Stemming the Cancer of Paying Doctors for Patients : Medicine: Momentum for a crackdown is building as hospitals offer gifts and even cash for referrals.

Stung by competition for patients, heart doctors on the Stanford University faculty last spring came up with their own marketing ploy. They decided to offer red-carpet courtesies and perks--including an annual retreat at a posh Pebble Beach resort--to doctors who referred patients to Stanford’s hospital.

To qualify for these privileges, the referring doctors had to promise to “refer the majority, if not all, of their patients for cardiac catheterization and/or cardiovascular surgery to the . . . faculty at Stanford,” according to a draft of the proposal.

Embarrassed university officials scuttled the plan last month, saying it violated Stanford’s ethical standards and, possibly, federal law. The pitch, they said, was demeaning to Stanford’s tradition of attracting patients strictly on the basis of superior medical care.

But Dr. Tim A. Fischell, who wrote the proposal, said the Pebble Beach retreat and other inducements were mild compared to the patient grabs staged by Stanford’s competitors.

“We’re all competing for paying patients. There is incredible pressure to join the band to survive,” said Dr. David Korn, dean of Stanford’s School of Medicine. “These sorts of creature comforts have invaded these programs everywhere.”

Across the nation, doctors are being bombarded with gifts, lucrative investment opportunities, rent waivers, and in some cases cash in exchange for patient referrals, federal health officials say. The inducements come not only from specialists like heart surgeons, but from hospitals and an array of health facilities and suppliers of medical goods and services.

Joint ventures are another way doctors profit from patient referrals. They become part owners of a testing laboratory, X-ray center, medical supply company or even a hospital to which they also refer their patients. The more patients they refer, the more profitable the business, and the greater their investment payoff.

“The patients are the pawns in this game,” said Rep. Fortney (Pete) Stark (D-Calif.), Congress’ most outspoken critic of these arrangements.

Leaders in the medical profession decry the corrupting influence of such incentives, not to mention the padding of medical bills they require. One disgusted Texas physician said the patient has come to be viewed as one big “pork chop” coming across the transom.

State and federal laws have long prohibited the payment of kickbacks for patient referrals, but enforcement has been lax.

In recent months, however, momentum has been building toward a broad-based crackdown. New federal regulations and legal rulings have broadened the definition of abusive arrangements. Others have delineated those the government views as legitimate.

Federal officials acknowledge that certain ventures have benefited patients by raising capital to buy needed medical equipment. Creative financing arrangements, officials recognize, are necessary to offset cutbacks in federal funding for health programs nationwide.

But the abuses are widespread, officials say, and are aimed primarily at putting cash in the pockets of participating doctors.

Describing some joint ventures as tantamount to “trading in human flesh,” the government’s chief enforcer of anti-kickback laws, Richard Kusserow, says that he intends to scrutinize any deal in which doctors profit from their patient referrals. California, described by investigators as a hotbed of medical opportunism, already has seen a landmark administrative prosecution.

The case involved three clinical laboratories in California run by the now-defunct Santa Ana-based Hanlester Network. More than 200 doctors had ownership interests in the labs and typically referred their patients to them for tests.

A ruling in the case last month expanded the definition of kick back to include profits of any kind from patient referrals. The ruling overturned a decision that defined kickbacks much more narrowly.

Armed with the ruling, as well as damaging new evidence from a study of physician investments in Florida, Stark has scheduled hearings this week to lay the groundwork for tougher laws.

Stark’s aim is to broaden the provisions of the Ethics in Patient Referrals Act, which bars physicians, effective Jan. 1, from referring Medicare or Medicaid patients to clinical laboratories in which they have investments. He is targeting all health facilities, such as diagnostic imaging centers, free-standing surgery centers and physical therapy and rehabilitation centers.

Significantly, the American Medical Assn., which fiercely opposed Stark’s previous legislative efforts, has tempered its opposition. AMA ethics officials acknowledge that there are problems with doctor-owned health care facilities. They still oppose a blanket ban on these arrangements, but say they are studying whether there should be stricter rules.

AMA officials say they are stepping up enforcement of guidelines that require physicians to disclose their investments to patients and avoid investments explicitly tied to patient referrals.

The extent of the problem was documented in a study, released in August, by the Florida Health Care Cost Containment Board. The board reported that 40% to 45% of the state’s physicians have invested in health care facilities to which they can refer their patients.

Physicians’ investments in clinical laboratories, diagnostic imaging centers and physical therapy centers resulted in higher costs, over-utilization and poorer quality care.

The study found that more than 92% of diagnostic imaging centers were wholly or partly owned by physicians. On average, these physicians were ordering about 20 MRI (magnetic resonance imaging) procedures for every 1,000 Miami residents, compared to about 12 MRIs for every 1,000 patients in the Baltimore area, where imaging centers are not as likely to be owned by doctors, the report said.

“These MRI centers are so popular because you can make a fortune,” said Florida radiologist Michael Isikoff. “You figure each machine can do 25 patients a day, seven days a week, at more than $1,000 per scan. . . . The financial bottom line becomes the most important thing, rather than patient care.”

