In the booming self-referral business, all of the incentives are aligned

The Stark and anti-kickback laws have a long history of failure when it comes to reining in the self-referral of high-ticket imaging procedures. The laws are there, but so are the loopholes, and they are wide enough to drive a tractor-trailer through.

Or are they?

In a December 20, 2006, Declaratory Ruling by the Maryland Board of Physicians on formal petitions filed separately by CareFirst BlueCross BlueShield and the Injured Workers Insurance Fund, the Board took a close look at the Maryland Self Referral Law (HB 1280), passed in 1993, and determined that most of the MRI referrals of eight orthopedic practices violated the Maryland law. The process that the Board used was rigorous and methodical, beginning with a review of the cases presented and then a reduction of the facts into a general fact pattern with three variations.

Radiologists will recognize the general fact pattern, as many are willing participants:

“A patient is seen by an orthopedic physician who has a beneficial financial interest in the practice. The patient may have been referred to the orthopedist by another physician, or the patient may have come directly to the orthopedic physician. The orthopedic physician makes a referral for an MRI scan; the patient receives the MRI a few days or weeks later on a machine that is owned and operated by or leased by the orthopedic physician’s practice. The MRI image may be read in-house, or it may be sent to an off-site radiologist to be read. An off-site radiologist may state his or her findings in a radiology report and forward the report back to the orthopedic physician. The referring orthopedic physician’s practice submits a bill for the MRI as the provider of the MRI scan (though not necessarily as the provider of the interpretation of the scan).”

The board also found the following variations on the fact pattern, which I will summarize in the interest of space:

Variation 1: Same as general fact pattern with the exception of the fact that the orthopedic physician signed a Maryland Uniform Consultation Referral Form from the primary care physician (PCP) after the orthopedist determined that the MRI was necessary, but before the scan was performed. The PCP did not see the patient after the MRI was ordered but before the scan was performed to determine the necessity of the scan.

Variation 2: Same as general fact pattern, but the orthopedic physician names the PCP as the referring physician. Again, the PCP does not see the patient after the MRI was ordered but before the scan was performed to determine the necessity of the scan.

Variation 3: Same as the general fact pattern, except the ordering physician was an employee of the practice that evaluated the patient, provided the MRI scan, and ordered the MRI to be done on the patient. The physician employee had no beneficial interest in the medical practice.

As in most other federal and state self-referral laws, the Maryland law contains several exceptions to provide latitude for those physicians for whom the act of self-referral is not for monetary gain. It was on the consideration of these exceptions that the Declaratory Ruling was made, with the purpose of interpreting the statute in its entirety, in the context of the purpose underlying its enactment—which was to limit self-referral of MRI, CT, and radiation therapy services—and as a whole, so that no word, clause, or phrase was rendered superfluous, meaningless, or nugatory. The Board was meticulous in arriving at its ruling, which is likely to be unpopular with many in the Maryland physician community. It is worth a read and can be accessed at

It ruled that a referral by an orthopedic physician for an MRI to be performed on or by an MRI machine owned or leased by the orthopedic practice, meeting the criteria of the general fact pattern or variations 1 or 2, is an illegal self-referral within the meaning of the Maryland law. With respect to the employee physician, variation 3 represents an illegal referral if the physician is directed to refer to the practice-owned MRI, but it is not illegal if he is not directed.

Noting that the statute had been in effect since 1993, but neither the Board nor the Attorney General had taken any action until 2004, the Board declined to recommend disciplinary action.

In their book Freakonomics, economist Steven D. Levitt and journalist Stephen J. Dubner apply Levitt’s brand of economic theory to a range of economic, social, and moral problems to arrive at answers to some of our society’s most vexing questions. A fundamental idea in their system of thought is that incentives are the cornerstone of modern life, and understanding them is the key to solving almost any riddle.

Understanding the failure of physician self-referral laws is easier when considering the incentives involved. Referrers want the income; patients, mistaking more for better, want the studies; politicians want the support of the physician lobby; teleradiology groups are building businesses on the fees of the self-referrers; and radiology groups want to protect at least their professional component as more and more referrers buy equipment.

Insurers are the only ones feeling the pain. Of course, they pass it forward to all of us in the form of higher premiums for health insurance and more restrictive coverage guidelines.

The Maryland Board of Physicians deserves credit for its judicious interpretation of the Maryland Self Referral Law. But until state and federal judicial bodies are willing to take disciplinary action against the transgressors, the self-referral laws will continue to fail to curb overutilization of high-cost imaging procedures.

Cheryl Proval
Editorial Director