Procedure caps part of Florida self-referral bill

April 8, 1992

In a surprise last-minute move, the Florida state legislaturehas imposed price caps on imaging procedures as part of a billbanning self-referral practices. Centers will be prohibited fromcharging more than 115% of the Medicare fee schedule for

In a surprise last-minute move, the Florida state legislaturehas imposed price caps on imaging procedures as part of a billbanning self-referral practices. Centers will be prohibited fromcharging more than 115% of the Medicare fee schedule for proceduresthey perform. If signed by Gov. Lawton Chiles, the price regulationwill take effect July 1.

The bill, passed last month, prohibits health-care providersfrom referring patients to centers in which there is an investmentinterest. Physician investors have until October 1995 to divest,while imaging centers opened between May 1991 and January 1992have until October 1996 to restructure.

The bill also prohibits direct or indirect kickbacks in exchangefor referrals, with violators subject to civil penalties. Finally,the bill calls for centers to open their books for periodic reviewby the Health Care Cost Containment Board, which will formulateannual reports on utilization and referral practices to the statelegislature.

The bill also applies to clinical labs, physical therapy, rehabilitativeand radiation therapy services. It provides detailed exclusionsthat describe acceptable investments for imaging center ownerswho will need to restructure.

Introduced by Rep. Charles Roberts (D-Titusville), the bill(SB 2264) was prompted by a study of imaging center referral practicesand charges conducted by the HCCCB. It found a pattern of inflatedprices and increased utilization of physician-owned joint-venturedimaging centers.

The cost-cap codicil to the bill was a last-minute compromisebetween debating legislators, some of whom wanted an earlier datefor the self-referral ban to become effective. Supporters of thebill, including the American College of Radiology and some membersof industry, are now petitioning for a rewrite.

Robert Carl, president of Health Images in Atlanta, expresseddisappointment with the bill. Carl has been a staunch supporterof strict rules regarding self-referral practices.

"The bill was mutilated by last-minute horse-trading andwheeling and dealing by various parties," he said. "Whenit came down to the count, I don't think the legislators evenknew what they were voting on."

PRICE CONTROLS FAIL to address utilization. Instead of price regulation,legislators should focus on reducing incentives to self-refer,he said.

"This bill has those incentives, but there's a grandfatherprovision that doesn't make the ban effective for three or fouryears," he said. "It doesn't address the immediate problemsof kickback and self-referral until the distant future. Threeto four years is an eternity from a business prospective."

Nathan Kaufman, a San Diego imaging consultant and former presidentof Medical Imaging Centers of America's center business, had adifferent view.

"Any bill that has the kind of impact that this one willhave on the imaging industry in Florida is a function of compromiseand negotiation," he said. "I think the dates reflectthat."

The cost-cap punishes ethical providers who do not self-referpatients to their facilities, Carl said. He intimated that imagingcenter owners in Florida are poised to question the constitutionalityof the price cap, and suggested the bill will see substantialrevision before July.

That prediction was also proffered by Thomas Greeson, internallegal counsel for the American College of Radiology.

"The scope of the bill is not entirely clear," hesaid. "It's likely there will be some clean-up legislationintroduced, so the final product is not necessarily reflectedin this version of the bill."

Kaufman predicts the cost-cap idea could catch on in otherstates. Self-referral-ban bills are under consideration in California,Maryland and New York. Texas and New Jersey both passed kickbackbans last year.

"Nobody in the industry expected the rate cap to appearin the Florida legislation," Kaufman said. "The factthat it did is going to focus other state legislators to at leastconsider it. But if it had not been brought up in Florida it wouldn'teven be a topic of discussion."

Whether it survives the next few months or not, the Floridacost cap represents a trend toward declining reimbursement forhigh-cost medical procedures. The Florida bill just acceleratesthat trend, Kaufman said.

"We're seeing net revenue for MRI procedures decline between2% to 5% per year, and as a result, reimbursement is clearly decreasing,"he said. "We're going to have to learn how to operate whenMRI scans are reimbursed at close to Medicare rates, regardlessof what happens with this particular bill."

In the interim, the blush is off the rosy imaging center marketin Florida. Investors seeking buyouts can expect relatively lowbids for their shares, and development of imaging centers in thestate will likely slow, Kaufman said.

"The prices people are willing to pay for an imaging centerwill actually decline until this is settled," he said. "Andwe'll be seeing a very conservative approach to the market asa result of trends occurring throughout the country."

The proliferation of managed care organizations is key to thesetrends, in Florida and elsewhere, he said. For example, HMOs paycontracted imaging centers $500 to $600 for MRI scans, versusthe $1100 to $1200 the center might ordinarily charge a privateinsurer. As reimbursement for procedures comes in line with Medicarecaps, markets with high managed-care penetration will see littlechange in their revenue base, he said.

"In markets where you don't have that kind of penetration,there is going to be a dramatic change in the way health careis delivered," he said. "Imaging centers must plan strategicallyto operate in an environment that is less forgiving than it hasbeen."