Federal legal opinion opens door to referring physician kickbacks

October 17, 2008

An advisory legal opinion from the Department of Health and Human Services in favor of a specialized service to handle the processing of high-tech preauthorization requests for referring physicians has drawn a mixed response among legal and industry authorities.

An advisory legal opinion from the Department of Health and Human Services in favor of a specialized service to handle the processing of high-tech preauthorization requests for referring physicians has drawn a mixed response among legal and industry authorities.

In a Sept. 19 report (OIG Advisory Opinion No. 08-12), the Office of Inspector General of the HHS concluded that the proposed service would not violate federal anti-kickback statutes.

But that's exactly what Thomas Greeson, an attorney with the healthcare group of Reed Smith, LLP, believes will happen. The proposed service may aid referring physicians, but the freestanding imaging services that scan their patients may be forced to pick up the bill.

Officials for radiology benefit management companies, which provide prior authorization services, do not see such a threat, however. They would welcome doing business with such firms - as long as they handle their prior authorization paperwork honestly.

With outpatient imaging increasing at double-digit percentage rates, commercial insurers have increasingly turned to prior authorization to rein in utilization growth. High-tech MRI, CT, PET, and nuclear medicine are the modalities most often subject to prior review to qualify for reimbursement.

Research conducted by Diagnostic Imaging in September suggests that an estimated 109 million imaging procedures will be subject to prior authorization review this year. The process, conducted online or over the phone, involves a comparison of the patient's symptoms with clinical appropriateness criteria and insurer coverage policies for the ordered exam.

Many referring physicians complain that prior authorization consumes staff time and generates uncompensated administrative costs.

Somewhere, an enterprising entrepreneur looked at this complaint and saw an opportunity for a new type of service. According to the OIG advisory, the proposed business would contract with radiology and imaging centers to provide administrative services consisting solely of the processing and submission of required prior authorization requests to insurance companies.

Though the HHS OIG saw nothing inherently wrong with the scheme, Greeson argued that the opinion fails to acknowledge the opportunity for exploitation. Referring physician groups will refer their patients to imaging centers that are willing to cover the cost of preauthorization processing so they can receive the service for free, he said. It may become impossible to operate a freestanding imaging center in some highly competitive communities without absorbing such costs for referring physicians.

"In short, the nexus between the free services and patient referrals, including federal healthcare program beneficiaries, would cause the anti-kickback statute to be potentially implicated," he said in an interview.

Prior authorization services still probably exist only in theory. Officials in radiology business management companies have yet to encounter one. But they suggest a third-party order processor could actually help the prior authorization firms become more efficient.

Third-party providers would be strongly motivated to gather complete and accurate order information and to use the web-based order entry tools that radiology business management companies offer to make the process more efficient, according to Cherrill Farnsworth, CEO of HealthHelp, a radiology business management company based in Houston.

"It would be good to have the health information given correctly," she said.

Curt Thorne, CEO of MedSolutions, a radiology business management company based in Franklin, TN, said his firm will cooperate with such services as long as they truthfully report the clinical status of patients referred for imaging.

"If their mission is to decode what answers to give to receive approvals, then we would quickly detect that, and we would refuse to work with them," he said.

Farnsworth and Thorne question whether the demand for third-party preauthorization processing is strong enough to support services, however. Historical trends suggest to them that referring physicians try to minimize the use of outside services.

"My guess is most offices would find it more convenient and less costly to do it themselves," Thorne said.

For more information from the Diagnostic Imaging archives:

New CMS anti-referral rules tighten know on leasing arrangements

Study finds high utilization rates on scanners owned by self-referring physicians

GAO recommends preauthorization to slow explosive Medicare imaging growth

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