Referral for Profit Drives up Health Care Costs
Thursday, October 8, 2009 | 0
By Michael Weinper
As the health care reform frenzy continues, one issue everyone can agree on is that runaway medical costs must be controlled. With that goal in mind, the issue of physician self-referral has come under increased scrutiny.
An example of this practice is a growing number of physicians who refer patients for imaging done by scanners they own and profit from. For instance, as reported in The Washington Post, a medical practice in Iowa increased requests for scans by 700% within seven months — the months after the practice bought its own CT scanner.
The Government Accountability Office (GAO) found that nearly two-thirds of the money Medicare paid for imaging was for scans in doctors' offices and that physicians reap an ever larger part of their income from providing these services.
Simply put, when doctors have imaging equipment in-house, more imaging gets done.
The negative effects of physical therapy referral for profit
A similar alarming pattern is seen in the private sector with the rise in physicians who employ physical therapists or refer patients to physical therapy (PT) clinics in which they have a financial interest. The American Physical Therapy Association (APTA) describes these situations as "referral-for-profit." It has long opposed these services because they pose an inherent conflict of interest which impedes both the autonomous practice of the physical therapist and the fiduciary relationship between the therapist and patient.
Multiple independent studies have shown that this profit motive can lead to lower quality of care and over-utilization of physical therapy services, resulting in excessive costs for both patients and payers. Consider the following consequences of referral-for-profit arrangements:
- Payment for unnecessary services. Patients typically trust their doctors to recommend appropriate treatment. If a doctor refers a patient to PT services he or she owns, the physician's decision may be tainted by financial incentives. Referral-for-profit may subject the patient to unnecessary treatment, inconvenience and extra expense.
- Compromised quality of care. The quality of patient care may suffer in referral-for-profit settings. A report from the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services on Medicare physician services found that 49% of rehabilitation therapy services performed by non-physicians were furnished by staff not trained as therapists and whom the OlG found to be unqualified.
- Higher costs for payers and consumers. The lack of oversight in self-referral settings drives up utilization and inflates costs. The OIG found that 91% of PT billed in doctors' offices didn't meet Medicare requirements, costing taxpayers millions of dollars. The total payments for PT claims from physicians skyrocketed from $353 million in 2002 to $509 million in 2004. In addition, the total number of physicians billing the program for more than $1 million in PT services more than doubled in that two-year period.
Self-referral and health care reform don't mix
What can be done about self-referral relationships?
The federal Stark legislation that had been so strong in preventing referral-for-profit situations in Medicare (Stark II in 1993) was watered down in 2001 with revisions that enable physicians to structure their practices without violating the law using a concept called "incident to" billing. The loopholes allow physicians to own, refer to, and profit from the ancillary services they own.
Legislators on Capitol Hill have shown little interest in toughening the laws to prohibit referral-for-profit. This is sadly true even in light of concerns over rising health care costs and current proposals for health care reform. Dr. Jean Mitchell, a professor of public policy and a health economist at Georgetown University, estimated that eliminating incentives for needless care could reduce the nation's healthcare bill by as much as one-fourth.
Some states have been successful in creating laws that disallow therapists to work in these schemes, but they are too few in number. Others have attempted — yet failed — to pass legislation that would prohibit physician-owned PT services.
Physician ownership of private practice physical therapy: An oxymoron
Referral-for-profit arrangements will proliferate as long as economic pressures on physicians persist. But to limit physician self-referral for PT, insurers and other payers can take a number of actions:
- Analyze their claims and cost data to compare costs and utilization for different types of providers to determine the extent of the problem within their own statistics.
- Revise underwriting rules and coverage terms so that therapy is covered only when it is provided by therapists who are independent of physicians and/or other referral sources.
- Contract only with physical therapists in private practice. Substantial evidence shows that private practitioners in physical therapy deliver better quality of care, more cost-effectively, than do PTs working for physicians. Private practitioners provide the most efficient, quality-oriented services without conflicts of interest, ensuring patients receive the best possible care and payers get the most value for their dollars.
- Support health care policy reform to change the situation. Stand with the APTA to urge Congress to take action to remove physical therapy as an "incident to" service in physician offices, and to tighten Stark II referral-for-profit regulations to eliminate financial incentives that contribute to high physician billing of PT services.
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Michael Weinper, MPH, PT, is president of PTPN, a national network of independent rehabilitation providers based in Calabasas, Calif. PTPN has more than 1,200 offices with in excess of 4,000 physical, occupational and speech therapists, and is contracted with hundreds of managed care organizations covering millions of Americans. For more information, visit www.ptpn.com.
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