South Dakota Federal District Court Allows Medical Device Kickback Suit to Proceed Against Surgeon

Back in October of 2019, the hospital entities of Sanford Health, Sanford Medical Center and the Sanford Clinic in Sioux Falls South Dakota agreed to pay $20.25 million to resolve False Claims Act (“FCA”) allegations. The settlement is one of the largest in the United States District Court for the District of South Dakota. Last week, the U.S. District Court for the District South Dakota found that the lawsuit filed against the neurosurgeon who worked for Sanford- which alleged that he violated the FCA by engaging in a kickback scheme to order medical devices used in surgeries from two companies he owned- could proceed.

This case is representative of a growing area of concern with respect to addressing possible fraudulent conduct in connection with the delivery of healthcare services vis-a-vi the Physician Owned Distributorship (POD). The Department of Health and Human Services defines a POD as any physician-owned entity that derives revenue from selling, or arranging for the sale of, implantable medical devices and includes physician-owned entities that purport to design or manufacture, typically under contractual arrangements, their own medical devices or instrumentation. This business arrangement in which physician investors form companies that purchase medical devices from third-party manufacturers and sell them to hospitals, often to the hospitals at which the POD physician-investor practices is exactly what happened with the defendants in this case.

Defendant Dr. Wilson Asfora is a neurosurgeon and the owner of Medical Designs LLC and Sicage, LLC. Dr. Asfora ordered and used devices manufactured and sold by Medical Designs and Sicage in the surgeries he performed at Sanford Medical center. As the owner of Medical Designs and Sicage, Dr. Asfora profited from the sales of these devices in violation of the False Claims Act. The claims allegedly were false because they were made in violation of the Anti-Kickback Statute and in connection with surgeries that were medically unnecessary. Thus the very essence of a POD can easily implicate the Anti-Kickback Statute, which prohibits “knowingly and willfully soliciting or receiving any remuneration (including any kickback, bribe, or rebate) directly or indirectly. . . in cash or in kind, in exchange for or inducing another to refer an individual to particular goods or services for which payment may be made in whole or in part under a federal health care program.”
Given the context of the global pandemic, it is imperative that health care professionals and medical device companies, that are critical to innovation and improving patient care, engage in transparent and ethical ways. The business relationship implicated between a hospital and a POD where a physician is the owner of the POD can corrupt the medical judgment of the physician, just as Dr. Asfora’s financial interest in the medical devices he implanted in patients corrupted his medical judgment. Moreover, because the anti-kickback statute assigns criminal liability to parties on both sides of an impermissible kickback transaction- hospitals, as well as ambulatory surgical centers (ASCs) that enter into contracts with PODs also may face liability.

Hospitals and ASCs should note that the risk of fraud and abuse is particularly high in circumstances when such physicians-owners are one of the few users of the devices sold or manufactured by their PODs. The Department of Health and Human Services issued a policy statement announcing enforcement discretion over COVID-19 anti-kickback violations for certain circumstances involving other provider types but expressly indicated that they would not extend that enforcement posture policy towards medical devices. Thus, the federal government continues to aggressively pursue medical device companies for violating the anti-kickback statute during the COVID-19 epidemic.

VW Contributor: Skylar Young
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Same Day Surgery Restrictions Removed for Ambulatory Surgical Centers

A new rule allows ambulatory surgical centers to provide patient notifications on the day of the surgery, effectively eliminating the so-called prior-day notification requirement.  Prior to this rule, same day surgeries were only allowed in emergencies.  The final rule is expected to take effect on December 23, 2011.

The rule, provided by the Center for Medicare & Medicaid Services, can be viewed at: Final Rule

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HHS Announces Infection Control Surveys for Ambulatory Surgery Centers

To help prevent serious infections resulting from services performed in ambulatory surgical centers, the Centers for Medicare and Medicaid Services (“CMS”) will use the funds provided in the American Recovery and Reinvestment Act of 2009 (“ARRA”) to implement the nationwide application of a new infection control survey tool developed in consultation with the Centers for Disease Control and Prevention (“CDC”) and a case tracer methodology that tracks a patient’s care from admission to discharge. Additionally, CMS will use the ARRA funds to survey ambulatory surgical centers using this survey application at the rate of approximately once every three years during the national pilot program.

The particular focus on ambulatory surgical centers for this funding was chosen because the available infection control tool was developed for ambulatory surgical centers and because of the likely continuing infection control deficiencies in ambulatory surgical center settings.

The primary use of this money will be to pay for the expansion of ambulatory surgical center surveys (both in quality, time and number) using the new infection control tool and case tracer methodology. The funds will allow states to hire additional surveyors (one to four per state dependent upon ambulatory surgical center growth), which will increase a state’s capacity to maintain expected levels of ambulatory surgical center inspections while building greater capacity to use the improved survey tool nationwide.

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