Wall Street Journal investigates self-referred medical imaging

May 3, 2005

What goes around has come around in The Wall Street Journal’s coverage of diagnostic imaging self-referral practices. Its article Monday (May 2) on how some companies and doctors cash in on outpatient CT and MRI sounded the same chord as its November 1991 investigative report on physician joint venturing of outpatient imaging services.

What goes around has come around in The Wall Street Journal's coverage of diagnostic imaging self-referral practices. Its article Monday (May 2) on how some companies and doctors cash in on outpatient CT and MRI sounded the same chord as its November 1991 investigative report on physician joint venturing of outpatient imaging services.

In 1991, the newspaper documented how referring physicians were raking in huge profits by referring patients to freestanding imaging services in which they held an ownership interest. The highlight of that story was a traveling seminar held by a Southern California self-referral consultant who promised hundreds of dollars of profit per scan for the physician owners of joint-ventured MR services.

Such business practices were banned in the 1990s by two sets of federal anti-self-referral laws known as Stark I and Stark II after their author, U.S. Rep. Fortney H. "Pete" Stark. Thirty states, including California, have passed anti-self-referral legislation as well.

WSJ reporter David Armstrong now finds similar practices popping up again. Consultants and imaging-related companies are promising referring physicians that they will realize huge profits from schemes designed to exploit the well-known office-based exemption to federal self-referral restrictions. Under the exemption, group practices are allowed to refer patients for imaging performed on equipment based in the medical office where they treat patients.

The exemption is widely thought to have fueled the growth of nuclear cardiology, which uses SPECT cameras operating in cardiologists' offices for thallium rest-stress imaging.

Leasing arrangements that appear to base physician payments on image volume - a practice banned by Medicare - are becoming more commonplace, the newspaper reported.

The 2005 story focused on a meeting in Torrance, CA, designed to persuade cardiologists, neurologists, and cancer specialists to contract their MR and CT business to imaging services provider Imaging Solutions. The Journal reported that the company pitched a leasing arrangement that would cost the physician investors $375 per patient but would create a huge profit from the difference between those costs and the average $706 in total revenue that could be expected from insurers. The Imaging Solutions salesperson promised more than $122,000 to physicians who would refer two patients a day to the service, according to the story.

The newspaper quoted Imaging Solutions CEO Michael Hofer as saying that the arrangement described during the seminar accounts for 20% of the firm's business. He stressed that all such deals are certified for compliance with federal law by legal counsel before they are put into practice.

Leasing arrangements gaining popularity in southern states entice referring physicians with the promise of quick profits, the newspaper said. Documents filed in a Georgia state court action in Atlanta in 2003 described a standard referral agreement between physicians and Medquest, an imaging firm in Alpharetta, GA. They showed that Medquest charged doctors $350 per patient for CT scans. The physicians then would charge insurers $650 to $850 for professional and technical services, according to the report.

The case was brought to court by a patient who alleged the company violated Georgia bans on self-referral. It was settled out of court for an undisclosed sum, the Journal said.

In the newspaper's report, utilization management company CareCore National in Wappingers Fall, NY, raised questions about a leasing arrangement between an imaging center and a neurology practice in New York's Nassau County. Neurologists ordered MR brain scans 47% more frequently than other doctors, CareCore CEO Donald Ryan told the newspaper. The practice's referral rate was about one-third higher than other Nassau County neurologists dealing with the same insurers.

Interest in imaging business practice has increased with the rising popularity and cost of such services. They represent the fastest growing physician service covered by Medicare. Medicare spending on outpatient imaging rose 16% in 2003, according to the Medicare Payment Advisory Committee.

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