Doctors’ Lobby Waters Down Bill on Self-Referrals : Medicine: Original wording would have made it a crime for physicians to send patients to treatment centers in which they have financial interest.

It began as a simple, four-page bill, and yet it packed a powerful punch--making it a crime for California doctors to refer patients to treatment and diagnosis centers for financial gain.

As originally drafted, the bill, by Assemblywoman Jackie Speier (D-South San Francisco), aimed to put a stop to “physician self-referrals.” It would have made it illegal for doctors to send their patients to laboratories, X-ray or imaging centers, physical therapy facilities, hospitals, nursing homes or pharmacies in which the physicians had a personal financial interest.

The federal government has already begun cracking down on self-referrals for profit in the federal Medicare and Medicaid systems through enforcement of a 1976 anti-kickback statute.

The Speier bill would have applied an even tougher prohibition to all doctors, whether or not they were treating government patients.

After several amendments, including one that punished violators with fines rather than jail time, the bill won surprisingly easy approval in the Assembly.

But then Speier ran into one of the most powerful lobbies in the Capitol--organized medicine.

Under the relentless opposition of the California Medical Assn. and other doctor groups, the bill, amended a total of seven times, has become a withered version of its former self. Scheduled for a hearing today before a Senate committee, the measure now only applies to physicians who examine patients seeking workers’ compensation.

“It was an encounter with an 800-pound gorilla,” said Speier, who now is hoping that her measure will become a first step in a more sweeping reform. But she admitted Tuesday that she might not have the votes to get even the reduced bill out of the Senate Industrial Relations Committee.

The “gorilla” stalking her legislation is the medical association and other physician groups, which made a crusade of battling the bill in order to protect the practice patterns and investments of doctors throughout the state.

And, as Speier found, these are formidable opponents.

Between Jan. 1 and the June primary, the medical association’s political action committee poured almost $900,000 into legislative campaign funds. Sizable amounts went to leaders in both the state Senate and Assembly, including $27,000 to Assembly Speaker Willie Brown (D-San Francisco).

The group also has spent more on lobbying than any other special interest in the Capitol--$500,000 in the first three months this year.

However, the group’s top lobbyist, Steven M. Thompson, said it was not the campaign contributions or high-pressure lobbying that made a difference in the fight against Speier’s bill. “We didn’t beat the bill down,” he said. “Logic prevailed.”

Thompson, who once was Brown’s chief of staff and later headed the Assembly Office of Research, acknowledged that contributions can have an impact.

“I would like this organization to have its performance judged by the quality of its presentation, the research that goes into the issues, and, frankly, it doesn’t hurt to have a nice big slingshot in your back pocket for election time,” Thompson said. “But I would certainly like that to be secondary to the quality of our public policy positions.”

He said that doctors “understood the problem that the Speier bill is trying to address, but they just weren’t willing to go as far as that bill goes.”

He said that in trying to root out abusive situations, Speier’s approach would “throw the baby out with the bathwater.”

Instead, he said, the medical association wants to give insurance companies greater power to review and deny payments for unnecessary medical procedures. And physicians who do refer patients to doctor-owned facilities should have to give patients a choice of two referrals and provide prices for both, he said.

Only if these approaches fail should a bill be considered that, in effect, requires physicians to divest themselves of all their holdings in outside laboratories and treatment facilities, Thompson said.

Thompson acknowledged that the California organization’s parent, the American Medical Assn., has urged its members to shun self-referrals on ethical grounds.

The AMA’s Council on Ethical and Judicial Affairs declared: “In general, physicians should not refer patients to a health care facility outside their office practice at which they do not directly provide care or services when they have an investment interest in the facility.” The AMA recommendation was based on a growing number of studies that appear to show that when doctors have a financial stake in outside facilities, they are more likely to refer patients for tests or treatment.

A Florida State University study found, for example, that patients of physician-owners in Florida were 40% more likely to get laboratory tests and 12% more likely to get advanced X-ray or imaging tests than patients whose doctors had no such conflict of interest.

Because of the increasing body of evidence, Rep. Pete Stark (D-Oakland) has been pushing to bar all government payments for such physician self-referrals. Thus far, he has succeeded with legislation that denies Medicare payments to clinical laboratories if the referring doctor has an ownership interest. The law went into effect Jan. 1.

Stark, who applauds Speier’s attempt in California, is unsparing in his criticism of corporations that make money by encouraging unnecessary tests. “There are a lot of jackals out here,” he said. “Sick people tend to be frail, frightened and easily confused, and you’ve got people out there that prey on them.”

Republicans are joining the effort. As part of a broad attack on rising medical costs, President Bush is urging legislation that would prohibit Medicare payments for self-referrals in radiology, radiation therapy, medical equipment, home health care, physical therapy and rehabilitation.

Increasingly, federal agencies have been cracking down on abuses as well.

Speier’s legislation was originally written to eliminate all referrals to labs and treatment facilities in which the referring doctor held a financial interest. She quickly learned that there were problems with the bill, that it would prohibit such traditional practices as ordering a simple X-ray within a doctor’s office.

But providing the exceptions without creating sizable loopholes was not easy, Speier said.

“In an effort to be intellectually honest, we refined the bill and made it better,” she said.

And along the way, she gathered allies--among them insurance companies, industry groups, hospitals, radiologists and physical therapists. As the California Medical Assn.’s Thompson and others have pointed out, some of those backing Speier are groups that would stand to benefit if her bill succeeded. These include health care providers who depend on physician referrals but generally do not allow the referring doctors to own a share of their facilities.

Still, Speier was able to get her bill out of the Assembly in January, in part because of a study conducted by William M. Mercer Inc., a health care consulting firm.

Looking only at workers’ compensation cases, Mercer analysts found that physicians in California who owned physical therapy centers were twice as likely to refer injured workers for treatment as those who had no such ownership interest.

The opposition was “really caught flatfooted on the Assembly side,” Speier said. “But I probably made a tactical mistake by not moving the bill quickly (through the Senate).”

Physicians were so angry at the legislation that they attacked Speier with a fury.

In the face of the opposition, Speier said she had no choice but to pare back her bill, which now deals only with self-referrals in workers’ compensation, which is costing the system $350 million in unneeded health care costs each year, according to the Mercer study.

Strong opposition remains: The doctors who handle workers’ compensation cases still oppose it. And the state medical association still is not supporting it, although lobbyist Thompson concedes that the system needs reform.