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Physician-Owned Firms Want to Be Left Alone

(CN) - The U.S. government has launched a "crusade" against physician-owned businesses, swayed by lobbyists trying to eliminate competition for big corporations, a small business says.

Reliance Medical Systems sued the U.S. Department of Health and Human Services, the Office of Inspector General and Inspector General Daniel Levinson in Los Angeles.

"The federal government has launched an ill-advised crusade against physician-owned companies - innovative companies that design, manufacture, and distribute medical devices and reduce healthcare costs," the federal complaint begins. "In doing so, the government has sided with large corporations over small businesses and chilled the First Amendment rights of small business owners and physicians."

Reliance describes itself as a small business that "collaborates with spine surgeons to design highly customized spinal implant devices and surgical tools."

Legal concerns led it to move away from a physician-owned-business model, and it cannot return now because it fears that speaking to surgeons regarding the formation of physician-owned companies would violate the law.

In a March 2013 special fraud alert issued by the Department of Health and Human Services, the inspector general allegedly declared that physician-owned companies are "inherently suspect under the anti-kickback statute."

Reliance says this statement implies that anyone who wishes to speak about the formation of a physician-owned company is immediately suspected of illegal activity.

The alert also warned hospitals that they "may be at risk" if they do business with physician-owned companies, causing a number of hospitals to stop working with Reliance, substantially affecting the company's business, the complaint states.

Reliance claims the department issued the warning after a multiyear lobbying effort by big corporations that sought to eliminate competition from smaller physician-owned entities.

"Specifically, the big corporations formed lobby entities, made substantial campaign contributions, and hired a major international law firm to advocate on their behalf 'for stronger legislative and regulatory action to halt the proliferation of' physician-owned entities," the complaint says.

These efforts allegedly paid off when the U.S. Senate held congressional hearings and issued a report concluding that there was a lack of clarity regarding the legal implications of physician-owned distributors.

"The OIG's [Office of Inspector General] position as set forth in the 2013 SFA [special fraud alert] - 'that PODs [physician-owned distributors] are inherently suspect' - is wrong and inconsistent with the law," Reliance says.

Reliance seeks a declaration that the physician-owned companies are not "inherently suspect," and that hospitals may do safely and legally do business with them.

It is represented by Matthew Umhofer with Spertus, Landes & Umhofer.

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