States focus on doctor arrangements with imaging centers

Several states are strengthening self-referral and anti-kickback statutes to curb what they see as illegal physician referrals to imaging centers and potentially unnecessary scans. Their efforts come in response to a March 2005 congressional advisory panel report that pointed out weaknesses in federal law governing "self-referrals."

Federal rules provide a range of safe harbors allowing physicians, under limited circumstances, to refer patients to centers in which they have a financial interest. But the Medicare Payment Advisory Commission concluded that a variety of leasing, employment or compensation deals are either illegal or need to be further regulated to prevent "financial incentives that may improperly influence physicians' professional judgment."

If left unchecked, these arrangements could lead to inappropriate testing, which would hurt the quality of patient care and increase health care costs, the panel warned in its report to Congress.

A June report by the Health and Human Services Office of Inspector General estimated that the Centers for Medicare & Medicaid Services paid a handful of imaging facilities $71.5 million for services that "were not always reasonable and necessary" or did not comply with federal law.

Doctors using the safe harbors view them as a way to offer patients more choice in where to get tested. Physicians who don't follow the rules face harsh penalties, ranging from getting kicked out of Medicare or Medicaid to losing their state medical licenses. The MedPAC report has increased federal and state scrutiny of these arrangements.

"Anti-kickback is starting to heat up, and the government has made it clear they are going to go after individual physicians and providers," said Thomas Hoffman, associate general counsel for the American College of Radiology, which shares the concerns MedPAC raised.

Until now, however, legal experts say federal regulations have not been very actively enforced, which has contributed to the proliferation of MRI clinics and heightened state activity to regulate them.

"States are now coming along and saying, 'We are getting defrauded as well, and the same evils that apply to Medicare are happening to us,' " said Jon Henderson, a corporate health law attorney with the Texas-based firm Hughes & Luce LLP.

For example, certain leasing agreements have come under fire as providing kickbacks for referrals, Henderson said. These are deals in which doctors lease time on imaging equipment at a center for a discounted rate, as opposed to getting charged per scan. The physicians then bill for the full amount of the technical component of the services, keeping the difference.

A California Senate committee passed a bill that would require the imaging centers or radiology offices, instead of the doctor, to bill the insurer without paying a fee to the referring doctor. The full Senate is expected to vote on the measure in August.

Meanwhile, a Florida statute took effect July 1 targeting doctors who serve as medical directors at investor-owned imaging clinics. Legal experts say these physicians are often hired as a way to increase referrals in exchange for their salaries. The law, which does not apply to physician-owned centers, makes it a third-degree felony for the directors to refer patients from their private practices for services at the imaging facilities where they work. The provision was tucked into a measure aimed at auto insurance fraud.

"It was added to deal with a problem of MRI clinics with [outdated] equipment using local, sometimes family practice physicians, and the big MRI clinics with newer equipment felt it was a problem," said Jeff Scott, Florida Medical Assn. general counsel.

Because there is no proof of Florida doctors referring a disproportionate number of patients for such diagnostic tests, the FMA did not take a position on the provision, Scott added.

Laws like the one in Florida are unlikely to affect radiologists directly because typically they are not invited to serve as medical directors of commercial clinics, said the ACR's Hoffman. But with states toughening anti-kickback and self-referral laws in general, he warned, "just because radiologists generally don't refer doesn't mean they are immune from being investigated, because the law reaches both sides of the transaction."

Some doctors worry that some recent state actions are misdirected and will decrease patient access to care if physician investment is discouraged.

In July, the Massachusetts Legislature directed the state inspector general to investigate improper referrals in the MRI market and suggest ways to combat abuse. This move was seen as a compromise after lawmakers failed earlier in the year to pass a bill that would have barred doctors from investing in MRI equipment.

"The conflict stems from hospitals and large commercial providers of imaging services feeling that they may be having business drawn away" by physician-operated services, said Massachusetts Medical Society President-elect Dale Magee, MD. The MMS opposed the investment ban bill, but it has not taken a position on the study.

"Patients get good access and high quality with more competition, which in general will lead to more opportunity for lower-cost services," said Dr. Magee, a gynecologist.

Hospitals, on the other hand, argue that the market is unfair because doctor-owned clinics don't have to secure a certificate of need to justify providing certain medical services.

"These non-hospital centers do not submit to the same scrutiny, and we bear a very heavy regulatory burden that they do not," said Massachusetts Hospital Assn. spokesman Paul Wingle. The result is a glut of medical imaging centers, which could lead to unnecessary services and thus extra costs for patients, he added.

The MedPAC report included recommendations such as a moratorium on physician-owned imaging centers. It also advised stricter regulations requiring doctors to reveal any financial relationships when referring patients. American Medical Association policy supports disclosure of such arrangements.

Doctors can have a place they refer to that can be legal, Henderson said. But to ensure compliance with the law, he recommends that doctors seek legal counsel before jumping into any business arrangement.

"In this highly regulated arena where there is all this scrutiny and material available, [doctors] will be hard pressed to say they didn't know something was illegal," he said.