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 


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 Em·ollment, 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 

because—as the Special Fraud Alert stated—surgical 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 hospital’s 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. CMS’s 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 CMS’s 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 §§ 403.900–403.914. 

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