Maryland affirms physician self-referral prohibition

B. Sonny Bal

Lawrence H. Brenner

For the past several years, there had been a debate in the medical community in the state of Maryland, concerning the extent to which orthopedic and other non-radiology medical practices should be able to use and bill for in-office ancillary services, like MRI and CT. The controversy dates back to 1993, when Maryland enacted the so-called “Patient Referral Law,” or, more formally, the Maryland Patient Referral Act. The goal of this act was to reduce unnecessary medical procedures by controlling the circumstances under which physicians can refer patients to health care entities in which they have a financial interest.

In the years after the enactment of the patient referral law, the issue of physician self-referral was disputed in Maryland courts, among the State Board of Physicians and in the Maryland legislature. In 2004, the Maryland Attorney General’s (AG) Office issued an opinion that drastically affected non-radiology practices and how they had understood the act. The AG concluded that the act “bars a physician in an orthopedic group practice from referring patients for tests on an MRI machine or CT scanner owned by that practice, regardless of whether the services are performed by a radiologist employee or member of the practice or by an independent radiology group.” The AG further stated that the “same analysis holds true for any other non-radiology medical practice that owns an MRI machine or CT scanner.”

Procedural History

Until the issuance of the AG’s opinion, no other state had imposed such a broad restriction on orthopedic surgeons and other non-radiology practices. Following the opinion, a group of Maryland orthopedic practices and other non-radiology medical practices formed the Maryland Patient Care and Access Coalition (MPCAC). According to James J. York, MD, MPCAC’s president and a board member of the Maryland Orthopaedic Association, MPCAC was formed “to promote a high quality of patient care in Maryland, including the improvement of patient access to advanced imaging services such as magnetic resonance imaging and computed tomography.” MPCAC membership grew to nearly 300 physicians from 18 medical practices across Maryland, including orthopedic surgeons, urologists, cardiologists, gastroenterologists and emergency medicine specialists.

The AG’s opinion also led to a purported class action suit that was filed in the circuit court for Montgomery County against one of MPCAC’s orthopedic member practices. The lawsuit — Duys v. Orthopedic Associates — alleged that Maryland patients had received MRI scans in violation of the AG’s interpretation of the Patient Referral Law. In spring 2005, the court ruled in favor of the orthopedic practice, finding that the plain words of the act did in fact permit in-office imaging that is “directly supervised” by the referring physician.

But the matter refused to rest, and in a second legal case titled Potomac Valley Orthopaedic Associates, et.al. v. Maryland State Board of Physicians, MPCAC member practices challenged a declaratory ruling issued by the Maryland Board of Physicians which stated that orthopedic practices should not be permitted to use in-office MRI services. In Potomac Valley Orthopaedic Associates, the court ruled in favor of the Board of Physicians, thereby creating a conflict with the Duys ruling. The MPCAC member practices immediately challenged the decision, and the American Association of Orthopaedic Surgeons (AAOS) led a broad coalition of physician specialty groups in that legal challenge.

Background

By way of background, the rationale for the self-referral law in 1993 had been to address the costs of health insurance and medical care, specifically, concerns that Maryland doctors would order unnecessary and excessive testing if they had a financial stake in the facility that did the testing. Maryland law on patient referrals, in pertinent part, prohibits a health care practitioner from referring a patient to a health care entity in which the practitioner owns a beneficial interest, unless an exception applies. Statutory exceptions to the self-referral prohibition are as follows:

1. Section 1-302(d)(2) (referred to as the “group practice exception”), which provides that Maryland’s self-referral prohibition does not apply to “a health care practitioner who refers a patient to another health care practitioner in the same group practice as the referring health care practitioner”;

2. Section 1-302(d)(3) (referred to as the “direct supervision exception”), which provides that the self-referral prohibition does not apply to “a health care practitioner with a beneficial interest in a health care entity who refers a patient to that health care entity for health care services or tests, if the services or tests are personally performed by or under the direct supervision of the referring health care practitioner”; and

3. Section 1-302(d)(4) (referred to as the “in-office ancillary services exception”), which provides that the self referral prohibition does not apply to a health care practitioner who refers in-office ancillary services or tests that are:

a. personally furnished by (a) the referring health care practitioner; (b) a health care practitioner in the same group practice as the referring health care practitioner; or (c) an individual who is employed and personally supervised by the qualified referring health care practitioner or a health care practitioner in the same group practice as the referring health care practitioner;

b. provided in the same building where the referring health care practitioner or a health care practitioner in the same group practice as the referring health care practitioner furnishes services; and

c. billed by the health care practitioner performing or supervising the services or a group practice of which the health care practitioner performing or supervising the services is a member.

