Introduction

Reviews

Medical Tests? Follow the Money ...

Timothy B. McCall, M.D.

The traditional reimbursement system the United States rewards intervention by paying doctors a fee for each service rendered. Here is an example: In my experience, walk-in clinics regularly “churn” patients, by ordering unnecessary tests and scheduling excessive return visits to generate extra profit. Doctors in private solo and group practice often have similar incentives to run up the bill.

The incentives are the opposite in Health Maintenance Organizations (HMOs) which bill a fixed amount each year, regardless of how much is done. Although doctors in HMOs do not want to do so little that they risk lawsuits for missing diagnoses, their incentive is to be frugal. And as we have seen, many HMOs pay yearly bonuses to doctors who spend less on their patients.

Although the comparison is perhaps a little harsh, you can think of your doctor in the same way you’d think of a car dealer. Having tests done in a private practice is analogous to purchasing options on a new car—you may want some but the more you get, the higher the profit. Having tests in an HMO is like trying to get the dealer to fix your car on warranty—the more they do, the lower the profit. This is not to say most doctors (or most car dealers) are unscrupulous, only that it pays to know where the incentives lie.

It’s logical, perhaps, to assume that fee-for-service doctors order too many tests and HMO doctors too few. I believe in many instances, they both order too many. The norms of American medicine concerning test ordering evolved under a fee-for-service system that rewarded intervention. These norms still influence the practice of many doctors who have since moved on to HMOs. Doctors in HMOs, like those in private practice, may also order unnecessary tests because of their concern about malpractice suits.

Tests in Outside Labs

Financial incentives can also influence doctors who order tests at outside labs. Many doctors own or have partial interest in diagnostic laboratories where blood and urine analyses, X-rays and other tests are performed. Although they don’t receive a direct payment for each test they order, the more tests they order, the better the yield on their investment. Some particularly questionable “limited partnership” arrangements are not offered to the general public—only to doctors who can refer patients to the labs—and pay doctors more than a 100 percent annual return on their investment. Critics have blasted these schemes as nothing more than indirect kickbacks.

How many physicians own interest in medical facilities outside their offices? Health Care Facilities? A comprehensive survey of the State of Florida, reported in 1992 in the Journal of the American Medical Association, revealed that at least 40 percent of practicing Florida physicians have an investment in a health care business to which they refer patients. The researchers who conducted the survey felt the number might be even higher, because those physicians who refused to answer the survey were probably more likely to be investors. Over 90 percent of diagnostic imaging centers (such as MRI facilities) and over 75 percent of ambulatory surgery centers are owned wholly or partially by referring doctors. Referring physicians were investors in half the clinical laboratories and radiation therapy centers and in almost 40 percent of the physical therapy centers. In most of these facilities, the majority of patients are referred by their physician investors.

Concerned about the potential conflict of interest, in 1992, the AMA took a position against physician ownership of medical facilities. The AMA concluded, “in general, physicians should not refer patients to a health care facility outside their office practice at which they do not directly provide care or services when they have an investment interest in the facility.” The AMA later reversed itself, saying that such referrals would be okay if the patient is informed of the doctor’s financial interest in the facility and of available alternatives.

In 1992, the federal government began prohibiting doctors from referring Medicare patients to clinical laboratories they own or hold an interest in. As of the beginning of 1995, the ban was extended to include Medicaid patients and to prohibit so-called self-referral to X-ray and radiation therapy facilities, home health care services and physical therapy and rehabilitation centers. Medicare, by the way, is the government’s insurance program for the elderly, while Medicaid is for the poor. So far, there are few restrictions on self-referrals to kidney dialysis centers, weight loss clinics or drug treatment programs or for patients with private insurance. Proposed legislation may fill some of these gaps.

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