Oklahoma doctors routinely make extra profits in workers' compensation cases by referring patients to hospitals, imaging centers, physical therapy facilities and other entities in which the doctors have direct ownership interests.
It's a conflict of interest, says Mike Seney of the State Chamber of Oklahoma.
Local neurosurgeon Robert Remondino said he doesn't see it that way.
“We don't believe there is anything wrong with doctors investing in medical businesses,” he said.
Doctors tied to physician-owned entities have become a financial force at the Oklahoma Legislature — pouring hundreds of thousands of dollars into political funds and campaigns as lawmakers consider major changes in workers' compensation laws that could drastically alter the amount doctors are paid for various procedures.
“We believe it is every citizen's civic duty to participate in the political process,” Remondino said. “When matters of public policy involve questions of health care, we doctors make no apology for making our opinions known.”
Over the past 24 years, the federal government has enacted regulations to curb expansion of physician-owned businesses as part of efforts to control Medicare costs — going so far as to issue a special fraud alert March 26 targeting one particular type of business.
But federal limitations on self-referrals to physician-owned entities for Medicare patients generally don't apply to workers' compensation patients and self-referrals remain common in Oklahoma.
Nearly half of the 336 physicians who filed ownership disclosure forms with the Oklahoma Workers' Compensation Court reported having an ownership interest in one or more health care entities outside their primary places of business, a review by The Oklahoman revealed.
Remondino, for example, reported having an ownership interest in Oklahoma Spine Hospital as well as a local diagnostic imaging center and physical therapy rehabilitation facilities in Oklahoma City and Lawton.
So, if a worker comes to Remondino with an ailing back, the doctor might recommend that the worker go to his diagnostic imaging center for an MRI (magnetic resonance imaging). The doctor then might recommend surgery at the Oklahoma Spine Hospital followed by rehabilitation at one of his rehabilitation centers.
“Yeah, I think that's a conflict,” local workers' compensation attorney Jeff Dasovich said of such arrangements.
Critics like Seney of the State Chamber say such arrangements provide financial incentives for doctors to recommend diagnostic procedures and surgeries that might be unnecessary, driving up medical costs.
“It's a big issue, especially in workers' compensation where the medical fee schedule is substantially higher than the Medicare reimbursement rate,” he said.
“I don't look at it as a conflict of interest at all. I look at it as really quality of care,” Remondino said.
As a physician, Remondino said his primary interest is the same as that of the patient: Both want the best quality of care possible.
Remondino said it was his desire for quality that drove him to become one of the founders and investors in Oklahoma Spine Hospital, despite personal financial risk.
“We have excellent community hospitals here in Oklahoma City,” he said. “They do a good job. But they are large institutions that have to serve a variety of medical needs.”
That creates frustrations for surgeons because they find themselves competing with doctors who have other specialties as they try to persuade hospital administrators to provide the latest and best equipment, he said.
Remondino recently took visitors on a tour of Oklahoma Spine Hospital where he proudly showed off spacious operating rooms that featured state-of-the-art equipment.
Dr. Steven Gaede, who has an ownership interest in Tulsa Spine & Specialty Hospital, said a desire to ensure consistent, quality nursing care for patients was one of the issues that prompted him to invest in that physician-owned hospital.
“We have one nurse for every four patients,” he said, comparing that to large community hospitals that he said sometimes have ratios of 1 to 10 and rely heavily on aides.
“Nurses love it and patients love it,” he said of his hospital's high concentration of nurses.
Gaede said that non-physician-owned community hospital doctors have limitations on their referral options.
“Community hospitals require physicians they employ to use exclusively only clinics and ancillary services they own,” he said. “There is no choice.”
Remondino and Gaede said their hospitals have high satisfaction ratings.
U.S. Sen. Tom Coburn, an Oklahoma doctor, said he has seen recent studies of physician-owned hospitals that show “outcomes are actually better and costs are actually lower, even though there is a small question of some self-referral and the conflict of interest that comes from that.”
“If you gave me a choice to have a procedure done in a physician-owned hospital or a … supposed nonprofit hospital, … I'd take the physician-owned hospital every time,” Coburn said.
Coburn said he has no financial interest in a physician-owned hospital and that criticism of such hospitals has come from community hospital groups that don't like the competition.
Special fraud alert
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.