The declaratory ruling of the Maryland Board of Physicians that led to Potomac Valley Orthopaedic Associates’ litigation had concluded that none of the above exceptions to Maryland’s self-referral prohibition applied, because of the following reasons:

1. The group practice exception was intended for referrals that transfer professional responsibility for a patient’s continued care, permanently or temporarily, from one health care practitioner to another practitioner within the same group practice and does not exempt referrals for specific “services or tests” already chosen by the referring physician;

2. The direct supervision exception creates an exemption for referrals for services or tests to a health care entity that is outside the referring practitioner’s practice, only if the physician is personally present in the treatment area when the service is performed and either personally provides or directly supervises the services; and

3. The in-office ancillary services exception did not apply because the definition of in-office ancillary services explicitly excludes MRI, CT and radiation therapy services, except for services provided by a radiologist group practice or a practice or office consisting solely of one or more radiologists.

Final decision

As readers will note, at issue were conflicting statutory interpretations; ultimately this case ended up at the highest state court. That ruling, eagerly anticipated by all parties, was issued on January 24, 2011. The Maryland Court of Appeals upheld the Maryland Board of Physicians’ interpretation that the in-office ancillary services exception under Maryland’s self-referral law does not cover referrals for MRI, CT or radiation therapy services. The Court also affirmed the board’s interpretation that no other exception would permit an orthopaedic surgeon’s referral of a patient to another health care provider in the same group practice for the furnishing of MRI or CT diagnostic services that involve the use of a machine in which the physician’s practice has a “beneficial financial interest.”

Discuss in OrthoMind

Not surprisingly, this outcome was welcomed by the American Society for Radiation Oncology and the American College of Radiology. On the other hand, the AAOS and other organizations expressed their dismay. Previous AAOS President John J. Callaghan, MD, noted the AAOS’ disappointment with the decision made by the Court of Appeals of Maryland. “Significant technological advances have been made in our field so that patients can receive timely and accessible screenings from the comfort of their doctor’s office,” he stated. “This ruling could have a dramatic effect on the treatment and quality of care of Maryland patients. In the interest of our patients, the Academy will maintain our commitment to this issue.”

A statement from the American Association of Neurological Surgeons read, “Diagnostic imaging is an integral component of neurosurgical care, and the ability of neurosurgeons to provide in-office diagnostic imaging services to their patients ensures they get the best possible and timely care available. The American Association of Neurological Surgeons is therefore deeply disappointed in the decision issued by the Maryland Court of Appeals.”

Significance of the decision

The appellate decision in Potomac Valley is important for many reasons. First, except for specialty radiologist group practice or an office consisting of one or more radiologists, Maryland health care practitioners who have an ownership interest in a group practice and have referred patients to another practitioner in the same group practice for MRI, CT or radiation therapy services, will no longer be able to do so under any of the exceptions contained in the law. If practitioners continue to make such self-referrals, they could be subject to various penalties, including, but not limited to, a fine, disciplinary action by the appropriate state regulatory board and having to make a refund of the payment or non-payment for the services provided.

Second, arrangements involving a health care practitioner’s referrals will now have to be scrutinized within the framework of the board’s narrow reading of the relevant exceptions to Maryland’s self-referral prohibition. The practical result may be that an arrangement, which may have been permissible under the federal prohibition on self-referrals (commonly referred to as the Stark laws), may no longer be permissible under the tighter Maryland law. In other words, state law proscription on self-referral is more stringent in Maryland than federal standards specified under Stark regulations.

Although Maryland’s severe restrictions on in-office imaging remain an anomaly among state regulations, orthopedic surgeons across the nation should be aware that similar restrictions could be enacted in other states, especially as health care costs strain state budgets. According to the AAOS position statement on In-Office Diagnostic Imaging Studies by Orthopaedic Surgeons, such restrictive policies are “likely to increase the cost of providing these services and add a substantial risk to patients who need comprehensive management of orthopedic conditions and specialized positioning and handling in the radiographic suite.”

What do you think?

• Should federal law pre-empt state regulation of physician self-referral activity, such as referral for CT or MRI imaging where the imaging facility is owned by the referring, non-radiology physician?
• If physician self-referral for imaging or other testing truly contributes to increased cost and overutilization, should the prohibition on facility ownership be extended so that radiologists are also banned from a financial interest in the facility performing such studies?
• Is the position of the AAOS correct in stating that technology offered to the patient at the point of care contributes to expedient, safe, and efficient delivery of care, even if the physician referring the patient for diagnostic studies owns and bills for those studies?

• B. Sonny Bal, MD, JD, MBA, is associate professor of hip and knee replacement in the department of orthopedic surgery, University of Missouri School of Medicine.
• Lawrence H. Brenner, JD, is on the faculties of orthopedics at Yale University and the University of Southern California and practices in Chapel Hill, N.C. Address all correspondence to Brenner at lb@lawrencebrennerlaw.com