Federal health officials have been critical of self-referrals involving physician-owned businesses, with the Department of Health and Human Services' Office of Inspector General going so far as to issue a warning on March 26 labeled “Special Fraud Alert: Physician-Owned Entities.”
The fraud alert focused on attributes of some physician-owned distributorships of implantable medical devices that might violate a federal anti-kickback law. But the fraud alert noted “the same principles would apply when evaluating arrangements involving other types of physician-owned entities.”
Implantable medical devices traditionally have been sold through non-physician owned distributorships and sales representatives who obtain implants from manufacturers and often mark the costs up thousands of dollars.
Some physician groups decided to become their own distributorships.
Remondino acknowledged that he and some other Oklahoma Spine Hospital doctors participated for a brief time in a physician-owned distributorship called Synergistic Implant Providers LLC of Edmond, but said they got out of it in 2011, within months of investing.
Two large law firms reviewed the arrangement and said the way it was drawn up passed legal muster, Remondino said.
But after trying it, “I think it was realized that we didn't want to do that,” he said.
“Our brief experience in this business was an attempt to bring some savings to this major contributor to total workers' compensation medical costs,” he said. “However, we soon found that those who make a lot of money from this business wanted no competition and recruited sympathetic U.S. Senators to make unsubstantiated charges and implications regarding the motives of doctors, such that we decided that this was one more battle not worth fighting.”
The Oklahoma Spine Hospital and Tulsa Spine and Specialty Hospital now prohibit their doctors from participating in physician-owned distributorships.
Robert Dunlap, the registered agent for Synergistic Implant Providers, did not return phone calls seeking comment Friday. It is unclear whether it or similar distributorships are active in Oklahoma.
Graede said his hospital has taken the additional step of removing distributors and sales representatives from the supply chain and now buys implants directly from manufacturers.
He said the savings have been sizable and are passed on to customers and insurance companies.
Hospital officials provided examples that showed savings of more than $35,000 in just seven cases. In one case, the hospital was able to purchase implants for $5,376 that previously had cost $21,437.
It's not just physician-owned implant distributorships that federal officials have targeted as part of Medicare and Medicaid cost containment efforts.
In a Texas civil lawsuit, attorneys for Kathleen Sebelius, secretary for the U.S. Department of Health and Human Services, stated that “numerous studies and reports by governmental agencies and outside researchers alike … give rise to very legitimate concerns about the financial incentives and conflicts of interest associated with self-referrals to physician-owned hospitals.”
A 2005 report to Congress “concluded that the average per-patient cost of providing inpatient care was 20 percent higher at physician-owned orthopedic and surgical hospitals than community hospitals, despite the fact that patients had shorter stays,” attorneys for Sebelius wrote.
Congress passed a law that generally prohibits doctors from receiving Medicare reimbursements for services to patients referred to entities the doctors own. The law contains several notable exceptions, however, including one that allows a doctor to refer a Medicare patient to a physician-owned hospital if the doctor has a financial interest in the whole hospital, and not just a department.
Physician-owned hospitals are prohibited from receiving Medicare or Medicaid payments for self-referred services if they choose to expand, although exceptions can be obtained.
No such payment limitations apply to workers' compensation patients or those that are privately insured.
Gaede contends there are checks and balances in the workers' compensation system that curb physicians' abilities to self-refer patients in order to pad profits.
“Every item of treatment provided to an injured worker is authorized by an adjustor or the employer, who is paying the cost of the claim,” he said. “To assume that physicians in Oklahoma as a whole are running amok of their Hippocratic oath and wantonly performing unnecessary surgeries is also to assume that adjustors and companies are not protecting their interests in the workers' comp system.”
Doctors at physician-owned hospitals are sometimes accused of using self-referrals to direct more lucrative privately insured and workers' compensation patients to their hospitals, while referring indigent and Medicare patients to other hospitals.
Gaede said 40 percent of his physician-owned hospital's services are provided to Medicare and Medicaid patients and it also provides a significant amount of indigent care.
“This demonstrates that ‘cherry-picking' by specialty hospitals of more profitable patients is false,” he said.