House Panel Holds Hearing on Self-Referral

WASHINGTON--The House of Representatives Ways and Means Subcommitteeon Health heard opinions on what sort of final regulations shouldbe issued concerning the recently expanded self-referral laws:namely, enforce the bill as written (HCFA's view) or add majorexceptions to the bill (the AMA's view).

Rep. Bill Thomas (R-CA), subcommittee chairman, called the hearingon the Omnibus Budget Reconciliation Act (OBRA) of 1989, whichbars physicians from referring Medicare patients to a laboratory,x-ray, or other medical facility in which they have a financialinterest.

OBRA 1993 (the Stark law) expanded these restrictions to includeadditional health services and made the law applicable to Medicaidas well as Medicare.

Although the law is in effect, the Health Care Financing Administration(HCFA) has yet to issue final regulations. "Without regulations,compliance with the law isn't just a challenge, it's almost impossible,"Rep. Thomas said.

Moreover, he contends that the law needs review because its prohibitionsmay be at odds with efforts to encourage physicians to participatein more cost-effective managed care arrangements.

The law and its amendments may have had a "chilling effect"on physicians participating in legitimate and worthwhile health-carecompetition, he said. "In some ways, it may already be antiquated,because managed care is a reality for the private sector and isgrowing rapidly for public programs."

Kathleen A. Buto, HCFA associate administrator, told the subcommitteethat preventing inappropriate utilization by prohibiting self-referralis one part of HCFA's effort to fight fraud and abuse.

Ms. Buto said that self-referral creates an unnecessary conflictof interest without providing significant medical benefits topatients.

She cited a survey conducted by the HSS's Office of the InspectorGeneral showing that Medicare patients of referring physicianswho owned or invested in independent clinical laboratories received45% more lab services than Medicare patients in general.

Also, according to an Institute of Medicine report, patients lackthe knowledge needed to judge the necessity of services theirphysicians recommend.

Rep. Pete Stark (D-CA), the principal sponsor of the law, agreed:"Physician self-referral is bad for the public because itinevitably encourages unnecessary duplication and overutilizationof facilities and services, significantly increasing costs topatients."

He said that in 1993, the Congressional Budget Office projectedthat prohibition of self-referral would save Medicare $350 millionover 5 years.

Rep. Stark acknowledged that the law is confusing and needs clarification,but he told the subcommittee that documented abuses in physicianself-referral have convinced him that patients need protectionmore than doctors need income.

Physicians Testify

A number of physician groups and representatives of managed careorganizations testified against the law. Lonnie R. Bristow, MD,president-elect, American Medical Association, said that the AMAacknowledges the potential conflict of interest when physiciansrefer patients to facilities in which they have an ownership interest,and therefore has adopted a policy against such referral.

However, Dr. Bristow said, the AMA permits physician referralto facilities they own entirely or in part if they provide medicalcare there. He recommended a number of modifications of the lawfor the subcommittee to consider (table).

AMA Recommendations for Changing Self-Referral Laws

From testimony by Lonnie R. Bristow, MD, AMA, Division of LegislativeCounsel, before the House Ways and Means Subcommittee on Health.