Referrals by Doctors to Own Medical Labs Stir Ethics Questions

A new federal study released Friday raises “troubling” questions about the growing tendency among physicians, especially in California, to own a wide range of health care services in which they make additional money by referring their patients for treatment.

U.S. Health and Human Services Inspector General Richard P. Kusserow released a report to Congress suggesting six different ways of curbing these arrangements, which he said pose potential conflicts of interest for physicians and raise the nation’s health care costs by millions of dollars a year.

In his report, Kusserow made a “conservative estimate” that 25% of the clinical laboratories nationwide--and 30% in California--are owned by referring physicians. Among physiological laboratories providing services such as physical therapy, 27% are physician-owned, the report said.

Kusserow warned of “a proliferation” of business deals among physicians that may violate existing anti-kickback statutes and said he is asking the public in each state to report suspected criminality to a special “hot line.” For California, Nevada, Arizona and Hawaii, the number is (415) 556-7747.

‘Can Benefit Financially’

“Because physician investors can benefit financially from their referrals, unnecessary procedures and tests may be ordered or performed, resulting in unnecessary . . . expenditures,” Kusserow warned.

Critics like Rep. Pete Stark (D-Oakland) say there are many questionable business arrangements among physicians that have slipped through “loopholes” in the existing anti-kickback laws. He has proposed to close them in his new bill called the “Ethics in Patient Referrals Act.”

Stark’s bill has gathered support from many consumer groups but not from the American Medical Assn. An AMA official, Dr. James Todd, said in an interview that there has been “no adequate proof that we need the blanket legislation Stark is talking about.”

AMA officials have asserted that physician investment in laboratories and other health care services is likely to ensure top-quality service and care. In some cases, they say that a clinic could not have been financed or built without local doctors who were willing to make an often-risky investment.

Until now, there has been no formal tally of the number of physicians who refer patients to clinics they own.

Varied Arrangements Told

In Kusserow’s survey of 2,690 physicians who treat Medicare patients in eight states, about 12% said they have ownership or investment interests in health care facilities where they refer their patients for care. Another 8% have compensation arrangements of some other kind with the facility, such as consulting agreements, management services contracts and leases for office space.

The report said that Medicare patients treated at clinical labs owned by their doctors receive almost half again as many tests as Medicare patients in general. This “over-utilization” of services cost Medicare an additional $28 million in 1987, Kusserow said.

The report stopped short of calling the additional tests medically unnecessary. But Kusserow said that the fact that these patients “tend to use significantly more services is . . . quite troubling.”

The report found that physicians have invested in a variety of health care businesses ranging from laboratories to medical equipment suppliers, home health agencies, hospitals, nursing homes, ambulatory surgical centers and health maintenance organizations.

“I am concerned about the increasing prevalence of this,” said Dr. Arnold Relman, editor of the prestigious New England Journal of Medicine and a supporter of the Stark legislation. “The crucial point is not whether it involves 40,000, 50,000 or 100,000 doctors, but that it’s unethical and it’s wrong and it’s not in the public interest” for doctors to refer patients to medical services that they own.

Penalties Provided

Federal anti-kickback laws passed by Congress in 1977 provide criminal penalties for anyone, including doctors, who solicits, receives, offers or pays anything of value in return for the referral of a health care service that is reimbursable under the federal Medicare or Medicaid program.

But Kusserow said that “a number of obstacles” impede enforcement of the law and the cases have often been assigned a low priority at the Department of Justice.

Kusserow outlined six different ways to curb abuses--with the Stark legislation being the most drastic.

Todd said the AMA would support the other five alternatives, but Stark dismissed them as ineffective and “conducive to more loopholes.”

Some of the options include setting up a post-payment utilization review of claims directed at physicians who own health care entities, beefing up the enforcement of current anti-kickback statutes, giving private citizens the right to sue to enforce the anti-kickback laws and requiring physicians to disclose their business dealings to their patients.

California is one of 11 states with laws requiring disclosure. But Kusserow noted that these statutes do not appear to have inhibited physician ownership of health care facilities in California, nor have they prevented increased utilization of services.

Requiring disclosure is perhaps the “least onerous” of all the options, Kusserow said, “but it may also be the least likely to influence actual patterns of use of services. Patients have little basis with which to judge the efficiency, quality, or even pricing of one facility versus another. Patient choice in this environment may have little meaning.”