For patients like Rosana Trinidad, who testified before the Florida board, the result can be a nightmare.

Thinking it might be time for a routine mammogram, she called her gynecologist, who referred her to an imaging center, where she said she later discovered he had a financial investment, Trinidad said.

She briefly considered using a different center, which cost half as much, but instead followed her doctor’s advice. “I thought he was sending me there based on what was best for me,” Trinidad said.

In fact, the imaging center was not accredited by the American College of Radiologists and there was no doctor on the premises to read her mammogram. Trinidad said she was misdiagnosed as possibly having cancer, and went through “three weeks of hell” before a hospital caught the error.

“It pains me to think my doctor, who I trusted, really didn’t care,” she said. “He was thinking about extra money coming his way.”

Robert D. Carl, president of Health Images, a national chain of free-standing imaging centers with no physician investors, said it is extremely difficult to compete with imaging centers that have offered deals to referring physicians. He said he knows of one facility that offered doctors a return of more than 1,200% during the first year of investment.

Carl told Florida health authorities that an orthopedic group offered to send him as many as 300 patients a month “if we gave the group’s partners all-expense paid trips to Mexico.”

Kusserow, inspector general for the U.S. Department of Health and Human Services, has issued a series of fraud alerts that attempt to define abusive business ventures and warn doctors away from them. About 20 investigations have been launched in California, based on:

* Accusations by two Orange County radiologists that Anaheim General Hospital demanded a $181,000 kickback, disguised as a marketing fee, in return for giving them an exclusive contract for the hospital’s radiological services.

* Findings by a Ventura County grand jury last year that Simi Valley Adventist Hospital spent hundreds of thousands of dollars providing local doctors with free office space and equipment, and lucrative business deals in return for patient referrals. Two doctors were given several hundred thousand dollars in loans that would be forgiven if the doctors referred their patients to that hospital for at least five years.

* Accusations in a lawsuit filed by the health insurer Maxicare that one of its doctor groups, Hawthorne Community Medical Group, took $150,000 a month in kickbacks for referring patients to three hospitals owned by American Medical International Inc. and induced Maxicare to use those hospitals.

* Allegations by federal investigators that Baxter International Inc.--the world’s largest hospital supplier--paid illegal kickbacks to doctors in return for patient referrals to its home health care subsidiary.

Officials in the U.S. Department of Health and Human Services say that they are swamped by complaints about abusive business ventures involving physicians. Many of the complaints are lodged by competitors.

It was competition that drove Stanford’s heart doctors to join the marketing frenzy. Referrals from local doctors had been dwindling since the late 1980s.

Reimbursement was also shrinking under the government’s Medicare and Medi-Cal insurance programs, as was federal funding for medical education and research. Last year, the Stanford School of Medicine posted a $78-million deficit, partly attributable to these reductions.

At Stanford and teaching hospitals everywhere, faculty doctors are under extreme pressure to bring in paying patients to offset unreimbursed costs.

The Stanford doctors’ plan was to set up the Stanford University Referral Group, essentially a club of Northern California doctors who, besides the retreat at The Lodge in Pebble Beach, would be entitled to special educational seminars and “timely, personal, service-oriented care for their patients,” according to the draft proposal, a copy of which was obtained by The Times.

Korn, Stanford’s dean of medicine, said he found out about it from his friend Dr. George Lundberg, editor of the influential Journal of the American Medical Assn. A competing cardiologist, outraged by the plan, had leaked a copy to the AMA’s ethics lawyer.

“The whole concept of this kind of marketing effort by professionals turns my stomach,” Lundberg said. In particular, the Pebble Beach retreat violated the AMA’s ethics rule against doctors receiving gifts in exchange for patient referrals.

Korn said he plans to set up clear guidelines for faculty doctors to follow in recruiting patients. But that alone, Korn said, will not solve the dilemma for medical school faculty or any doctor caught between ethical dictates and the market forces that increasingly rule medicine.

Fischell conceded “the Pebble Beach thing was a bad idea.” But he said it seemed innocuous at the time, considering all the perks routinely handed around in the Bay Area’s ferociously competitive medical market. Among them, according to Fischell, are tickets to baseball games, dinners at expensive restaurants, free greens fees at golf courses and lavish catered parties to commemorate a referring doctor’s birthday.

Rodney Johnson, Stanford’s lawyer, said he is advising the university to steer clear of all such inducements given the aggressive stance taken by Kusserow, the government’s inspector general, as well as the activity in the courts and Congress to clamp down.

Johnson and other health care attorneys say the rules are confusing and unfairly restrictive.

“Right now the regulation of the health care industry is somewhat schizophrenic,” Johnson said. “You have these (fraud and abuse) laws on the books clamping down and controlling your relationships. On the other hand, the government for the last five-plus years has said to doctors and hospitals, ‘Hey, we want you to be competitive. We want you to be creative.’ ”