Physician ownership model of device company OK'd by OIG

The HHS Office of Inspector General issued a favorable advisory opinion for physician inventors to receive some ownership interest in exchange for product development, according to a report from law firm Ropes & Gray.

The issue was raised by three orthopedic surgeons and a physician-ordered medical devicemaker. The three orthopedic surgeons, who benefit from family trusts with direct ownership interests in the company, are part of a medical group with non-owner physicians who use the company's product. One of the orthopedic surgeons founded the company to commercialize products he invented and became the company's chief scientific officer.

The company gave majority ownership to the surgeons in exchange for the founder's contribution to the product portfolio. Executives or former executives own the remaining shares of the company.

The OIG advised the arrangement was not a physician-owned distributorship, and the arrangement isn't suspected of violating the Anti-Kickback Statute, because the physicians aren't the sole or primary users of the company's products and ownership isn't tied to product use or referrals. The company's profits are distributed based on ownership percentage, and the physicians inform patients of their ownership interest in the company.

Surgeon owners also don't try to influence hospitals or ASCs to purchase the company's products, although they can order them for surgeries they perform and recommend them to other surgeons. The revenue generated from the surgeon owners has been declining in recent years and falls below the OIG's safe harbor of 40 percent.

Finally, the company is a "legitimate manufacturer" instead of a shell company, which is a common trait in illegal physician-owned distributorships.

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