Physician Self Referral (and my weekend plans)

Physician self-referral is in the news today (and yesterday). This is a good sign - we are talking about real concerns!

Today, the Washington Post points out that orthopedists who bring MRI and CT scans into their offices do far more tests. Yesterday, the New York Times noted that the McAllen Texas physician-owned hospital has given gobs of money to Democrats across the country. (Prohibitions on physician ownership of hospitals and ambulatory facilities are being watered down in the heath care reform legislation – and it’s easy to see a connection). This is the hospital in the Texas town that Atul Gawande has made famous in a New Yorker article examining the cause of high cost care there. His conclusion was self-referral.

There is excellent evidence that physician ownership of ancillary facilities increases utilization of these facilities by a factor of between 2 and 9. (Proximity of ancillary facilities alone also increases utilization, even absent physician ownership).

Potential solutions:

1. Decrease the fee for service payment for services that involve self-referral, so that these are no longer high-margin . This is tough to maintain – since technology generally lowers the cost of ancillary services, and it’s hard to keep on lowering prices in real time

2. Heavy duty regulation – like the Stark Laws that prohibit physician referral to services in which they have ownership interest. As a practical matter, these regulations have ended up having meaningful loopholes which have decreased their effectiveness. Removing all loopholes might restrict access in rural areas or decrease innovation.

3. Bundle payments – to make providers feel accountable for the resources used in caring for the whole patients. This also encourages consolidation of physicians – perhaps into accountable care organizations – which could be very promising.

Personal note:

I’m going to stop thinking about managing health care costs over this weekend, and I’m doing a two-day charity bike ride to raise money for cancer research. If you’re interested in learning more about this, go to I’m also going to tweet on Twitter during the rest stops over this ride – if you’d like to tune in, go to