[Congressional Record Volume 144, Number 1 (Tuesday, January 27, 1998)]
[Extensions of Remarks]
[Pages E4-E6]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


               WHY PHYSICIAN REFERRAL LAWS ARE IMPORTANT

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Tuesday, January 27, 1998

  Mr. STARK. Mr. Speaker, the January 9th Federal Register contains the 
regulations implementing the 1993 Physician Referral laws, designed to 
reduce or eliminate the incentives for doctors to over-refer patients 
to services in which the doctor has a financial relationship.
  Study after study after study has shown that when doctors have such a 
financial relationship, they tend to order more services and more 
expensive services. The Physician Referral laws try to stop this form 
of fraud, waste, and abuse.
  Members may hear complaints about the law and regulations from some 
physicians. Following is a portion of an amicus brief filed in the case 
of Thompson v. Columbia/HCA December 12, 1996 by three of America's 
most distinguished and illustrious physicians--Dr. Arnold Relman, Dr. 
C. Everett Koop, and the late Dr. James S. Todd, former Executive Vice 
President of the American Medical Association. The amicus explains 
eloquently why this law is needed to help ensure the trust of the 
American people in their physician community.
  I hope Members will keep in mind the important ethical and moral 
issues described by these three outstanding doctors.

                         Statement of Interest

       Amicus, Arnold S. Relman, M.D., is Professor Emeritus of 
     Medicine and of Social Medicine at the Harvard Medical 
     School, Cambridge, Massachusetts. Dr. Relman is also the 
     Editor in Chief Emeritus of the New England Journal of 
     Medicine, the official organ of the Massachusetts Medical 
     Society, which has been published continuously since 1812. 
     For more than fifteen years, Dr. Relman has written 
     extensively on the ethical, social, and practical 
     implications of physician self-referral, compensation, and 
     ownership arrangements of the type described in the present 
     Complaint.
       Amicus, C. Everett Koop, M.D., served as the United States 
     Surgeon General under Presidents Reagan and Bush from 1981 to 
     1989. After the completion of his government service, General 
     Koop has maintained an active role in the national debate on 
     healthcare policies, priorities, and perspectives.
       Amicus, James S. Todd, M.D., recently retired as Executive 
     Vice President, American Medical Association.
       Doctors Relman, Koop, and Todd have no personal financial 
     interest in this litigation. Their desire to participate as 
     amici curiae

[[Page E5]]

     arises instead from their deeply felt concern for the 
     implications that physician self-referral and compensation 
     arrangements may have on the delivery of medical services to 
     the American people and the ethical issues arising from those 
     arrangements. Amici steadfastly maintain that a physician's 
     economic self interest must remain subordinate to his or her 
     primary, unalloyed obligation as a patient's trusted advisor, 
     agent, and healer to place the patient's interests above all 
     others.
       The self-referral and compensation arrangements at issue in 
     this case threaten to erode traditional medical ethics, 
     undermine public trust, and create irreconcilable conflicts 
     of interest at a time when the public at large will be ill-
     served thereby. They offer a unique perspective on the 
     consequences to physicians, their patients, and the system of 
     healthcare in this country that are threatened by self-
     referral and compensation arrangements such as those 
     described in this suit.

