The expiration of the moratorium on specialty hospitals will have repercussions for imaging

Readers of this publication are, no doubt, aware of current federal (Stark) and state laws as they pertain to self-referral for imaging. Under the Stark laws, physicians are precluded from referring Medicare and Medicaid patients for certain “designated services” to facilities in which they have ownership interest. Although imaging is included among the designated services, the federal law contains numerous exceptions that dilute its effectiveness. One significant such exception is the in-office exemption, resulting in a huge growth in imaging done in offices of nonradiologists.1–4

Other pertinent exceptions to Stark laws involve ambulatory surgical centers (ASCs). Physicians are permitted to make most types of referrals to ASCs in which they have financial relationships without fear of violating the Stark law, but they are limited to referring only for services that are performed and billed as part of these nondesignated services. Certain services that could otherwise be furnished in ASCs, however, are identified as designated health services when done as stand-alone procedures. For example, radiology services are designated health services, and so referrals for procedures that involve imaging are precluded by the Stark laws.

The Stark laws also have a “whole hospital exception,” under which a physician may lawfully refer patients for services at a hospital where he or she has an ownership interest. Some specialized hospitals have existed for decades without controversy (eg, children’s, psychiatric, and women’s facilities); however, a new kind of hospital that specializes in cardiac, orthopedic, or surgical care has recently emerged.

Specialty hospitals have prompted outcry from existing providers, most prominently the general service hospitals, which contend that the specialty hospitals divert the more profitable services and paying patients. General hospitals depend on these for subsidy of their mandated mission to provide all services, including those that lose money, to all people.5 Legislators also have weighed in on the issue, including the author of the self-referral legislation, Representative Pete Stark (D-Calif).

“When we wrote these Stark laws, specialty hospitals weren’t there. They basically didn’t exist,” Stark said. “…Had these hospitals existed when the Stark laws were written, I assure you that ownership in them by physicians would have been prohibited for the same reasons that we found ownership in any other facilities leads to over-utilization and excess charges to Medicare.”6 Against this contentious background, in November 2003, Congress enacted an 18-month moratorium against most new or expanded physician ownership of specialty hospitals.

When the statutory moratorium expired in May 2005, CMS effectively extended the prohibition by declining to process new Medicare enrollment applications for specialty hospitals pending additional study and debate. In February 2006, Congress spoke again in the Deficit Reduction Act, and directed the agency to issue a further report. On August 8, 2006, CMS issued its final report, providing that the moratorium against new or expanded physician ownership of specialty hospitals be expired.7

Many national and regional organizations representing physicians and their specialties have weighed in on the issues related to the dissemination of medical imaging outside of the purview of hospitals and radiologists, including that of self-referral. Purveyors of these alternative provider relationships are militant in defending their ability to do so. Especially given the effect of the recent Office of Inspector General rulings calling into question the time-sharing and other leasing relationships,8-12 these physician organizations and groups likely will explore increasingly creative means of achieving their aims, and the trend of increasing self-referred imaging will likely accelerate. The expiration of the moratorium will have the consequence of providing an ideal venue for circumvention of the intent of the Stark laws.

Repercussions for Imaging

An abundance of peer-reviewed data demonstrates that the conflict of interest inherent in self-referral increases utilization of services.13-15 Imaging departments in specialty hospitals perform much imaging for outpatients. According to Jean M. Mitchell, PhD, (personal communication, September 2006), who has done considerable research on specialty hospitals, surgeon-owners of orthopedic specialty hospitals with imaging services used imaging for preoperative evaluation more than twice as often after they became owners of the facilities as they did before they were owners. All of these imaging encounters were in the outpatient setting. Thus, the radiology department of a specialty hospital may be an attractive “creative alternative” or “loophole.” Because they are not restricted by the in-office requirement, they have the potential to be the virtual equivalent of the multi-investor imaging centers whose abuses were documented and led to the promulgation of—and became the direct targets of—the Stark laws.

The foregoing raises questions:

  1. Should outpatient imaging departments of specialty hospitals that have ownership interest by referring physicians be treated as the “freestanding imaging centers” that the Stark laws preclude?
  2. If so, would this be affected by a potential “in-office exemption” (ie, the maintenance by the physician-owner of an office in the same building)? It would seem obvious that the answers would be yes to the first and no to the second.
  3. What are the implications of the existence and growing prevalence of these de facto imaging centers with regard to the leasing relationships that have become so prevalent and are under scrutiny by the OIG?
  4. Alternatively, should similar principles be applied to outpatient imaging at specialty hospitals as are applied in the ASC model? This would seem to be the most effective approach consistent with the intent of existing law.

It is unclear whether these issues involve interpretation of the existing Stark and anti-kickback laws, or whether they would require new or amended legislation. As a start, they would benefit from OIG clarification.

Alan Kaye, MD, is president of Advanced Radiology Consultants, Bridgeport, Conn.


  1. Report to the Congress: New Approaches in Medicare. Washington, DC: Medicare Payment Advisory Commission; 2004.
  2. Maitino AJ, Levin DC, Parker RL, Rao VJ, Sunshine JH. Practice patterns of radiologists and nonradiologists in utilization of diagnostic imaging among the Medicare population. Radiology. 2003;228:795-801.
  3. Levin DC, Parker L, Intenzo CM, Sunshine JH. Recent rapid increase in utilization of radionuclide myocardial perfusion imaging and related procedures (1996-1998 practice patterns). Radiology. 2002;222:144-148.
  4. Levin DC, Intenzo CM, Rao VM, et al. Comparison of recent utilization trends in radionuclide myocardial perfusion imaging among radiologists and cardiologists. Journal American College Radiology. 2005;2:821-824.
  5. Senate Statement on Physician-Owned Specialty Hospitals, American Hospital Association, May 17, 2006. Available at:
  6. Moore J. Hospitals, doctors in contention over specialty facilities. Today in Cardiology. July 2004. Available at:
  7. Final Report to Congress Implementing Strategic Plan for Specialty Hospitals. Center for Medicare and Medicaid Services, August 8, 2006.
  8. Numerous personal communications with Norton Travis, Esq, a health care attorney in New York, 2005 and 2006.
  9. Office of Inspector General Advisory Opinion 04-17, December 10, 2004. Available at:
  10. Office of Inspector General Special Advisory Bulletin on Contractual Joint Ventures. Available at:
  11. Office of Inspector General Special Fraud Alert on Joint Venture Arrangements. 1989. Available at:
  12. Office of Inspector General Special Advisory Bulletin on Contractual Joint Ventures. April 30, 2003. Available at:
  13. Kouri BE, Parsons RG, Alpert HR. Physician self-referral for diagnostic imaging: review of the empiric literature Am J Roentgenol. 2002;179:843-850.
  14. Hillman BJ, Joseph CA, Mabry MR, Sunshine JH, Kennedy SD, Noether M. Frequency and costs of diagnostic imaging in office practice—a comparison of self-referring and radiologist-referring physicians. N Engl J Med. 1990;323:1604-1608.
  15. Levin DC, Rao VM. Turf wars in radiology: the overutilization of imaging resulting from self-referral, Journal American College Radiology. 2004;1:169-172.