Self-referral and the orthopedic surgeon: Interpreting the rules

David M. Glaser, JD, answers 4 Questions about Stark and other laws surgeons need to follow.

Introduction

Once again I have turned to health care attorney David M. Glaser, JD, to answer this month’s 4 Questions interview. Attorney Glaser has been an integral part of our Orthopedics Today annual courses and is a frequent contributor to our publication. I have appreciated his practical approach and legal insight into specific situations that orthopedic surgeons are confronted with in their practices.

– Douglas W. Jackson
Chief Medical Editor

Douglas W. Jackson, MD: How is a self-referral defined from a legal standpoint?

David M. Glaser, JD: The federal legislation governing self-referral is known as the Stark laws. Under this legislation, any time a physician has a “financial relationship” with an entity that provides one of the 11 designated health services (“DHS”) covered by Stark — which include most orthopedic ancillaries, such as imaging, physical therapy, orthotics and all hospital services — the entity may bill for services ordered by the physician only if the financial relationship meets one of Stark’s exceptions. A financial relationship can involve ownership in which the physician owns the entity providing the DHS or it may involve compensation where the entity pays money to the physician or the physician’s for-profit group practice. Some exceptions to Stark protect ownership, others protect compensation.

David M. Glaser

The single most important exception is probably the “in-office ancillary exception” because it protects both ownership and compensation. Often referred to as the “group practice exception,” it is what allows physicians to own imaging, lab and other ancillaries in an urban area.

Basically, the exception says that Stark doesn’t apply to designated health services in the office if you meet the conditions Stark establishes for a “group practice,” including not dividing revenue based on referrals, having 75% of all of the services provided by group physicians billed by the group, etc.

The in-office ancillary exception has been under attack from a variety of sources, including MedPar, which is an independent federal body that makes recommendations to Congress about Medicare coverage. There has been talk of trying to carve out exclusions to this exception, so that MRI or other services are not protected. Right now, that exception is there indefinitely, but Congress could change that at any time. Many groups, including hospitals and radiologists, are actively lobbying Congress to narrow the exception.

Stark is not the only “self-referral” law. Most states regulate situations where a physician refers certain services to an entity with which s/he has a financial relationship. Some states merely require that the physician notify the patient of the financial relationship, other states require the relationship meet an exception, similar to Stark.

Jackson: Overutilization of ancillary service is a common allegation made by critics of physician ownerships. The Wall Street Journal has had a number of articles attacking self-referral. What are your thoughts on this?

Glaser: One of the first major “studies” to attack physician ownership was performed in the 1980s and prompted the passage of Stark. It claimed that physicians who owned an MRI were much more likely to order MRIs than those who did not. However, like so many studies, this one was far too simplistic. It merely studied correlation, not causation. Physicians who believe in the value of (or have a significant number patients who need) MRIs are far more likely to own a machine than those who don’t. The study made no attempt to determine if the additional studies were medically appropriate.

Similarly, the Wall Street Journal (WSJ) article used MedPar data (a Medicare data base of all Medicare services) to explore what groups were mostly likely to order particular tests. Such an analysis offers no insight into whether a practice with higher utilization of a service is “overuse”, whether other practices are underutilizing the service, or both are acting in a medically appropriate manner based on their patient mix.

One of my greatest frustrations is that physicians are singled out for self-referral criticism when nearly every single professional “self-refers.” Lawyers, plumbers, accountants and mechanics are all responsible for diagnosing and treating their clients’ problems. While it would be possible to separate the diagnosis and treatment, this separation is terribly inconvenient. Would you want your first plumber to identify the problem, then be required to use a second, unrelated plumber to fix it? I don’t believe that the WSJ has suggested that stock brokers who identify the hot tips should be prevented from selling the stock because of a “conflict to interest.” It is unclear to me why they believe physicians, alone among professionals, should be criticized for “self-referral.” Newspapers have an interest in selling papers, but I have never heard it suggested that a muckraking reporter who uncovers a good scoop must permit another paper to print the story to avoid the “conflict of interest.”

Jackson: In ancillary ownership, can the partners be liable for over billing and utilization by one or two of the group?

Glaser: Yes, it is possible. Most contracts with private insurers, and Medicare’s overpayment rules, allow the payor to recover overpayments from the group. Therefore, actions by any member of the group may result in the entire group facing legal liability. There are, however, steps a group can take to limit this risk. In particular, groups may wish to consider entering into an agreement under which each physician is responsible for liabilities the group incurs based on the physician’s actions. In many states, such an agreement may require an amendment to the clinic’s corporate bylaws. I generally recommend that only SOME liabilities remain the responsibility of each physician. There are some situations where it is reasonable for the group to collectively insure one another against risk. Physicians should be personally liable only for actions the physician could reasonably foresee would result in liability.

Jackson: What notice is currently necessary regarding self-referrals by a physician?

Glaser: Recent changes to Stark, effective January 1 require any group providing “advanced imaging” such as MRI (and relying on Stark’s in-office ancillary exception) to provide a written notice to the patient that the patient is free to obtain the imaging services elsewhere. The notice must be given at the time the MRI is ordered, and you must provide the name, address and phone number of at least five other suppliers located within 25 miles of the physician office. For purposes of the list, hospitals are not considered suppliers. Only physician clinics and independent diagnostic testing facilities must be listed If there are fewer than five suppliers located within 25 miles, you must list all of them. The notice can, but need not, include other information, such as the fact that the patient’s insurer may not cover scans at the other supplier.

At this time, no other federal law requires documentation, though as mentioned above, many states require physicians to give written disclosure of some financial relationships.

A note from the editors:

See the related commentary by Chief Medical Editor Douglas W. Jackson, MD.

David M. Glaser, JD, is a health care attorney at Fredrikson & Byron, P.A., 200 South Sixth St., Suite 4000, Minneapolis, MN 55402; 612-492-7143; e-mail: dglaser@fredlaw.com.