                          Summary of Argument

       The fundamental ethical precept, upon which the system of 
     medical practice has been founded, is that the patient's 
     interests must take precedence over all other considerations, 
     and certainly, over any financial or other personal interests 
     of the patient's physician. Patients in need of medical care 
     turn to their physicians to act as their agent in deciding 
     what is needed. The patient must trust and depend upon the 
     physician to serve only the patient's interest above all 
     others.
       The self-referral and physician compensation arrangements 
     described in the United States' Complaint threaten to 
     undermine this fundamental principle of medical ethics. 
     Doctors who associate themselves with healthcare corporations 
     as employees, contractors, or limited partners with financial 
     ties to healthcare businesses have an unavoidable conflict of 
     interest. The type of business arrangements described in the 
     Complaint threaten to obscure the separation between 
     business and professional aims. No longer are physicians 
     the trustees solely for their patients' interests; they 
     become in addition agents for a corporate enterprise which 
     regards patients as customers. Economic incentives to 
     withhold services, to overuse them, or to choose 
     particular medical products are inconsistent with the duty 
     of the physician to act as an unselfish trustee and agent 
     for the patient.
       Both the Medicare Anti-Fraud and Abuse Act and the Stark 
     Acts are bulwarks against the continued erosion of the 
     physician`s fiduciary obligation in the face of increasing 
     economic temptation. Physicians cannot ethically serve in the 
     capacity of their patients' fiduciary or representative in 
     selecting services offered by the healthcare industry, where 
     they also have the type of financial interests in that 
     industry as described in the United States' Complaint.
       Self-referral has a demonstrable practical dimension beyond 
     its ethical aspects. A growing body of evidence reveals that 
     self-referral often leads to the overuse of services and 
     excessive costs. Statistical studies buttress the commonsense 
     conclusion that self-referral and compensation arrangements 
     can result in the inappropriate utilization of services for 
     the physician`s economic benefit. To the extent that those 
     services are submitted and paid under Medicare, they are also 
     to the United States' detriment.


 I. SELF-REFERRAL UNDERMINES THE MOST FUNDAMENTAL PRINCIPLE OF MEDICAL 
                                 ETHICS

       Amici do not profess to have personal knowledge of the 
     allegations in the instant complaint describing a variety of 
     financial relationships between defendants below and the 
     physicians, who have allegedly accepted the benefits of those 
     arrangements. Those allegations are accepted as true, in the 
     particular procedural context of this appeal. The Complaint 
     alleges that, to induce referrals of Medicare and other 
     patients, physicians, in a position to make referrals to the 
     defendant healthcare providers were:
       (a) offered a preferential opportunity not available to the 
     general public to obtain equity interests in defendants' 
     healthcare operations;
       (b) offered loans with which to finance their capital 
     investments in those equity interests;
       (c) paid money, under the guise of ''consultation fees`` or 
     similar payments to guarantee the physicians' capital 
     investment in those equity interests on a risk-free basis;
       (d) paid ``consultation fees'', ``rent'' or other monies to 
     induce physicians to practice and refer patients to 
     particular hospitals or facilities;
       (e) given payments based on the amount of business provided 
     by the physician;
       (f) provided free or reduced rate rents for office space;
       (g) provided free or reduced-rate vacations, hunting trips, 
     fishing trips, or, other similar recreational opportunities;
       (h) provided with free or reduced-cost opportunities for 
     additional medical training;
       (i) provided income guarantees; and
       (j) granted preferred superior or exclusive rights to 
     perform procedures in particular fields of practice.
       This conduct is alleged to have violated both the Medicare 
     Anti-Fraud and Abuse Act and the self-referral statutes known 
     as the Stark Act. The prohibitions of the Stark Act are 
     rather clear: where a physician has a statutorily defined 
     investment or ownership interest in, or a compensation 
     arrangement with, an entity, the physician may not refer 
     Medicare patients to that entity, which in turn may not 
     present or receive payment for any Medicare claims for 
     patients so referred.
       The policies and values implicated by the type of conduct 
     prohibited under the Stark Act are revealed in the very title 
     of the law as originally submitted by Representative Fortney 
     ``Pete'' Stark: the House bill was entitled the ``Ethics In 
     Patient Referrals Act.'' Representative Stark chose his title 
     well, for fundamental principles of medical ethics are 
     unavoidably implicated by self-referral and remuneration 
     arrangements that can tempt physicians to consider their own 
     income above their patients' medical needs and to tap third-
     party payors (including the government) for excessive or 
     unnecessary costs.

