Is It Ethical to Pressure Physicians to Refer In-House?

Leigh Page


May 21, 2019

In This Article

How Hospitals Control Their Referrals

The bottom line: Hospitals want employed physicians to refer within the system whenever possible. "When it is appropriate for a Phoebe physician to refer a patient to a partner within our system, that is what we expect that physician to do," Lakhanpal wrote.

Hospitals tend to manage referrals through their EHR systems. When a referral is required, the EHR may actually suggest inside services in a drop-down box. "Some EHRs make it almost impossible to order tests outside of the hospital system," Lester says.

Hospitals also use the EHR system to track referrals. After reviewing referrals recorded by the EHR, they then issue report cards to each doctor on how many leakages were allowed. Physicians with higher rates are then advised to better control their referrals.

Nilssen says employed physicians can evade this oversight system simply by not using the EHR to make referrals, and instead advising patients to contact outside specialists or services on their own. Because the outside referral is not recorded in the EHR, the hospital won't know that it happened, he says.

Although the Stark Law requires hospitals to let patients seek outside referrals, some hospitals lean on patients to stay in-house.

The Stark Law also bars hospitals from paying employed physicians for referrals, but Smith says many hospitals ignore this provision too. As part of the typical payment structure using relative value units (RVUs) to calculate payments for employed physicians, Smith says some hospitals may give physicians more RVUs for making referrals.

Another way of compensating employed physicians for referrals is to pay them higher salaries than their independent counterparts would earn in the same market, which can also be a Stark violation. In 2014, Tenet Healthcare paid the Department of Justice $22.5 million to settle a case alleging that it paid employed physicians more to account for their referrals to in-house labs.[9]

In-House Referrals Often Come With Higher Prices

A major problem with intrahospital referrals is that hospital services are often more expensive than independent services. Smith says health insurers allow hospitals to charge these higher prices.

Nilssen says he gets paid just $280 from a big private insurer for an MRI scan, while it pays much more to hospitals for the same thing.

Higher prices for hospital services have also been baked into Medicare payments. For many years, Medicare paid hospital-owned ambulatory surgery centers and other facilities more than their independent counterparts. In 2015, the Centers for Medicare & Medicaid Services (CMS) eliminated these higher payments, but then it agreed to grandfather in all existing hospital facilities, which effectively left the higher payments in place.[10]

Tide May Be Turning Against Expensive Referrals

There are efforts to promote price competition. Groups like the Free Market Medical Association, which Smith cofounded, provide costs for services on their websites,[10] allowing patients to shop for the best prices.

CMS is now taking steps to undo the grandfathered Medicare prices.[11] Private insurers still don't seem interested in lowering hospital reimbursement, but employers with self-funded plans are.

Some self-funded employers and third-party administrators are paying Green Imaging in Houston, Texas, reduced fees for MRIs, which Green captures by leasing time at independent imaging centers at reduced rates, according to Cristin Dickerson, MD, founder and CEO of the company.

Texas Free Market Surgery, based in Austin, performs the same service for surgeons and ambulatory surgery centers, selling surgery bundles to self-funded employers and some other payers, according to Sean Kelley, the company's president.

"Higher hospital prices are unsustainable," Nilssen says. "Patients are beginning to realize that the prices vary a great deal, so they want to shop around."


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