California passes workers' comp self-referral ban

July 28, 1993

If at first you don't succeed, try again. That could be the mottofor California Assemblywoman Jackie Speier, whose campaign toban physician self-referral won a big victory this month withthe passage of legislation prohibiting the practice in

If at first you don't succeed, try again. That could be the mottofor California Assemblywoman Jackie Speier, whose campaign toban physician self-referral won a big victory this month withthe passage of legislation prohibiting the practice in California'sworkers' compensation system.

Speier (D-San Mateo) has been a longtime opponent of physicianreferrals to facilities in which they have investment interests.She spearheaded a fight in the California Legislature last yearto ban self-referral but lost that battle (SCAN 3/10/93).

This year proved different. Defenders of self-referral haveseen their positions erode in the face of mounting public criticismof the practice. When a legislative package reforming California'sworkers' comp system was passed by the Legislature and signedby Gov. Pete Wilson on July 16, it included language authoredby Speier that banned self-referral in the system.

Speier is trumpeting the bill as "the strongest self-referrallegislation in the country." The bill will:

  • Ban self-referral in eight health service areas inthe workers' comp system, including medical imaging;

  • Make self-referral a misdemeanor punishable by finesof up to $5000. Violations of other sections of the law, suchas entering cross-referral arrangements or receiving payment forself-referrals, are punishable by fines of up to $15,000;

  • Allow exemptions for physicians in rural areas;

  • Allow exemptions for physicians referring to large,public corporations in which they own stock;

  • Allow exemptions for in-office or group practice referrals.Such referrals in medical imaging would require preauthorizationfrom payers if the exams are performed on equipment with a retailprice of $400,000 or more.

The standards were made more stringent for medical imagingbecause it was one of three health services areas identified asbeing centers of overutilization in a study released last year,according to Speier aide Elise Thurau. That study, conducted byWilliam Mercer, Inc., found that the state's workers' comp systempaid out $356 million annually for unnecessary tests because ofphysician-owned clinics (SCAN 2/12/92).

"The findings of the Mercer report elevated the issueand helped us push the platform further than we could have ifit weren't published," Thurau said. "It pointed to aspecific correlation between physician ownership and higher utilization."

Unlike self-referral bans that have been passed in other states,the California legislation does not allow self-referring physiciansmuch time to divest financial interests in imaging centers. Mostof the law's provisions take effect in January.

The ban is unlikely to prompt an imaging center fire sale,however, as workers' comp cases typically make up only a fractionof the volume at most centers. It will add impetus to the ongoingphysician divestiture of imaging centers, according to RobertAchermann of the California Radiological Society.

"There has been a great deal of activity in this area,and a lot of these facilities are divesting their ownership already,so this will help speed it along," Achermann said.

Speier won't allow self-referring physicians a breather inareas outside workers' comp. The assemblywoman has three otherself-referral bans pending. One bill, AB 919, would be a blanketban on self-referrals regardless of the payer. AB 919 will bestructured like the workers' comp ban, but will probably not containthe preauthorization requirements for in-office and group-practicereferrals. AB 919 has passed the Assembly and will be heard inthe state Senate when that body reconvenes in August.

The California legislation is being shadowed by efforts onthe federal level to expand the existing Medicare self-referralban to include all self-referral arrangements regardless of thepayer. Such legislation, sponsored by Rep. Pete Stark (D-CA),has been included in President Clinton's deficit reduction package.Versions of the package have passed both the Senate and Houseof Representatives, and differences between the two are beingworked out by a joint conference committee (SCAN 6/16/93).

The Speier bill was amended to conform to provisions in Stark'slegislation, according to Danielle Walters of the California MedicalAssociation. The CMA dropped its opposition to the bill afterchanges were made, Walters said.

"What we sought to do in the workers' comp package wasto conform to the Stark bill," Walters said. "We didn'twant California to have something different from federal legislation."