John P. Lubicky, MD, FAAOS, FAAP
Ethics & Professionalism Committee Member
TRIBULATIONS OF SELF REFERRAL:
Revisiting the Stark Laws and Professional Ethical Considerations
In the bygone days of medicine, physician advertising and entrepreneurship were foreign concepts to doctors in everyday practice. Doctors provided specific services and hospitals provided others. Dramatic changes in the cost of medical education, the evolution of healthcare systems, new technology, third party payers (private and government based), patient demand and other factors have changed the paradigm. New doctors faced significant medical school debt repayments, and often encountered healthcare facilities that could not, or would not, respond to their need to increase patient volume and efficiency that might have favorably impacted their incomes. Physicians soon realized that providing ancillary services via physician-owned facilities could address some of these concerns.
As physician-owned ancillary services have provided financial security for physicians and more convenient access for patients, competitors, professional organizations and federal and state regulating commissions began to have concerns1. These entrepreneurial arrangements could adapt faster than large hospitals in responding to greater patient demand and providing more efficient and often lower cost services. As a result, physician-owned freestanding imaging centers, ambulatory surgery centers and DME facilities expanded. These entities provided designated health services (DHS). Healthcare regulators were concerned that the owner/doctors would steer patients to their facilities rather than others for the same DHS, and could result in overutilization and unnecessary services as a way to increase income – thus leading to a potential conflict of interest in providing patient care.
A number of federal and state regulations were created to prevent such conflicts of interest2. They were strict, but offered some exemptions. The current regulatory system exists as the Stark Laws. The Ethics in Patient Referral Act of 1989 (Stark I) states that a physician is prohibited from ordering a lab test or service (DHS) from an entity in which the physician or an immediate member of his family has a financial relationship and is reimbursed by Medicare, unless an exception is applicable. In 1993, the Omnibus Budget Reconciliation Act (Stark II) extended the referral prohibitions to services covered by Medicare, as well. Additionally, it greatly expanded the list of designated health services. What is now the Centers for Medicare and Medicaid Services (CMS) published Phase I of the final Stark law in 2001. This addressed referral definition issues, volume and value of referrals, in-office ancillary services, exemptions for group practice definitions, and additional definitions for DHS3,4.
The final rule provides two principal exemptions to the referral prohibitions that apply to ownership/investment interest and compensation arrangements. The physician exemption permits referrals for DHS that are furnished by a member or physician in the same group practice. The in-office ancillary services exemption permits referral provisions for DHS in the same building in which the referrer or group regularly provides a full range of the group’s/physicians’ medical services at fair market value5,6.
When faced with a possible Stark compliance issue, it’s important to ask 3 questions. First, is there a referral for a DHS which is payable by Medicare or Medicaid? Second, does the physician or family member have a financial relationship with the entity providing the DHS? Third, does the financial relationship fit within an exemption? If not, then a Stark law violation exists. The violation could be completely unintentional on the part of referrer but is considered a violation nonetheless. Stiff penalties can result from Stark violations.
If this review of the Stark law sounds complicated or confusing, it is. Those who are involved with providing ancillary services must be vigilant about compliance and decisions on issues concerning their business and will need expert legal advice to remain so.
To this point in this article, we’ve reviewed the legal aspects of self-referral and the external checks on conflict of interest set forth by the government. Now we’ll focus on the professional aspects regarding the ethics of self-referral. While referring patients for DHS to a physician-owned entity may serve the purposes of more convenient patient access, greater efficiency, potentially lower cost to payers, and an increased revenue stream to the physician-owner, a potential conflict of interest exists over the decision-making process of where to send patients for DHS. Do patients have a choice in the decision? Are other entities as good, or better? Are the self-referrals gratuitous for the purpose of profit without consideration of quality or cost6?
