). Accessed at  

http://oig.hhs.gov/fraud/docs/alertsandbulletins/2013/POD_Special_Fraud_Alert.pdf  on August 4, 2015. 

Overlap Between Owners of Physician-Owned Hospitals and PODs (OEI-01-14-00270)   Page 3  Andrew M. Slavitt 
 
preference items, meaning that both the choice of brand and the type of device may be 
made or strongly influenced by the physician, rather than the hospital where the 
procedure is performed.4   The alert echoes OIG guidance from 2006 that specifically 
addressed physician investments in manufacturers and distributors of medical devices.  In 
that guidance, OIG acknowledged the strong potential for improper inducements 
between and among the physician investors, the entities, device vendors, and device 
purchasers and stated that such arrangements should be closely scrutinized under fraud 
and abuse laws.5  
 
CONCLUSION  
 
This work demonstrates that there is limited transparency with regard to ownership 
information for PODs and, to a lesser extent, of hospitals.  CMSs implementation of the 
Physician Payments Sunshine Act (Sunshine Act) may improve the information available 
to identify the physician-owners of PODs.6  The Sunshine Act requires manufacturers and 
group purchasing organizations to report to CMS any ownership and investment interests 
that are held by physicians.7  OIG will monitor CMSs Sunshine Act database and 
determine how best to assess its impact on transparency within Medicare.   
 
This report is being issued directly in final form because it contains no recommendations.  
If you have comments or questions about this report, please provide them within 60 days.  
Please refer to report number OEI-01-14-00270 in all correspondence. 
 
                                                 
4 OIG,  Special Fraud Alert:  Physician Owned  Entities (March 2013). Accessed at  

http://oig.hhs.gov/fraud/docs/alertsandbulletins/2013/POD_Special_Fraud_Alert.pdf  on August 4, 2015. 

5 Ibid.  

6 Entities that are required  by the Sunshine  Act to report ownership interests are listed at 

http://www.cms.gov/  

OpenPayments/Program-Participants/Program-Participants.html. Accessed on July  7, 2015. 
 
7 42 CFR  403.900403.914. 

Overlap Between Owners of Physician-Owned Hospitals and PODs (OEI-01-14-00270)