While imaging utilization is up so is the practice of self-referrals. Supporters say self-referral provides convenience for patients, but many vehemently argue it’s an abuse of the system requiring legislative reform.

The state of health care today puts extreme pressure on patients, but also on physicians, with tightened reimbursements and pay-for-performance standards. It’s little wonder, then, that physicians seek out additional revenue opportunities in order to continue to operate and provide patient care. But what happens when this economic reality conflicts with providing appropriate, high-quality patient care?

With the increasingly publicized issue of physician self-referral, this conflict is coming to a head. Self-referring physicians may be ordering diagnostic imaging for reasons of economic gain over patient needs, and it’s sparking a heated debate and pushes for legislative reform. Touching on the hot button issues of insurance premium pricing, ownership of patients, medical necessity, and the role of radiologists, self-referral is a crucial issue in today’s health care environment. And it’s one that may well project the future of the industry.

Increased Utilization, Increased Referrals

Jean Mitchell, PhD,
professor of public policy at Georgetown University

The practice of self-referring is coming to increasing attention of late due to a study published in the May 2008 issue of Medical Care, conducted by Jean Mitchell, PhD, professor of public policy at Georgetown University. Cutting through the partisanship that can take hold among studies conducted by physicians, Mitchell, an economist, took a stark look at private insurance reimbursement trends across California from 2000 to 2004. She examined trends in utilization from Blue Cross for MRI, CT, and PET scans, and calculated relative changes in use rate by provider type, including self-referring physicians, radiologists, hospitals, and independent diagnostic testing facilities.

What Mitchell found came as confirmation of what many industry analysts and clinicians suspected. Imaging utilization shot up during this time period by almost 400% for PET scans and more than 50% for MRI and CT scans. The findings suggested that physician self-referrals and licensing arrangements, as well as independent diagnostic testing facilities, are powering this increase.

In understanding the ramifications of this study, Mitchell notes two key points. Imaging utilization is up, as are costs. In fact, MRI, CT, PET, and radionuclide myocardial perfusion imaging (RMPI) scans are the fastest-growing components of medical expenditures in the United States, increasing at an annual rate of 9%. Along with costs, reimbursement is increasing. Previously released data showed Medicare reimbursements over 1999-2004 increased the fastest of any category of physician services. In many ways, the increased use of imaging is natural—the technological advances represented by imaging tools provide significant diagnostic power for clinicians and patients. The costs are natural as well—the equipment is complicated and expensive.

The other main issue from the study is intricately tied with imaging utilization, and that’s the growing incidence of self-referral.

“Physician self-referrals are a response to financial incentive,” said Mitchell. “Everyone responds to that. If you were in their shoes and getting pay cuts, which is essentially what’s happened, you would try to make up that lost income. The easiest way to do it, in specialties that need imaging, is to expand the scope of practice in order to bill for the imaging. That is what’s happening.”

The Issue of Self-Referral

Self-referral, defined as physicians referring patients for ancillary services to their medical facility, or one in which a financial interest is held, is disallowed under the Stark II regulations created in 1993. But just as with every law, there are limits and loopholes. Stark II exceptions allow physician group practices to self-refer if the group practice meets certain criteria. They also allow physicians to self-refer if the services are personally performed or supervised by a physician in that group. Finally, the self-referral prohibition does not apply to certain facilities like hospitals.

Abuse of the self-referral law comes by exploiting these exceptions. It usually works like this: Doctors establish a relationship with a hospital or imaging center, leasing the facility for a set time per day or week. This relationship may be established with niceties, or threats of competitive pressure. All billing is sent to the physician’s office, and the reimbursement covers technical and professional fees. From this reimbursement, the physician pays rental fees for the imaging center, and pockets the rest. In many cases, this can be between $200 and $450 per imaging patient.

The two camps of public and physician opinion that have emerged view this scenario with emotions ranging from satisfied approval to unmitigated disgust. Supporters of using self-referral in this manner point to the increased convenience to patients by offering imaging in house. Additionally, they question the presumption that self-referral is often not medically necessary.

“At best, we can infer or speculate that since utilization has spiked, it must be because of financial incentive,” said W. Kenneth Davis, Jr, partner with Katten Muchin Rosenman LLP, who works with physician and radiology groups and their use of ancillary services. “But you cannot draw that conclusion in any scientific fashion. What percentage of procedures in the Mitchell study ordered by self-referral was medically necessary? And what percentage was not medically necessary and therefore driven by financial considerations?”

Members of this camp also say quite plainly: If the imaging is medically necessary, why not benefit?

“If you accept the premise that there is just greater use for these technologies,” said Davis, “and if a physician has a choice between ordering a medically necessary procedure from another center or from their own practice, physicians can logically say, ‘I’m going to order this for myself.’ Part of the pressure here is reimbursement is being squeezed down pretty dramatically. Physicians are admittedly looking for new revenue opportunities.”

Opponents of self-referral contend the imaging is, in practice, rarely convenient or better quality, usually involving separate appointments, prior authorization, and loose radiological interpretation. Plus, it’s creating a turf war that’s hurting physicians, radiologists, and patients.

“Radiologists are trained to interpret advanced imaging,” said Mitchell. “Orthopedic surgeons are not, neurosurgeons, chiropractors, and others are not. Radiologists spend years learning how to do this. But other doctors feel like, ‘This is my patient, I’m making a referral, so therefore I can capture all the revenue generated by this patient.’ “

At Stake

Self-referral exists, and to combat what many see as unethical and disconcerting practices, legislative pushes are under way to close the loopholes. But in the heated language on both sides, the importance of the issue, and what stands to be gained and lost, often gets subsumed.