     A. Patient Loyalty is the Most Fundamental Ethical Obligation

       From its earliest origins, the profession of medicine has 
     steadfastly held that physicians' responsibility to their 
     patients takes precedence over their own economic interests. 
     Thus the oath of Hippocrates enjoins physicians to serve only 
     ``for the benefit of sick. . . .'' In modern times this theme 
     has figured prominently in many medical codes of ethics. The 
     international code of the World Medical Organization, for 
     example, says that ``a doctor must practice his profession 
     uninfluenced by motives of profit.'' The American Medical 
     Association declared in 1957, in its newly revised Principles 
     of Medical Ethics, that ``the principal objective of the 
     medical profession is to render service to humanity.'' It 
     went on to say, ``in the practice of medicine a physician 
     should limit the source of his professional income to medical 
     services actually rendered by him, or under his supervision, 
     to his patients.''
       The practice of medicine is based on this special relation 
     between the doctor and patient. In this way, medical care is 
     different from ordinary commercial transactions. Patients may 
     choose their doctors, their hospitals, or the kind of 
     insurance coverage they want, but when they need medical 
     care, the physician acts as their agent in deciding what is 
     needed. The patient, in turn, is virtually totally dependent 
     upon the physician's decision, and so must trust the 
     physician to do the right thing.
       This trust, which physicians are sworn to honor, is the 
     essence of the relationship between doctor and patient. The 
     patient's interest takes precedence over all other 
     considerations, and certainly, over any financial or other 
     personal interests of the physician. The American Medical 
     Association has been very firm and explicit on this last 
     point. The 1981 edition of the Opinions and Reports of the 
     Judicial Council of the AMA unambiguously says: ``under no 
     circumstances may the physician place his own financial 
     interest above the welfare of his patient. The 
     prime objective of the medical profession is to render 
     service to humanity. Reward or financial gain is a 
     subordinate consideration.''
       Physicians are parties to a social contract, not merely a 
     business contract. Physicians are not vendors, and are not 
     merely free economic agents in a free market. Society has 
     given physicians a licensed monopoly to practice their 
     profession protected in large part against competition from 
     other would-be dispensers of health services. Physicians 
     enjoy independence and the authority to regulate themselves 
     and set their own standards. Much of their professional 
     training is subsidized. Virtually all the information and 
     technology they need to practice their profession has been 
     produced at public expense. Those physicians who practice in 
     hospitals are given without charge the essential facilities 
     and instruments they need to take care of their patients. 
     Most of all, physicians have the priceless privilege of 
     enjoying their patients' trust and playing a critical part in 
     their lives when they most need help. All this physicians are 
     given in exchange for the commitment to serve their patients' 
     interests first of all and to do the very best they can.

 B. Economic Pressures Arising From the Transformation of the Medical 
                          Practice Environment

       Although the relation between doctor and patient is not in 
     essence a market place transaction, it certainly can be 
     influenced by economic considerations and by the financial 
     and organizational arrangements through which medical care is 
     provided. Until recently, the dominant arrangement was fee-
     for-service sole or small partnership private practice.
       Until the past decade or two, this system for physician 
     compensation has enjoyed the general confidence and support 
     of the American public. There were several reasons for this. 
     First, the behavior of most doctors was influenced by the 
     ethical code of organized medicine, which clearly said that 
     the whole system was based on the doctor's commitment to the 
     patient's interests. Moreover, it was unethical for the 
     doctor to do anything that was unnecessary. Until recently, 
     there were few opportunities for physicians to do anything 
     that was unnecessary. Until 40 or 50 years ago, the great 
     majority of doctors in practice in this country were primary 
     care givers, who had only a modest and inexpensive array of 
     procedures and remedies. There was little for the physician 
     to do beyond examining, counseling, and comforting. When 
     specialists were used, the referrals usually came from the 
     primary care physician, so self-referral by specialists was 
     not a problem. Finally, until recently, doctors had more 
     patients than they could handle. They had no incentive to do 
     more than was necessary for any patient because there were

[[Page E6]]

