Menus Subscribe Search

Physician, Heel Thyself

• July 13, 2009 • 9:50 PM

As it attempts to balance controlling costs and providing health care while not stepping on entrepreneurship, will Congress take on self-referring doctors?

In attempting to reform the U.S. health care system, President Barack Obama and congressional leaders have repeatedly said that controlling costs is as important, if not more, than extending coverage to all Americans.

To do so will mean turning around a decade of political will — under both Democratic and Republican control — to the contrary.

Over the past decade, Congress did little to close exceptions in physician self-referral laws and anti-kickback statutes, laws originally intended to completely bar doctors from referring patients for services in which they had a financial interest.

“Critics of self-referral arrangements state that they pose a conflict-of-interest since the physician is in a position to benefit financially from the referral,” social legislation specialist Jennifer O’Sullivan explained in a Congressional Research Service report in 2004. “They suggest that such arrangements may encourage overutilization of services, which in turn drives up health care costs. They also contend that such arrangements create a captive referral system, which limits competition among health care providers.

“Others respond to these concerns by stating that while problems may exist, they are not widespread. Further, these observers contend that in many cases physician investors are responding to a demonstrated need which would not otherwise be met, particularly in a medically underserved area.”

Health care researchers continually say that exceptions in the law are driving excessive and often unnecessary spending.

While the Obama administration has visibly pursued outright medical fraud and abuse enforcement this year, it really falls to Congress to sew up these loopholes. Most observers say legislators are unlikely to close many of the exceptions they created in 2001 through legislation known as Stark II, named after Rep. Pete Stark, a California Democrat who led the charge for prohibitions on self-referral in legislation — Stark I — that took effect in 1992.

Similar “safe harbors” came in 1987 and additionally throughout the 1990s to protect those in the health care industry from anti-kickback laws Congress first passed in 1972.

Rather than eliminating self-referrals, the exceptions have allowed a system to flourish in which physicians in some states now own almost everything, said Jean Mitchell, economist and professor at Georgetown University Public Policy Institute, who’s written extensively on the effects of self-referral loopholes.

Mitchell singled out Texas, California and Florida as the most problematic states. “Texas just passed a law mandating coverage for cardiac CT scans,” she said. “There’s no proof it does anything to improve health or diagnosis. It’s just another way for cardiologists to make money.”

Seeing Imaging Clearly
One exception to the Stark law is called the In-Office Ancillary Exception, which encouraged doctors in group practices to buy imaging equipment and perform scans on patients in their own office. (See the appendix here for a fuller list of exceptions.) Physician-owned imaging had already started to flourish, but this new exception, billed as an improvement in patient care, increased the trend. Medical device companies, such as GE Healthcare and Siemens Healthcare, capitalized amid rampant growth.

“This in-office loophole was meant to address the Mayo Clinics of the world, not the orthopedic surgeon with five physicians practicing together who put an MRI machine in their office,” Mitchell said. “I can’t even tell you how easy the money is. If somebody told you that you could make another half a million dollars a year by putting a CT scanner in your office, of course you would do it.”

Doctors say owning the imaging equipment offers convenience to patients and prompt diagnosis that results in better care. And procedures in a doctor’s office are typically less expensive per case.

According to a June report by the Medicare Payment Advisory Commission, or MedPAC, the volume of diagnostic imaging services paid under Medicare’s physician fee schedule between 2002 and 2007 grew by 44 percent, above the 23 percent growth per beneficiary for all other physician services.

From 2000 through 2006, Medicare spending for physician imaging services doubled from about $7 billion to about $14 billion, the General Accounting Office reported last year. Ironically, just below this report on the GAO Web site is a 1994 report identifying the same problem, saying physician-owned imaging warrants scrutiny.

Mitchell and colleagues attempted to analyze the problem among commercial insurers in a 2007 paper published in Health Affairs. They reviewed claims data submitted in 2004 to a large insurer in California and found that 33 percent of providers who submitted bills for magnetic resonance imaging scans were classified as self-referral.

In addition, the study determined, “61 percent of those who billed for MRI and 64 percent of those who billed for CT did not own the imaging equipment. Rather, they were involved in lease or payment-per-scan referral arrangements that might violate federal and state laws.”

“Imaging is probably the worst because it’s just so easy to send a patient for another test,” Mitchell said.

Doctor Entrepreneur
Another problematic loophole is called the Whole Hospital Exception. Under the original Stark law, physicians could not refer patients to any facility in which they had a financial interest. But exceptions under Stark II allowed doctors to refer patients to outpatient-oriented “ambulatory surgery centers” they owned or physician-owned hospitals in which they were part owners of the entire hospital. A similar “safe harbor” exists under the anti-kickback statute.

