Surgeon Owned Distributorships
BY RICHARD ZALL, JULY 28, 2005
[Editor's note: We welcome attorney Richard Zall of Mintz, Levin as a guest blogger to answer a question posed by a reader in response to Joane Goodroe's Gainsharing post earlier this week. See Zall's profile here.]
Interested in your thoughts about Surgeon owned Implantable Device Agency Distributorship. Why couldn't/wouldn't a small total joint manufacturer or spinal implant company, trying to gain market share, solicit surgeons to form their own Surgeon owned agency/distributorship, eliminate the middleman Sales Rep. and reap the commission dollars to make up for the loss in reimbursements? Is this realistic? What branch of Federal Gov't would regulate this?
Richard Zall's Response:
With regard to the question above, Ms. Goodroe correctly points out that there are existing health care laws that need to be considered. In fact, these laws would strongly discourage, if not flatly preclude, the arrangement described above. As in many other areas of health care regulation, practices that might appear to make logical business sense create incentives that regulators believe will result in undesirable practices.
Both the Federal government, and certain State agencies, regulate referral arrangements between and among physicians, other medical providers, suppliers and manufacturers. In general, financial arrangements that are intended, even in part, to induce a physician to use a particular product or service are suspect. As a significant payer of health care services under the Medicare and Medicaid programs, the Federal government in particular seeks to prevent what it regards as unnecessary or inappropriate utilization of medical care that might be caused by such financial relationships.
The US Department of Health and Human Services (HHS) is responsible for administration of several laws that address referral relationships. For example, the federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service for which payment may be made under a federal healthcare program such as Medicare and Medicaid. The definition of remuneration has been broadly interpreted to include anything of value.
In addition, HHS oversees the so-called Stark Law, a federal ban on physician self-referrals of Medicare and Medicaid patients to an entity providing certain "designated health services" (including inpatient and outpatient hospital services), if the physician or an immediate family member has any financial relationship with the entity.
The Office of Inspector General (OIG) within HHS has aggressively investigated purported violations of these laws, which carry both criminal and civil penalties. Indeed, the recent approvals from the OIG relating to the gainsharing arrangements described by Ms. Goodroe were expressly conditioned on the existence of safeguards to prevent either over or underutilization of services.
Lastly, I would point out that certain states have adopted laws that are similar to the Anti-Kickback Statute and Stark Law with analogous purposes. Any proposed business arrangement that could impact physician referral decisions would need to pass muster under any of these applicable laws as well.
Richard Zall of Mintz, Levin
