October 25, 2006—The HHS Office of Inspector General (OIG) released guidance last week stating that physician investments in medical device manufacturers and distributors should be “closely scrutinized” for fraud or abuse. Rapid growth in the number of these relationships attracted the OIG’s attention, as did a September request from an unnamed party looking for:

•    Confirmation that a 1989 Special Fraud Alert on Joint Ventures and other OIG guidance on physician investment apply to medical device manufacturers and distributors;
•    Clarification of factors applicable to analyzing joint ventures under fraud-and-abuse laws; and
•    More OIG guidance on physician investments in medical device and distribution entities.

The OIG’s new guidance notes that the 1989 alert and related guidance remains current. The office interpreted the second request to be an inquiry as to whether the amount of revenue generated by a physician investor is considered relevant in analyzing a joint venture under the anti-kickback statute; the office confirms that it is.

“While safe harbor protection requires strict compliance with all safe harbor conditions, the conditions listed in the sage harbors are relevant to the analysis of physician and other joint ventures under the fraud and abuse laws,” OIG says. “The fact that a substantial portion of a venture’s gross revenues is derived from participant-driven referrals is a potential indicator of a problematic joint venture.”

—Cat Vasko