Throughout the past decade, several moratoriums on referrals to specialty hospitals of more than a year each, took place, which has slowed the growth in physician-owned hospitals.

By and large, these exceptions have led to a surge in physician-owned specialty hospitals (roughly 150 nationwide) and surgery centers (more than 5,000) along with the market for medical devices. These specialty facilities focus on procedures that tend to make the most money — such as imaging, cancer treatment or minor surgery — and often do not include emergency services or general medicine.

According to an article in the journal Health Services Research, urologists who owned ambulatory surgery centers in Florida performed twice as many kidney stone surgeries as non-owners. They also performed a greater proportion of their surgeries (39.6 percent) in ASCs, than non-owners (8 percent). The study analyzed patients undergoing outpatient surgery for urinary stone disease in Florida from 1998 to 2002.

The procedure to remove a kidney stone — called lithotripsy — is largely elective, generally covered by insurers and can be lucrative, said lead author Dr. John Hollingsworth, a clinical lecturer in urology at University of Michigan Health System. “By virtue of it being an elective procedure the timing of it is up to physicians to decide,” he said.

Surgery centers, he says, are major drivers of the health care dollar. And there are some important advantages. Doctors have obvious reasons for using them: For patients, they are more convenient and often easier, and for payers, the cost per case at surgery centers is less expensive than hospitals. The question is: Are the procedures needed?

Attempts to close the whole-hospital exception often get muddled by lobbying between physician groups and hospitals. Surgery centers present a major financial threat to hospitals; a ban on physician self-referral was again part of the American Hospital Association’s latest proposed health reforms this year.

“It’s mostly a political issue right now. It’s who has the stronger lobby, and that’s all it’s about,” said Dr. Bhagwan Satiani, a professor at the Department of Surgery, Division of Vascular Disease and Surgery at Ohio State University School of Medicine, who has analyzed the political dynamic.

“If you look at the evidence, it’s kind of mixed. Both sides are not telling the entire truth. I have arguments against and for specialty hospitals. Congress responds to money and who has more influence.”

Chris Meyers, an attorney for Holland & Knight, which represents healthcare providers, pharmaceutical companies and device makers, believes the exceptions are useful and proper. “Without the exceptions, every marketing activity would be a violation of anti-kickback and self-referral,” Meyers said.

From Meyers’ perspective, multiple federal laws combined with various state laws can make for a confusing web of possible legal trouble. More than half of all states have laws that cover alleged kickbacks through private insurance. Federal laws cover Medicare and other federal programs.

“I expect to see significant increase in attention paid to conflict of interest, kickback and self-referral,” Meyers said. “I think the tendency is to go a little bit overboard. The pendulum has swung a little too far (on the side of too much regulation). It makes it difficult for companies to understand what the rules are and what they are supposed to do.”

Mitchell, at Georgetown University, has an easy solution. “The only way to get rid of the whole problem is to just tell physicians you can’t own anything,” she said. “You cannot. That’s it. Bottom line. It’s a conflict of interest.” The AMA, which wrestled with the issue in the early 1990s, disagrees: As long as patients are informed of the referring physician’s financial interest and about alternative facilities, it sees self-referrals as ethical.

Barring complete prohibition, Mitchell suggests reducing and bundling the payment rate for such things that fall within one of the exceptions or safe harbors. In addition, Medicare and commercial insurers should stop paying for procedures and start focusing payments on overall care.

“What that would do is take the incentive out of running the scanner for everybody who walks through the door,” she said.

It’s something most politicians and insurers understand in theory, she said, but maybe not as much in practicality because insurance companies and government health plans are scared to death of the doctors. “The provider might drop out of the network, limit choice, and then the patients will be screaming,” Mitchell said. “Therefore they’ve done relatively nothing.”

Sign up for our free e-newsletter.

Are you on Facebook? Become our fan.

Follow us on Twitter.

Add our news to your site.

David Rosenfeld
David Rosenfeld is a freelance journalist based in Portland, Oregon with 10 years of experience writing for newspapers. He writes primarily about health care, conservation and the changing world around us.

More From David Rosenfeld

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

July 31 • 4:00 AM

Medical Dramas Produce Misinformed, Fatalistic Viewers

New research suggests TV doctor dramas leave viewers with skewed impressions of important health-related topics.


July 30 • 4:00 PM

Still the World’s Top Military Spender

Although declining in real terms, the United States’ military budget remains substantial and a huge drain on our public resources.



July 30 • 2:04 PM

The Rise of the Nuisance Flood

Minor floods are afflicting parts of Maryland nearly 10 times more often than was the case in the 1960s.