In a world of unlimited resources, an issue like this would perhaps matter less. But in our current environment of rising costs, government pressures, and the burgeoning ranks of underinsured or uninsured people, it matters a great deal. Utilization is the way that insurance companies determine their premiums. When utilization is up, insurers feel the heat and in return raise the costs of having insurance. If utilization is artificially inflated, perhaps from a host of physicians making self-referrals in borderline cases, this pushes insurance even further out of the reach of many people across the country.

Another factor is at stake. Patients often trust their doctors to a fault. In cases where they perhaps should ask questions, or at least have the option to make a choice, patients will often defer to their physician’s expertise. If imaging is recommended, it will most likely take place. But in cases of self-referral and twisting the system, is the physician role as patient agent compromised?

“The issue is this,” said Mitchell. “If patients had the same information that physicians had, and were able to evaluate the benefits and costs of undergoing an MRI, in many of these marginal cases the costs would far outweigh the benefits. I bet if a doctor told a patient to get an MRI, and they had to pay out of pocket, they wouldn’t do it.”

The increasing prevalence of self-referral also raises a distressing trend. An industry has sprung up around the economic benefit of self-referral. Legal aid exists solely to direct physicians with imaging utilization, ancillary services, and legal bases for their actions. Imaging equipment manufacturers are targeting nonradiologist physicians with a message of pure business return-on-investment.

Finally, from a radiologist perspective, self-referral puts clinicians in a bind. Physicians are increasingly relying less on independent radiologists and instead on licensing arrangements or per-case radiological interpretation.

“This is the issue of our era,” said Roger Thomas, MD, FACR, diagnostic radiologist, partner with Newport Harbor Radiology, Newport Beach, Calif, and past president of the California Radiology Society. “The industry is getting divided. If our specialty is divided by subspecialties who aren’t imagers, like OB/GYNs who do all their scans, and pulmonologists who do their CT scans, we start fracturing imaging and it becomes a very small piece of pie. The future of the specialty is at a crossroads.”

Moreover, the message from radiologists is increasingly hard for patients to understand and trust, when their family doctor is saying self-referral is something good.

“You can imagine how difficult it is for imaging specialists with no direct contact with patients going against the American College of Cardiology or Orthopaedic Surgeons,” said Thomas. “They’re telling patients self-referral is good for them. Since they have a relationship with these doctors, they understandably think this has to be the right thing. There’s nothing further from the truth.”

Legal Options

For many, the solution is to alter the laws and close the loopholes. The legal battle in California is using Mitchell’s study as support for the cause, and points toward one path for the rest of the country.

Initially, the push for altered legislation in California began 3 years ago with a sweeping bill that attempted to pinpoint the specific circumstances of self-referral that were allowed and not allowed. The bill came to a crushing defeat with the opposition of the California Medical Association and other groups. Now with documentation in the form of Mitchell’s study, the legislative reform effort has sparked again, this time with tightly focused wording and goals.

“It strictly says one thing,” said Thomas, who is one of the radiologists working with legislators to get this bill passed. “If physicians do not do the exam in their own office, then they may not bill for the technological components of the exam. It’s very important and very focused.”

This go-round the organizers are feeling optimistic. The bill, carried by Assemblyman Sam Blakeslee, passed the California Assembly Business and Professions Committee with a vote of 10 to 0. It has sparked high hopes for powerful reform.

Of course, the path of California may not be the method that works for other states and eventually the country. Most agree that self-referral probably occurs in patterns similar to those in California throughout the other states. So, taking the premise that it’s a problem to solve, what should be done about it?

One option is to eliminate exceptions, or to allow exceptions with more rules governing them. One example would be self-referrals allowed only if equipment is in the physical office space, and if physicians have American College of Radiology-accredited staff on site. The idea is to place a burden upon inappropriate self-referral, stopping it in its tracks. Another option is for insurers to strictly reimburse for bundled services that are part of a singular episode of care. This would ensure procedures that are only absolutely necessary and on site.

Realistically, a full ban may be the best method.

“I initially thought we need policy makers working with insurers and physicians on which types of scans would be more effective in more cases,” said Vivian Ho, PhD, professor of medicine at Baylor College of Medicine and associate professor of economics at Rice University, who provided commentary on the Mitchell study in Medical Care. “But this is extremely difficult and would take a lot of time. The other alternative that should be considered is to completely ban self-referral for diagnostic imaging. It’s unfortunate, but on the other hand, it’s a pretty compelling argument to save a great deal of money that can hold down insurance costs.”

In order to provide support for measures like these, and further document utilization and self-referral issues, additional studies are needed. Ho suggests examining the issue of frequency of referral in self-contained HMOs, like Kaiser in California, without the economic incentive of additional scans. Additional studies also need to be undertaken in other states.

For now, physicians and the public need to recognize that this is an issue crying out for a solution.

“Yes, there’s more pressure from managed care on physicians,” said Ho. “But to me that’s not the way the economics should work. To force this cost upon consumers doesn’t lead to efficient markets. It’s unfair, and with little demonstrable benefit.”

Amy Lillard is a contributing writer for Axis Imaging News. For more information, contact .