Doctors’ Lab Investments Are a Bitter Pill for Some

When 55 Las Vegas doctors send their patients to Mountain Diagnostics for an X-ray or CT scan, they get back more than images of tumors and broken bones. They also get a return on their investments.

The orthopedists, surgeons, urologists and other specialists who bought $10,000 shares in the imaging center account for half of its referrals, and those referrals help ensure a healthy 20% annual profit on their money.

“The only way you can get into this market and be able to compete is to get someone else to help you” with start-up investments, said Dr. Alan Lesselroth, the clinic’s president.

But some question whether the real help for clinics such as Mountain Diagnostics is the doctors’ steady stream of patient referrals rather than their initial dollars.

“Without the doctors, he wouldn’t stay open one month,” said Dr. Leon Steinberg, who saw his nearby clinic lose 40% of its referrals after the doctors invested in Mountain last year.

It is estimated that a quarter of the nation’s medical laboratories are owned wholly or in part by referring physicians. Doctor-investors talk of patient convenience and better medical care. Critics speak of increased medical costs, conflict of interest and even violation of the law.

They charge that some investment plans are legal kickbacks--shell games designed to skirt laws that prohibit doctors from selling referrals.

‘Considered a Kickback’

“There is no question that if a lab took a brown paper bag filled with cash to a doctor who made referrals to the lab, it would be considered a kickback. Instead of a brown paper bag, the doctor gets a return on investment,” said Hope Foster, counsel for the American Clinical Laboratory Assn., an organization of independent laboratories that have seen referrals drop as doctors set up their own labs.

The concern has led Congress to consider a bill to ban Medicare payments to doctors who refer patients to their own labs.

“The situation we have now is that people are buying and selling referrals,” said Rep. Pete Stark (D-Calif.), the bill’s sponsor. “These doctors have been told it’s legal, but legal ain’t always ethical.”

Beyond the question of medical ethics is one of money.

A study by the U.S. Department of Health and Human Services’ inspector general’s office found Medicare patients whose doctors had an interest in a testing lab had a 45% higher incidence of testing than other Medicare patients. The increase cost Medicare $28 million in 1987.

Pennsylvania Blue Shield saw diagnostic testing claims jump 90% from 1982 to 1987, while subscribers increased by about 2%.

‘Natural Incentive’

Dr. Robert Edmiston, senior vice president for professional affairs, attributes some of the increase to new tests, an aging population and doctors wary of malpractice suits. But he said he believes that half the increase wasn’t necessary.

“For the physician who owns and operates the equipment, there is a normal and natural incentive to do more testing,” Edmiston said.

Doctor-owned laboratories have boomed in the last five years, due in part to advances in high-tech diagnostics and a marriage of medicine and business.

Machines such as blood analyzers became smaller, simpler and easier to operate outside the hospital or independent clinic. Doctors moved the machines into their offices.

Dr. Mark Leavitt, a Portland, Ore., internist, set up a blood-testing lab with several other doctors in his building. He said patients enjoy the convenience, and he enjoyed a 20% increase in income.

‘Not Possible to Make a Living’

“For most people practicing primary care, it really is not possible to make a living doing office visits alone,” he said. “Today, you have to subsidize your ability to be a Dr. Welby.”

High-tech also created diagnostic equipment such as CT scanners and magnetic resonance imaging machines capable of taking detailed views inside the human body. The machines are expensive, costing millions of dollars. They are also lucrative; a scan fee can be 20 times as high as the charge for an X-ray.

The financial possibilities attracted businessmen and deal makers such as the Del Mar, Calif.-based business called The Cooperative, which boasts a membership of 650 imaging centers and notes its member clinics each average 5,000 scans a year, well above the national average of 3,000.

‘Share in the Economic Risks’

“The most economically successful centers are those where a large number of referring clinicians share in the economic risks and rewards,” says The Cooperative’s promotional material.

Critics say it is the doctors’ ability to make referrals that often earns them the chance to get in on gold-plated deals paying as much as a 100% return on investment annually. Stark cites some arrangements in which doctors are loaned the money to invest and must sell out when they retire or move.

“You scratch your head and say what they are trying to do is give the doctor-investors a financial stake in the outcome of the enterprise,” said Harvey Yampolsky, counsel to the HHS inspector general’s office. “It becomes a de facto reason to make your referrals to that lab.”

Doctors Pressured

Yampolsky’s office has found partnerships that pressured doctors for patients. “We’ve found memos that say, ‘You are not making enough referrals. If you don’t get them up, we’re going to have to close the lab,’ ” he said.

Yampolsky said such actions violate federal law but are hard to investigate and harder to prosecute.

Dr. Mark Winkler, an assistant professor at UC San Francisco, has seen the effect ownership can have on doctors. As a radiologist involved in the development of magnetic resonance imaging, Winkler worked at several imaging clinics owned by referring doctors.

“There’d be times when the doctors who were financially involved would poke their heads in the clinic and see it was a slow day,” he said. “They would go back to their office and suddenly generate four or five patients.”

Shift in Referrals

Winkler, who also works at Steinberg’s Las Vegas clinic, saw a shift in referrals after doctors bought Mountain.

“Not only did it change in terms of where they sent their patients, but some physicians were ordering significantly more studies,” he said.

Lesselroth, a former employee of Steinberg, denies that his physician-investors refer to him because of their holdings in his center. He noted that several limited partners make no referrals.

“It’s hard for me to get into people’s minds to see what motivates them,” he said. “I’d like to think that what we’re doing is so much better than a majority of our competition.”

But Steinberg, a radiologist who has operated his own lab for 30 years, wonders why referrals dried up overnight.

Similar Prices

“I have patients who have had work done at my office for years and they’re told to go to the other office now,” he said. “If he’s that much better, fine. If he’s giving a better deal on the price, fine. But referrals shouldn’t be on the basis of how much money is going into the doctor’s pocket.”

Both Mountain and Steinberg quoted similar prices.

Rep. Stark’s bill is designed to close loopholes in a 1977 law that makes it a crime to solicit or receive money for medical referrals under the Medicare or Medicaid program.

The new bill would prohibit physicians from referring Medicare patients to labs in which they hold a financial interest. The bill has been amended to exempt laboratories established before March 1, 1989, as well as hospitals and certain rural clinics.

Reporting System

The bill also establishes a reporting system so federal officials can monitor doctors’ referrals. “That gives us some preventive strategy that allows us to document abuse,” Stark said.

Although the measure is supported by the American College of Radiology and the American College of Surgeons and several other specialty groups, it is opposed by the American Medical Assn.

“The legislation ignores the fact that physicians’ investment has contributed to valuable medical services,” said Dr. James Todd, the AMA’s deputy executive vice president.