Self-referral ban in New York accelerates state regulation trend

September 3, 1992

New York last month became the latest state to pass legislationoutlawing physician self-referral. The legislation (originallyS.9028 and A.7406-B) amends New York's existing public healthlaw. It bars health-care providers from referring patients tomedical

New York last month became the latest state to pass legislationoutlawing physician self-referral. The legislation (originallyS.9028 and A.7406-B) amends New York's existing public healthlaw. It bars health-care providers from referring patients tomedical imaging facilities in which they have an investment interest.

The law, signed by Gov. Mario Cuomo on Aug. 7, is modeled onfederal legislation prohibiting Medicare payments for self-referralsto clinical laboratories. It also includes a ban on clinical labself-referrals.

Other provisions of the bill include the following:

  • health-care providers who offer medical imaging orclinical lab services must report ownership information to thestate commissioner of health;

  • referrals for exempted practices must be accompaniedby a statement disclosing any referring-physician investment interestin the imaging or clinical lab facility;

  • clinical labs and imaging centers must identify anyillegal referring arrangements on bills submitted for services;

  • insurers are not required to reimburse for proceduresprohibited by the law; and

  • exemptions from the law are provided for hospitals,in-office visits, group practices, health maintenance organizationsand facilities in rural areas.

The law gives physicians several years to divest themselvesof investments in imaging centers and clinical labs. The provisionsbanning self-referral do not take effect until July 1, 1995, althoughno new self-referral arrangements are allowed. The law's disclosurerequirements take effect March 1, 1993.

The bill passed both houses of the state Legislature overwhelmingly,according to a state senate committee aide. It was introducedbecause of general concerns about health-care overutilization.Those concerns were supported by evidence presented in studiesin other states indicating that self-referring physicians tendto order more clinical lab and medical imaging services than physicianswho don't have investment interests.

The studies included a 1989 federal investigation of clinicallab services by Health and Human Services Inspector General RichardKusserow that was the basis for the Medicare ban on clinical labself-referral.

A 1991 Florida study of MRI and CT scan services was also cited.That study was used to support a self-referral ban in Floridapassed earlier this year (SCAN 7/29/92).

The fact that neither study examined self-referral patternsin New York was used as ammunition against the legislation byits main opponent, the Medical Society of the State of New York.The state society initially supported a ban, but changed positionsafter the American Medical Association reversed its stand on physicianself-referral earlier this year (SCAN 7/1/92).

"There is no New York-specific statistical data whichdemonstrates that there is any problem with physicians who referpatients to these facilities," the Medical Society said."This type of legislation opens the door to monopolisticdomination of these types of facilities by a small group of majorentrepreneurial interests."

The self-referral ban will not have as dramatic an effect onNew York's imaging center industry as bans in other states, accordingto Nathan Kaufman of the Kaufman Group, a San Diego-based managementconsulting firm. Existing law has restricted for-profit companiesfrom setting up joint-ventures with investor physicians, and asa result New York has fewer such ventures.

The self-referral issue has been a hot item on the docketof a number of state legislatures this year.

The Florida law, passed in April, has been the subject of severalcourt challenges. A U.S. District Court ruling in July that overturneda section of the law establishing rate caps on medical proceduresis being appealed by the state, according to a spokesman for Gov.Lawton Chiles.

Illinois passed legislation in July prohibiting self-referralbut that bill has yet to be signed by Gov. Jim Edgar (SCAN 7/15/92).

A federal ban on self-referral has been included in an overallhealth-care cost-containment measure working its way through Congress(SCAN 7/15/92). That legislation, sponsored by Rep. Fortney "Pete"Stark (D-CA) and Rep. Richard Gephardt (D-MO), would extend theMedicare ban on clinical lab self-referral to apply to all patientreferrals to facilities in which physicians have investment interests.