July 30 • 2:00 PM

The (Mostly Awful) Things You Learn After Investigating Unpaid Internships for a Year

Though the intern economy remains opaque, dialogue about the role of interns in the labor force—and protections they deserve—is beginning to take shape.


July 30 • 12:00 PM

Why Coffee Shortages Won’t Change the Price of Your Frappuccino

You’re so loyal to Starbucks—and the company knows it—that your daily serving of caffeine is already marked up beyond the reach of any fluctuations in supply.



July 30 • 10:00 AM

Having Difficult Conversations With Your Children

Why it’s necessary, and how to do it.


July 30 • 8:00 AM

How to Make a Convincing Sci-Fi Movie on a Tight Budget

Coherence is a good movie, and its initial shoot cost about the same amount of money as a used Prius.


July 30 • 6:00 AM

Are You Really as Happy as You Say You Are?

Researchers find a universal positivity bias in the way we talk, tweet, and write.


July 30 • 4:00 AM

The Declining Wage Gap for Gay Men

New research finds gay men in America are rapidly catching up with straight married men in terms of wages.


July 30 • 2:00 AM

LeBron James Migration: Big Chef Seeking Small Pond

The King’s return to Cleveland is a symbol for the dramatic shift in domestic as well as international migration.


July 29 • 4:00 PM

Are Children Seeking Refuge Turning More Americans Against Undocumented Immigrants?

A look at Pew Research Center survey data collected in February and July of this year.


July 29 • 2:00 PM

Under Water: The EPA’s Ongoing Struggle to Combat Pollution

Frustration and inaction color efforts to enforce the Clean Water Act.


July 29 • 12:40 PM

America’s Streams Are Awash With Pesticides Banned in Europe

You may have never heard of clothianidin, but it’s probably in your local river.


July 29 • 12:00 PM

Mining Your Genetic Data for Profit: The Dark Side of Biobanking

One woman’s personal story raises deep questions about the stark limits of current controls in a nascent industry at the very edge of the frontier of humans and technology.


July 29 • 11:23 AM

Where Should You Go to College?


July 29 • 10:29 AM

How Textbooks Have Changed the Face of War

War is more personal, less glorious, and more hellish in modern textbooks than in the past. But there’s still room for improvement.


July 29 • 10:00 AM

The Monolingual American: Why Are Those Outside of the U.S. Encouraging It?

If you are an American trying to learn German in a large German town or city, you will mostly hear English in return, even when you give sprechen your best shot.


July 29 • 8:00 AM

The Elusive Link Between Casinos and Crime

With a study of the impact of Philadelphia’s SugarHouse Casino, a heated debate gets fresh ammunition.


July 29 • 6:00 AM

What Are the Benefits of Locking Yourself in a Tank and Floating in Room-Temperature Saltwater?

After three sessions in an isolation tank, the answer’s still not quite clear.


July 29 • 4:00 AM

Harry Potter and the Battle Against Bigotry

Kids who identify with the hero of J.K. Rowling’s popular fantasy novels hold more open-minded attitudes toward immigrants and gays.


July 29 • 2:00 AM

Geographic Scale and Talent Migration: Washington, D.C.’s New Silver Line

Around the country, suburbs are fighting with the urban core over jobs and employees.


July 28 • 4:00 PM

Border Fences Make Unequal Neighbors and Enforce Social Inequality

What would it look like if you combined Israel, the West Bank, and Gaza, demographically speaking? What about the United States and Guatemala?


July 28 • 2:00 PM

Are Patient Privacy Laws Being Misused to Protect Medical Centers?

A 1996 law known as HIPAA has been cited to scold a mom taking a picture of her son in a hospital, to keep information away from police investigating a possible rape at a nursing home, and to threaten VA whistleblowers.


Follow us


Subscribe Now

The Rise of the Nuisance Flood

Minor floods are afflicting parts of Maryland nearly 10 times more often than was the case in the 1960s.

America’s Streams Are Awash With Pesticides Banned in Europe

You may have never heard of clothianidin, but it's probably in your local river.

How Textbooks Have Changed the Face of War

War is more personal, less glorious, and more hellish in modern textbooks than in the past. But there’s still room for improvement.

NASA Could Build Entire Spacecrafts in Space Using 3-D Printers

This year NASA will experiment with 3-D printing small objects in space. That could mark the beginning of a gravity-free manufacturing revolution.

The Most Popular Ways to Share Good and Bad Personal News

Researchers rank the popularity of all of the different methods we have for telling people about our lives, from Facebook to face-to-face.

The Big One

One in two full-time American fast-food workers' families are enrolled in public assistance programs, at a cost of $7 billion per year. July/August 2014

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.