Arrests Fuel Debate Over Patient-Referral Services : Medicine: Doctors in case decry prosecution. Experts call laws regulating paid physicians’ marketers untested and unclear.

The arrests of four doctors for paying a marketing firm to get them patients--the first case of its kind under California law--has sent doctors rushing to lawyers for advice and has prompted some physicians to quit using sales and referral services.

But legal experts say the law in this area is untested--and extremely unclear. The four doctors, meanwhile, say they are unfairly caught in a net that was really meant to ensnare bigger fish.

“We know there’s workers’ compensation fraud,” said Ronald Perelman, an orthopedic surgeon who, according to a well-placed source on the case, is unlikely to be charged with any crime other than paying for patients. “We know there’s personal injury fraud. And they’re right in going after it.

“But just to put a big net out there and just pull everybody in and try to destroy reputations,” is not right, Perelman said.

Last month, Perelman and three other doctors--Philip Lichtenfeld, Robert Glazer and Vladimir Golovchinsky--were arrested and charged with violating section 650 of the California Business and Professions Code, which regulates the way physicians may obtain patients.

They were accused of hiring Tarzana-based Debra Mattes to bring them patients from attorneys who handle workers’ compensation and personal injury cases.

But the case is extremely complicated, and goes to the heart of the current debate over what is and is not proper in the health-care business.

In brief, state law prohibits doctors from paying someone on a per-head basis to refer patients to them. But the law says that it’s legal to pay marketers who attract new patients, so long as the marketers also provide other services, such as advertising.

Here’s how the doctors’ arrangement with Mattes worked, according to police and court documents:

Mattes published a directory that contained the addresses and medical specialties of doctors who were her clients, and distributed it to lawyers. The problem, prosecutors say, is that she didn’t include the names of the doctors, meaning attorneys had to go through her to reach the physicians they needed.

That, prosecutors add, indicates that Mattes was handling the referrals personally and was being compensated accordingly. The four doctors paid Mattes $165,000 between 1987 to 1990.

Prosecutors also have included in court documents a letter in which Mattes purportedly gives a doctor the option of either paying her per patient or a flat rate.

Mattes’ attorney says she broke no laws and performed a variety of services for the physicians, including publishing a newsletter, providing collection services and attending meetings of lawyers’ organizations to drum up business. The doctors, all of whom practiced in the San Fernando Valley except Glazer, said they thought they were simply hiring a marketing firm to provide all those services and attract patients.

No one has yet been prosecuted for paying a marketing service to refer patients, legal experts say. There is no case law on the subject at the state level, and the doctors who were arrested say they were never warned that what they were doing was illegal.

“We strongly think that it’s inappropriate for criminal prosecutors to come into an area where the law is uncertain and start trying to make law by prosecuting particular doctors,” said health-care lawyer Brad Tully, a principal in the West Los Angeles law firm of Hooper Lundy & Bookman. The Los Angeles County district attorney’s office, he said, “is widely perceived as taking some very broad and indefensible interpretations of the statutes in this area.”

The doctors charged in the case say their lives and practices have been disrupted, that they have lost sleep and can’t stop thinking about what has happened.

An erroneous television news report that claimed they were charged with collaborating with Mattes in a major scheme to defraud insurance companies through kickbacks and phony claims made matters worse.

“This has obviously been a great hardship for my family, my employees and myself,” said Lichtenfeld, who practices in Encino. “I find it difficult to comprehend how hiring an advertising and marketing service could lead to consequences such as these.”

Michael Tichon, who practices health-care law for the firm Davis Wright Tremaine, said he has received several calls from clients who were wondering if their own arrangements with marketers were legal. One large medical group, he said, has stopped doing business with marketers altogether.

“My guess is that (law enforcement officials) are trying to send a message to people to cool it,” Tichon said. “And I can tell you people are cooling it. Even if the deal is legitimate, if they can do without it, they’re not taking the risk.”