     plenty of patients available and much work to do. As long as 
     physicians were in relatively short supply, there was no 
     pressure on them to offer their patients more than essential 
     services.
       Over the past fifty years, the system of medical practice 
     in this country has irrevocably changed, putting new stresses 
     on the previously simple satisfactory relationship between 
     doctor and patient. One of the first and most important 
     developments was the rise of specialism with a concomitant 
     increase in the relative and absolute number of specialists. 
     This, in turn, has led to the fragmentation of medical care 
     and to less personal commitment by physicians to patients. 
     We have changed from a system that had over 70% primary 
     care physicians to one that has nearly 70% specialists.
       Another major force that has changed the nature of the 
     doctor-patient relation is the explosive development of 
     medical technology. There are now a vastly increased number 
     of things that doctors can do for patients--many more tests, 
     many more diagnostic and therapeutic procedures, and many 
     more identifiable, billable items to be reimbursed by the 
     third-party payors. The increase in specialization and 
     technological sophistication has itself raised the price of 
     services and made the economic rewards of medicine far 
     greater than before. With third-party payors, either medical 
     insurers or the government, available to pay the bills, 
     physicians have powerful economic incentives to recruit 
     patients and provide expensive services. The multitude of 
     tests and procedures now available provide lucrative 
     opportunities for extra income, which in turn inevitably 
     encourages an entrepreneurial approach to medical practice 
     and overuse of services.
       Another major factor in the transformation of the system 
     has been the appearance of investor-owned healthcare 
     businesses. Attracted by opportunities for profit resulting 
     from the expansion of private and public health insurance, 
     these new businesses (which have been called the ``medical-
     industrial complex'') have built and operated chains of 
     hospitals, clinics, nursing homes, diagnostic laboratories, 
     and many other kinds of health facilities. They prospered by 
     encouraging physicians to use their facilities during an era 
     when almost all medical services were paid for on a fee-for-
     service basis. This is still largely true for physicians' 
     services under Medicare.
       It must therefore be recognized that healthcare is becoming 
     a business. Pressures from insurers and third-party payors 
     for containment of costs, the growing presence of investor-
     owned healthcare corporations, and competition for market 
     share among the country's overbuilt and underused hospitals 
     are transforming the American healthcare system into an 
     industry. In that environment, many doctors have associated 
     themselves with healthcare corporations as employees, 
     contractors, and limited partners.

 C. Self-Referral Undermines The Physician's Fiduciary Responsibilities

       Whether investors, employees, contractors, or limited 
     partners, doctors with financial ties to healthcare 
     businesses have a conflict of interest. And therein lies the 
     ethical quandary, which Representative Stark sought to 
     address in the Ethics in Patient Referrals Act: economic 
     imperatives may weaken what should be a strong fiduciary 
     relationship between doctor and patient. A physician cannot 
     easily serve his patients as trusted counselor and agent when 
     he has economic ties to profit-seeking businesses that regard 
     those patients as customers. In entering into these and 
     similar business arrangements, physicians are trading on 
     their patients' trust. The kind and character of financial 
     arrangements, incentives, and business deals described in the 
     present Complaint clearly serve the economic interests of 
     physicians and owners. Whether they also serve the best 
     interests of patients is not so clear. Whether they violate 
     the Medicare Anti-Fraud and Abuse Act or the Stark Act 
     prohibitions against payment of remuneration for the 
     referral of Medicare or Medicaid patients or for the 
     purchase of supplies for these patients is beyond the 
     purview of this brief; however, at a minimum these legal 
     concerns imply that the government recognizes the 
     potential risk to the public interest when physicians make 
     deals with businesses.
       The type of business arrangements described in the 
     Complaint take physicians into uncharted waters, where 
     conflicts of interest abound and the separation between 
     business and professional aims is obscured. No longer are 
     physicians the trustees solely for their patients' interests; 
     they become in addition agents for a corporate enterprise 
     which regards patients as customers. Economic incentives to 
     withhold services, to overuse them, or to choose particular 
     medical products are inconsistent with the duty of the 
     physician to act as an unselfish trustee and agent for the 
     patient.
       The tension between economics and ethics has been reflected 
     in the deliberations of the American Medical Association. In 
     December, 1991, the Council on Ethical and Judicial Affairs 
     of the AMA advised physicians to avoid self-referral, except 
     where there is a demonstrated need in the community for the 
     facility and alternative financing is not available. While 
     acknowledging the mounting evidence of excessive costs and 
     rates of use in jointly owned for-profit facilities, the 
     Council emphasized its primary concern for the integrity of 
     the profession. The following passage from the report 
     expresses its essential message: ``At the heart of the 
     Council's view of this issue is its conviction that, however 
     others may see the profession, physicians are not simply 
     business people with high standards. Physicians are engaged 
     in the special calling of healing, and, in that calling, they 
     are the fiduciaries of their patients. They have different 
     and higher duties than even the most ethical business person. 
     * * * There are some activities involving their patients that 
     physicians should avoid whether or not there is evidence of 
     abuse.''
       This is, of course, the central point about fiduciary 
     responsibility: people in important positions of trust should 
     not put themselves in situations that inevitably raise 
     questions about their motives and priorities, regardless of 
     whether they actually behave in accordance with the trust. 
     Even though physicians may believe they are doing what is 
     best for the patient, there will still be the appearance of 
     conflicting interests with a resulting erosion of public 
     confidence in the physicians' motivation, a confidence that 
     has unfortunately already been weakened by a growing public 
     opinion that doctors are too interested in money and charge 
     too much. Since trust is vital to good care, these public 
     perceptions could lead to a deterioration in the quality of 
     care as well as a change in the public's attitude toward the 
     medical profession.
       Both the Medicare Anti-Fraud and Abuse Act and the Stark 
     Acts are bulwarks against the continued erosion of the 
     physician's fiduciary obligation in the face of increasing 
     economic temptation. The public gives doctors special 
     advantages and privileges in exchange for their commitments 
     to put the public's interests ahead of any personal economic 
     gain. The involvement of practicing physicians accepting 
     compensation for the referral of patients raises serious 
     doubts about this commitment. Physicians should be 
     fiduciaries or representatives for their patients in 
     evaluating and selecting the services offered by the 
     healthcare industry. They cannot ethically serve in that 
     capacity where they also have the type of financial 
     interests in that industry as described in the United 
     States' Complaint.


