Lawsuit delays Florida rate cap

July 15, 1992

The Florida health-care industry was granted a last-minute reprievefrom imposition of a strict physician self-referral law aftera federal judge agreed to hear a lawsuit challenging the law'sconstitutionality. The law was passed in April and bans

The Florida health-care industry was granted a last-minute reprievefrom imposition of a strict physician self-referral law aftera federal judge agreed to hear a lawsuit challenging the law'sconstitutionality.

The law was passed in April and bans physician referral tohealth-care facilities in which there is an investment interest(SCAN 6/17/92 and 4/8/92). The law, which applies to imaging centers,clinical labs, and radiation therapy and physical therapy facilities,also includes a price cap of 115% of Medicare rates on procedures,regardless of whether or not a facility is joint-ventured. TheFlorida Legislature attempted to modify the law last month, butfailed (SCAN 7/1/92).

The self-referral and rate cap sections of the law were scheduledto take effect July 1. They were postponed the day before, followingU.S. District Court Judge William Stafford's issuance of a temporaryrestraining order in response to a lawsuit filed against the stateby a Panama City, FL, imaging center and two limited-partner physicians.

The plaintiffs, Panama City Medical Diagnostics, Dr. FrankSyfrett and Dr. Steve Taylor, allege that the self-referral lawis unconstitutional because it does not allow them to make a reasonablerate of return on their businesses. The law forces physiciansto provide diagnostic services to patients at only $2 above cost,and exemptions to the law are arbitrary and unfair, accordingto the plaintiffs. A variety of health-care providers are exempted,such as group practices and hospitals.

"There's no rational basis for the distinction between(exempted) parties," said Don Lester, an attorney for theplaintiffs.

The law was passed in an attempt to control health-care costsby limiting practices, such as self-referral, that the Legislaturefound to contribute to rising prices. The Legislature's actionswere based in part on a study of Florida health-care costs thatfound inflated prices and increased utilization at physician-ownedjoint-ventured facilities.

The 115% rate cap, however, was a last-minute amendment thatdoes not address overutilization and has no factual support, accordingto Lester.

"The law imposes a fee cap on designated health serviceswithout regard to whether a referral is involved or not,"Lester said. "It was a clear afterthought that was addedwithout regard to the findings or reports that have been preparedbefore."

Lester's clients are asking that the law be overturned andthat they be awarded unspecified damages and attorneys' fees.Judge Stafford is expected to rule this week on whether the lawwill remain suspended while the case is heard.