Law enforcement officials say they understand that they are operating in a relatively untested area. But they say the laws do exist, and paying for referrals is illegal--whether it’s been prosecuted before or not.

“You have to start somewhere,” said Phillip L. Foster, supervising investigator for the California Medical Board, one of the law enforcement agencies involved with the case. “We can’t sit here as investigators and play judge and jury. We can just gather the facts.”

The D.A.’s office last year hinted that it would take a hard line against paid referrals when the head of the major fraud unit, Deputy Dist. Atty. Edward Feldman, said in a medical industry newsletter that using marketing services is potentially illegal. Prosecutors, he said, might soon pursue such cases.

Steven Mazur, the deputy district attorney prosecuting the case, said he will argue that the doctors knew they were violating the law.

“It’s no secret to doctors practicing in the state of California that you’re not allowed to buy patients,” Mazur said. “It’s unlawful and unethical.”

Alexander M. Capron, who specializes in medical law at USC Law School, said similar statutes are on the books in several states. A federal statute prohibits paying for referrals in Medicare cases.

Despite the tough talk, however, the four doctors charged in this case might have remained in relative obscurity had it not been for an entirely unrelated investigation.

In 1989, Los Angeles Police Department detectives were looking into allegations of extortion against Mattes’ former boyfriend.

In the course of their work, they searched her office and found the records of her medical marketing business. There, investigators said they found evidence of at least one crime--the alleged violation of the referral law. And by investigating the doctors who worked with Mattes, detectives said, they thought they might find more.

They say they did. In court documents, Mattes is alleged to have been involved with fraud regarding workers’ compensation and personal injury cases. She and a doctor also alleged to have committed fraud, Karl Epstein, were arrested in January.

But Lichtenfeld, Glazer, Golovchinsky and Perelman are not accused of fraud at all.

“Of all the people out there,” lamented Perelman of Tarzana, “Why are they going after me? I have a good reputation. I work very hard. I am respected by both sides (in workers’ compensation cases) . . . . This is McCarthyism. It’s Salem again.”

Perelman’s attorney, Leonard Levine, said his client was arrested on a technicality. Dentists, he pointed out, are allowed to pay for referrals.

Mazur agrees dentists are exempt from such laws, but says calling the violation a technicality demeans the law. “That assumes that Section 650 isn’t an important law, or that a violation of the law isn’t significant,” Mazur said. “The stuff we filed is very straightforward. The law has been on the books for years.”

Los Angeles Police etective Jim Murawski, who is heading the investigation, said he could not rule out the possibility that the doctors might be charged with other violations later, as the investigation continues. But he said that with the exception of a narcotics possession charge against Lichtenfeld--police found small amounts of cocaine and speed when they searched his office--there currently is no evidence that the doctors did anything other than pay for the referral of patients.

The four doctors have repeatedly said that such referral arrangements are common. Capron, of USC Law School, disputes that argument, but health-care attorney Tichon said that while it’s not common for general practitioners to use marketing firms and referral services, doctors who work primarily with patients who are injured--in auto accidents or at work, for example--have used them increasingly.

The physicians are seeking more patients, he said, partly because insurance companies are trying to pay less for each claim. Moreover, an overabundance of doctors means increased competition.

But if doctors continue to use such services, they will have to be careful in how they set them up. If legislation currently supported by the California Medical Assn. is passed, it will be illegal in California just to run a company that refers patients for profit, regardless of the payment structure.

Still, the deal between the four physicians and Mattes, if found in court to be illegal, is not all that different from arrangements that are perfectly legal now, said Michael Dundon Roth, a Los Angeles attorney who is a past chairman of the medicine and law committee of the American Bar Assn. and a director of the National Health Lawyers Assn.

The law, he said, is hazy.

“I recommend to my clients that payments not be directly related to a patient-by-patient referral basis,” Roth said. “Although a legitimate defense could be mounted in such a case, a payment of that type is more likely to attract government regulators, even if it’s a legitimate payment.”