   II. SELF-REFERRAL LEADS TO OVERUSE OF SERVICES AND EXCESSIVE COST

       Self-referral has a demonstrable practical dimension beyond 
     its ethical aspects. A growing body of evidence reveals that 
     when physicians are paid on a fee-for-service basis self-
     referral leads to the overuse of services and excessive 
     costs. A 1992 study evaluated the effects of self-referral 
     arrangements in radiation therapy facilities in Florida, 
     where at least 40% of all practicing physicians were involved 
     in some kind of self-referral. That study found that the 
     frequency and costs of radiation therapy at such centers were 
     40% to 60% higher in Florida than in the rest of the United 
     States, where only 7% of the facilities were joint ventures. 
     Another 1992 study, using information collected by the 
     Florida Healthcare Cost Containment Board, found that visits 
     per patient were 39% to 45% higher in physical therapy 
     centers owned by referring physicians and that such 
     facilities had 30% to 40% higher revenues. The study also 
     found that licensed therapists in non-physician owned centers 
     spent about 60% more time per visit treating patients than 
     those in physician-owned centers.
       A California study in 1992 compared physicians who referred 
     patients to facilities in which they had ownership interests 
     to other physicians. Physician-owners were found to have 
     referred patients for physical therapy 2.3 times as often as 
     others. Of the MRI scans requested by physician owners, 38% 
     were found to be medically unnecessary, as compared with 28% 
     by other physicians. Two studies focusing on diagnostic 
     imaging services identified the same patterns. Physicians who 
     owned imaging systems were found to have used diagnostic 
     imaging in the treatment of elderly patients significantly 
     more often than other physicians while generating 1.6 to 6.2 
     times higher average imaging charges per session of medical 
     care. An earlier study found that self-referring physicians 
     generally used imaging examinations at least four times more 
     often than other physicians, with the charges for self-
     referred imaging usually being higher. Earliest of all was 
     the 1989 study conducted under the auspices of the Inspector 
     General of the Department of Health and Human Services, which 
     found that Medicare patients of doctors who had financial 
     interests in clinical laboratories received 45% more 
     laboratory services than Medicare patients generally.
       None of this evidence is particularly surprising; it merely 
     confirms that when physicians are paid on a fee-for-service 
     basis, the lure of economic gain is directly correlated to 
     the use of medical services. At a minimum, then, self-
     referral adds to the cost of medical care; more ominously, it 
     may increase patient risk and diminish quality of patient 
     care. Both the individual interests of patients, and the 
     wider interests of the tax paying public, are best served by 
     stringent enforcement of the prohibitions against self-
     referral embodied in the Medicare Anti-Fraud and Abuse Act 
     and the Stark laws.


                            III. CONCLUSION

       Amici therefore submit this brief in support of reversal of 
     the district court's judgment of dismissal.



     

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