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The modern-day twisted ethics of physician referrals

Patients would not prefer a referral based on her physician’s employment arrangement rather than quality ratings but that is how our system is designed.

Months ago, I reviewed medical claims for an employer interesting in reducing its annual increases in healthcare costs. The employer had an ordinary health plan for its covered members: a $1000 deductible and a $2500 out-of-pocket maximum. Granted, these member responsibilities might be a tough challenge for its low-wage workers but overall it was a common plan.

One single charge buried in the claims caught my eye. A common blood chemistry (CPT 85003, Comprehensive Metabolic Profile) had an allowed price of $325 (the price agreed upon between the hospital outpatient lab and the carrier). The patient had a $125 payment and the plan picked up the rest.

An independent lab located close by the hospital could have done that test for less than $10 cash. I doubted anyone informed the patient of this choice. More likely, his primary care physician’s office in this large health system told to “just go down the hall to the outpatient lab and get your blood drawn.” That putative convenience cost the patient $115. Perhaps he chose it but I doubted he did. More likely his physician’s employer set it up this way and felt no need to inform him.

Over the past several decades, primary care physicians have trended from practicing in solo or small independent groups to being employed by large groups, hospitals or health systems.  Across the country, more than a third of PCPs are employed by health systems and in some communities, the vast majority of PCPs are employed by health system-affiliated clinics.

The reasons PCPs seek employment are legion but usually include: a guaranteed salary from the outset to start paying off huge medical school and training debt; a desire to be free of management work;  no appetite for the expense and risk of opening an independent office. While independent physicians statistically earn more (largely because that segment represents older physicians with long-established practices), young physicians out of training may command larger salaries by being employed. Indeed, young physicians may be paid more than the actual net revenue they bring in because their referrals are so valuable to the specialty care services that health systems provide.

Given that a PCP may refer north of  $0.5million in annual referral revenue, health systems are eager to employ PCPs. The tradeoff for the PCP is that health systems expect to capture all the referral business (“keepage”) rather than allowing that business to go elsewhere (“leakage”). The pressure on employed physicians to refer internally may range from a nudge to an obligation.

Referrals are big business for a hospital or health system. Advanced imaging such as MRI and CT scans, outpatient surgery and endoscopy such as colonoscopy are true bread-and-butter items. Health systems can tack on a facility fee for many of these procedures that if done in a doctor’s office, for example, would be significantly cheaper.

An echocardiogram (ultrasound of the heart) might cost $250 in a doctor’s office compared to $2000 in an outpatient department. A $6 blood count could go for $100 or more in an outpatient lab—without there being any difference in the scope of the test.

Physician practices that already do some of these diagnostic and therapeutic procedures in their offices are prime targets for acquisition due to profitability. Although “better equipment” or “more modern equipment” is often touted as the benefit to patients, many of these venue changes add no value to the patient (or the employer covering the cost).

Leigh Page addressed the ethics of such arrangements in her recent Medscape article. Beyond the ethics, such internal referrals often don’t take cost into account, meaning that PCPs may be making economic decisions for patient without patient knowledge or consent.

One other aspect of these internal referrals  transcends the financial costs. Referrals based on employment-related referral patterns commonly don’t take quality and safety into account. Here’s an example:

One health system in a Midwestern city employs a large number of PCPs in the area. These physicians are expected to refer patients needing high-risk cardiovascular surgery to the health system’s main hospital. That hospital has a “two-star” (out of 5 stars) rating by CMS and a composite rating for major cardiovascular surgery of 10.3 (scale of 0.1 to 99.9) by Quantros, a recognized provider of comparative healthcare data.

There is another hospital in the region with a 5-star rating by CMS and a composite rating for cardiovascular surgery of 99.6; this hospital has a reputation as a center of excellence.

Many persons knowing these results would opt for highest quality for these high-risk procedures. But unless they do their own homework, they are unlikely to know that such dramatic differences exist.

To whom does the physician hold the greatest allegiance: the patient or the employer?  Does the physician have an ethical responsibility to know the quality of the providers she is referring to? Does the employer exerting influence over the referrals have a duty to make quality results readily available? Does a referral based on profitability pass the smell test?

Some health systems have taken the referral process completely out of the hands of the primary physician by creating “referral centers.”  Rather than physician office staff arranging the referral, the office sends the request to the center, which then decides which specialist to use.

Health systems may encourage employed physicians to use referral centers as a way to outsource work normally done by in-office personnel, thus freeing those persons to spend more time assisting the physicians. Controlling overhead in primary care offices is a primary objective, given the relatively low reimbursement for PCP services.

Controlling the logistics of referrals allows health systems to load-balance referrals across their specialist base so that referrals are evenly distributed—rarely with regard to individual physician quality ratings. (One unintended consequence is that a steady inflow of new patients may not motivate mediocre specialists to achieve higher quality results. Specialists need not compete for business based on their outcomes or patient service excellence.)

One justification offered for internal referrals is so-called continuity of care. All the patient’s results are on a single data platform, eliminating the need to transfer records or physical X-ray films. This may have been a legitimate concern a decade or two in the past. Virtually all records are in digital form. The technology to transfer health information rapidly exists throughout this country.

But health systems have little or no incentive to make it easy for patients to escape their walls. As one hospital executive was heard saying years ago, “Why would I make it easy for someone to go to another hospital?” You can download a feature movie in just a minute or two but good luck trying to transmit an MRI scan data from one health system to another not on the same electronic health record platform. Such lack of interoperability continues to support the long-antiquated fax machines.

Yes, healthcare is a business and a gargantuan one now approaching 20 percent of our GDP. But somehow along the way, we’ve managed to create business practices that aren’t fully transparent for those who use healthcare and those who purchase it.  In spite of all the clamor to make healthcare more efficient and responsive to patient needs, it’s still tilted against them through questionable arrangements that add no value, just cost. It’s a sad commentary that in our healthcare system, referrals for care are usually based on business concerns and not on a quest for the highest quality.

I have yet to meet a patient who would prefer a referral based on her physician’s employment arrangement rather than quality ratings.

No, our system isn’t broken. That’s the way it is designed.

Photo: JamesBrey, Getty Images

Stanley N. Schwartz, MD, FACP is a graduate of New York University School of Medicine. He did residency training in internal medicine and infectious diseases fellowship at the University of Pittsburgh Medical Center. He practiced infectious diseases, hospital epidemiology and internal medicine in Tulsa and later was Medical Director for Warren Clinic, a 375-provider clinic in the Saint Francis Health System.

Dr Schwartz is Chief Medical Officer and co-founder of The Zero Card, Inc., a digital health enterprise that connects providers offering bundles services with self-funded employers across the US. He also organized and now leads WellOK, Inc., the Northeastern Oklahoma Business Coalition on Health, a not-for-profit organization dedicated to improving the value of healthcare for Oklahoma businesses.

He serves on the board of Oklahoma Center for Healthcare Improvement. He also serves on the Clinical Quality Committee of MyHealth Access Network HIE.

He is a diplomate of the American Board of Internal Medicine in Internal Medicine and Infectious Diseases, and Fellow of the American College of Physicians and the Infectious Diseases Society of America.

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