United States Files False Claims Act Complaint against South Dakota Neurosurgeon and Physician-Owned Distributorships
In November 2019, the United States filed a complaint against Sioux Falls, South Dakota, neurosurgeon Wilson Asfora M.D., Medical Designs LLC, and Sicage LLC alleging False Claims Act violations arising from the alleged payment of kickbacks to Asfora linked to the devices he used in spinal surgeries. Medical Designs LLC and Sicage LLC are medical device distributorships in South Dakota owned and operated by Asfora. Such entities are also known as “physician-owned distributorships” or “PODs”. This lawsuit follows a recent $20.45 million settlement between the government and the hospitals where Asfora performed such surgeries, Sanford Medical Center and the Sanford Clinic of Sioux Falls, South Dakota. The hospitals were alleged to have knowingly submitted false claims to federal health care programs for reimbursement for inpatient services provided in connection with Asfora’s surgeries.
The government’s complaint alleges that Asfora, Medical Designs, and Sicage engaged in multiple kickback schemes designed to pay Asfora hundreds of thousands of dollars in exchange for Asfora using spinal devices distributed by Medical Designs and Sicage in his spine surgeries. Despite receiving numerous warnings that he was performing medically unnecessary procedures with the devices in which he had a financial interest, Asfora allegedly continued to perform such procedures while personally profiting from his use of devices sold by Medical Designs and Sicage.
As a general matter, the government views physician ownership of PODs as potentially affecting clinical decision-making, i.e., causing physicians to choose a medical device in which they have a financial interest rather than another device that may be more appropriate for the patient or being influenced to perform unnecessary surgeries. The U.S. Department of Health and Human Services – Office of Inspector General (“OIG”) issued specific guidance addressing physician investments in medical device manufacturers and distributors in an October 6, 2006 letter. In that letter, the strong potential for improper inducements between and among the physician investors, the entities, device vendors, and device purchasers was noted in the context of federal healthcare program fraud and abuse laws.
More recently, in March 2013, OIG issued a Special Fraud Alert regarding PODs that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers. This Special Fraud Alert focused on the specific attributes and practices of PODs that OIG believes produce substantial fraud and abuse risk and pose dangers to patient safety.
As a consequence of this substantive guidance spanning over many years, POD activity has been minimal across the United States, particularly since 2013. The South Dakota case, however, is instructive in that it demonstrates the vulnerability of rural health care providers to entering into questionable arrangements with unscrupulous actors due to the dearth of legal experience among lawyers in these remote areas. More often than not, such questionable arrangements are routinely dismissed in geographic markets with sophisticated health care providers and their legal counsel.