Government

Illinois sues radiology clinics over MRI leasing

Legal experts say the lawsuit could have ripple effects on imaging equipment agreements in other states.

By Amy Lynn Sorrel — Posted Nov. 26, 2007

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In a case legal experts say signals heightened state scrutiny of physician arrangements with imaging facilities, Illinois Attorney General Lisa Madigan is suing at least two MRI clinics for allegedly paying doctors kickbacks for patient referrals.

The state case focuses on a type of leasing agreement the federal government also has put under the microscope in recent years. Under the arrangements, doctors lease time on imaging equipment for a discounted rate, versus paying the MRI owner per scan. The physician or the diagnostic testing facility then bills for the full amount of the service, and the referring doctor gets the difference.

State and federal officials worry that these agreements have the potential to disguise unlawful compensation and encourage unnecessary tests.

Federal safe harbors permit doctors, in limited circumstances, to rent space and equipment for ancillary services, which some physicians say can improve patients' access to diagnostic testing.

However, echoing concerns from the Medicare Payment Advisory Commission, Illinois officials view the leasing deals as a costly public health threat.

The agreements "provide a financial incentive to refer as many patients as possible ... and prescribe procedures that may not be medically necessary," the Oct. 25 Illinois complaint reads. The remunerations also "taint the referring physician's independent judgment as to which imaging facility is best suited for the patient."

The lawsuit accuses Golf Diagnostic Imaging Center and Northwest Corporate Imaging Center -- owned and operated by a nuclear medicine physician -- of creating "sham lease agreements" with at least 56 doctors, court records show. The state claims that the companies overcharged for their services and billed insurers as if the referring doctors were the ones performing the tests. Under the alleged agreements, the facilities charged doctors a rental fee at a fraction of the amount the centers billed insurers. Then the facilities allegedly let the referring physicians keep the extra payment when insurers paid the claim.

As a result, patients and several commercial health plans, including the insurer that runs the self-funded program for state employees, were defrauded, the state alleges.

The radiology clinics deny the allegations. Their attorney, Norman P. Jeddeloh, said the arrangements are legal. He pointed to exceptions under federal Stark rules that allow medical groups to contract with off-site imaging facilities.

"There are lots of arrangements out there in which doctors obtain services at a wholesale level and turn around and retail them to patients, and nobody would say those are unlawful," Jeddeloh said.

A trend in the offing?

Legal experts say the government is increasingly turning to the states to help curb alleged abuses and believe the Illinois case to be the first large-scale state effort to do so.

"As you see more evidence come to light, more states are going to start looking under the rocks," said Thomas R. Hoffman, associate general counsel for the American College of Radiology. The college is not involved in the lawsuit.

The Illinois case could have ripple effects in other states, experts say. Madigan intends to refile similar claims against roughly 20 other clinics originally in the lawsuit. Some of them are in national networks. A Cook County trial judge dismissed those 20 defendants from the case due to a lack of detail in the complaint.

One company, Central States Imaging, settled but admitted no wrongdoing. An attorney representing Central States and Nydic Open MRI of America, a defendant dropped from the case, declined to comment.

Although the lawsuit does not implicate any referring physicians, legal experts warn that they are not immune from liability. Nor are radiologists, even though they are not the ones doing the referring, Hoffman said.

Beth Anne Jackson, a health care and regulatory lawyer with Pittsburgh-based Thorp Reed & Armstrong LLP, said some state efforts may go beyond the realm of federal enforcement.

The Illinois case, for example, does not involve Medicaid but targets suspected fraud to private payers, she noted. Madigan also claims that patients and insurers were deceived.

"Patients want to know, and [Illinois officials] are saying here that insurers have a right to know, too, whether [doctors] have a financial relationship with those to whom [they] refer," Jackson said. "That nondisclosure was key here."

The case, brought by a whistle-blower with a rival imaging facility, also suggests that illegal referrals could hurt competition, the American College of Radiology's Hoffman noted.

Jackson said the suit serves as a warning that physicians must comply with federal and state laws when considering such arrangements. She recommends that doctors seek legal counsel beforehand.

Possible adverse effect?

Stricter prohibitions at the state and federal level could have an adverse effect on shared imaging facilities and ultimately patient care, Jackson said.

"Certainly physicians have to have access to refer patients somewhere, and [they] might have a better relationship and communication if they have a contractual relationship," she explained. "There are ways to do this that don't involve remuneration, and [doctors] can meet all [their] patient care goals."

American Medical Association policy supports physician disclosure of any financial relationships when referring patients. The AMA Council on Ethical and Judicial Affairs plans to study the different types of leasing arrangements for medical imaging and to develop an opinion on the ethics of such agreements.

The American College of Radiology expressed concerns about certain leasing agreements to the Centers for Medicare & Medicaid Services in its comments on the 2008 Medicare physician fee schedule.

"Most leasing arrangements are economically driven, do not contribute to patient convenience or any other attributes that promote better care and generally drive up utilization," ACR Executive Director Harvey L. Neiman, MD, wrote in an August letter.

The college told CMS it favors a ban on time-based and per-scan-based leasing arrangements, with a grace period for existing deals.

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ADDITIONAL INFORMATION

Case at a glance

Did a group of Illinois MRI clinics illegally pay doctors for referrals as part of a leasing deal?

The state attorney general is suing at least two imaging centers for allegedly violating state anti-kickback and consumer fraud statutes. She plans to re-file similar claims against roughly 20 other facilities.

Impact: Some legal experts believe the case to be the first broad state effort to curb what government officials view as potentially abusive leasing arrangements. They expect increased scrutiny from other states.

Illinois Attorney General Lisa Madigan v. Golf Diagnostic Imaging Center and Northwest Corporate Imaging Center, Cook County Circuit Court

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