In 1985, the California Attorney General provided an opinion on whether physicians can legally refer patients to a clinical laboratory in which they had a limited partnership interest7. Referrals to the laboratory were appropriate when three requirements were met. First, the patient must be informed of the physician’s interest in the laboratory so that the patient consumer has the opportunity to choose another laboratory. Second, the physician’s return on investment cannot be dependent on, or fluctuate according to the number or value of the referrals to the lab. And third, there must be a valid medical reason for the referral. This opinion addressed the professional ethical issue of conflict of interest. The temptation to profit from a self-referral every time a physician orders an imaging study, lab test or DME exists if he or she has a financial interest in the entity providing the service.
If physicians hold to high standards in these situations: clear indications for ordering tests using evidence based data, informing the patient of the financial interest and not overcharging for the services, the specter of conflict of interest should be avoided
Let’s look at the scenario presented by Sembrano in the Ethics Corner article published in the March 2019 SRS newsletter8. In it, he describes the actions of a spine surgeon providing care at a VA hospital for which is presumably paid a stipend. He feels a particular patient’s need for a complicated spinal operation cannot be performed safely at that facility. So he refers the patient to his university hospital for the surgery he will perform himself with the ability to bill for the operation. His reasons for doing the referral are that the equipment and personnel, as well as the facility, will make performing such a complicated surgery safer. This reasoning is certainly plausible because certain facilities actually do not have the equipment or staff of sufficient skill. But, if the same surgeon repeatedly does this using the same reasons which may, or may not, apply as well to other cases, it could represent a financial conflict of interest.
In this article on self-referral, violations of proper professional behavior cast a poor reflection on all who participate in physician-owned ancillary services. Such offenses could lead to even stricter laws making it more difficult to own/run such enterprises. To avoid that, orthopaedic surgeons need to adhere to the codes of conduct developed and adopted by the AAOS and the SRS9,10. Professional societies should restrict repeated violations via their professional conduct processes.
Physician-owned ancillary services benefit many stakeholders and should certainly be an alternative to other entities providing the same services, especially if they can provide them with higher quality, better efficiency, and lower cost. It’s important for the public and the government to recognize that doctors can be trusted to do the right thing. By keeping the patients’ best interests at the center of our focus, it will be easier to avoid conflicts of interest in their care.
- Dean RS: Survival of physician self-referral to physical therapy centers with Physician-held owner interest. Coll Rev, 1995 Spring; 12(1): 27-62
- Quadri R, Rekhi SS, Zeman RK, Blumberg A, Tu RK: The Maryland self-referral law: history and implications. J Am Coll Radiol, 2014; 11(8)771-776
- Glaser DM: Legal issues affecting ancillaries and orthopaedic practice. Ortho Clin North Am, 2008; 39(1):89-102
- Lebowitz PH: “Stark” reality: self-referral rule holds risk and opportunity. Radiol Manage, 2001; 23(5):34-39
- Memel SL, Grosvenor JC: The Stark I reality. Clin Orthop Relat Res, 2003; 407:28-34
- Satiani B: Exceptions to Stark law: practical considerations for surgeons. Plast Reconstr Surg, 2006; 117(3):1012-1022
- McDowell TN: Physician self-referral arrangements: Legitimate business or unethical “entrepreneurialism”. Am J Law and Med, 15(1): 61-109
- Sembrano JN: How does a physician avoid unethical self-referral practice when simultaneous pacticing within and outside a government health system? 2019, March, Ethics Corner, SRS Newsletter
- Principles of Medical Ethics and Code of Ethics for orthopaedic surgeons. American Academy of Orthopaedic Surgeon Bylaws
- Ethical practice and Professionalism. Scoliosis research Society Bylaws
Chair: B. Stephens Richards III Committee: Anthony M. Petrizzo; Jochen P. Son-Hing; Gary Fleischer (C); Stuart H. Hershman (C); Christopher J. Kleck (C); Robert F. Murphy (C); Mark Oppenlander (C); Paulo Jose Silva Ramos (C); Anuj Singla (C); William F. Young Jr. (C); Jacob M. Buchowski; David A. Hanscom; Steven D. Glassman, Chair Elect; Sherif M. El Ghamry; Hee-Kit Wong; S. Samuel Bederman; John P. Lubicky