CMS Soliciting Comments on Physician-Owned Implant and Medical Device Companies

On April 14, 2008, the Centers for Medicare and Medicaid Services ("CMS") issued proposed changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates (the "Proposed Rules"). In its commentary to the Proposed Rules, CMS expressed concern as to whether physician-owned implant and medical device companies ("POCs") should be addressed in future Stark II regulations. While recognizing that physician involvement "adds value" in research and development, CMS stated that the added value of physician involvement in distribution and purchasing companies is less clear. In particular, CMS questioned whether POCs are merely a vehicle through which physicians profit for simply ordering medical devices that the physician-investors use on their own patients. CMS stated that financial incentives paid to physicians may foster an anti-competitive environment and raise quality of care concerns, with the overutilization of certain devices to the detriment of other, possibly better-suited, devices.

As a result of these concerns, CMS in its commentary formally solicited comments as to whether Stark II should address POCS and similar physician-owned companies more specifically, or whether the concerns surrounding POCs and similar organizations, to the extent that they are not currently addressed by Stark II, are better addressed through enforcement of the False Claims Act, the Anti-Kickback Statute, or other fraud and abuse laws. CMS also requested comments on whether and to what degree physician investment in POCs and other similar organizations introduces risks of overutilization, substandard care and increased costs to the Medicare program.

For more information regarding the Proposed Rules, please see Volume 73 of the Federal Register, No. 84 (April 30, 2008). Written comments should be sent to the Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1390-P, P.O. Box 8011, Baltimore, MD 21244-1850. Electronic comments can be submitted at www.regulations.gov. Comments are due by June 13, 2008, at 5:00 p.m. EST.