Health Care and Government

Docs asked to put ownership stake in writing: State now requires disclosure for some patient referrals

July 25, 2005

A new state law aims to shine more light on the touchy financial relationships that can crop up when a doctor refers a patient to another health care business.

Since July 1, physicians have had to provide patients with a written disclosure when they make a referral to another business in which they have an ownership interest. That could mean a laboratory, specialty hospital or an imaging center, among other possibilities.

State Rep. Vaneta Becker, R-Evansville, said she wrote the bill to give patients an extra dose of knowledge in the convoluted world of health care and to make doctors more accountable.

"When they're making money off of a referral, it should be public knowledge to the patient," she said. "I think it's always good to give the public more information than less information."

Experts say instances where doctors own health care businesses are growing more common and in some cases can lead to conflicts of interest.

Barnes & Thornburg partner J. Michael Grubbs said he once represented a central Indiana nursing home that wound up in bankruptcy after a doctor followed through on his threat to stop referring patients there unless the home used his lab for tests.

Becker said she's not aware of widespread abuses involving doctor referrals. The law, she said, is "just trying to make it a little bit more above board."

It requires doctors to give patients written disclosure and let them know they have the right to go elsewhere for the service. However, this new requirement is waived if a patient needs urgent treatment and a delay could harm his or her health.

A violation could lead to punishment from the state medical licensing board, which can issue discipline ranging from a censure or reprimand all the way to a license revocation.

State Sen. Gary Dillon, R-Columbia City, wanted a broader law. Dillon, a retired dermatologist, proposed an amendment that would require disclosure of "any type of material gain" a doctor might receive from a referral.

This would cover, for instance, cases where doctors have a lease with a health care provider they refer patients to.

"I just thought while we're disclosing it, why not disclose everything?" he said. "I feel that self-referral is kind of a dangerous place to be, and I think it puts temptations in place that they would be better off not to have."

That amendment never stuck due to problems defining "material gain."

The final version of the state law charts no new territory. Grubbs said other states have tougher standards regarding referrals.

Even before Indiana's law went into effect, Grubbs advised clients to disclose ownership interests "just to remove any appearance of impropriety."

The federal government began targeting referrals about 15 years ago and prohibits certain arrangements, including cases where a doctor has a financial interest in a business he refers patients to and receives a return directly tied to the patient volume it handles.

Indiana's new law, which covers referrals not prohibited under the federal law, received a lukewarm review in some corners of the medical field.

OrthoIndy CEO George Kellum noted that doctors in his Indianapolis-based orthopedic practice have had an ownership interest in a surgery center for years, something patients already know about.

"To be frank, most of the reaction we get from the patients is, 'Why do I have to fill out another piece of paper?'" he said.

In his 13 years there, he's never heard of patients leaving because of the referral-ownership issue.

"Someone would pretty much have to be asleep at the wheel if they didn't notice the surgery center happened to be on the same footprint as the practice," Kellum said.
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