Medical imaging is one of healthcares fastest-growing sectors, so most everyone wants to get in on the action, including physicians. To illustrate, imaging costs are Medicares fastest-growing service item. In recent years, they rose at three times the rate of other medical services, and the amount spent on imaging services has reached 15 percent of total healthcare costs. One reason for this rapid increase is the ability of imaging to detect conditions that previously required diagnostic surgery for detection. But another reason could be financial incentives that make some doctors order more scans than are medically necessary. At a recent meeting of cardiologists, neurologists, and oncologists, Westwood Imaging Centers told doctors how they could get in on the boom. The deal works like this: Doctors would send patients to Westwood for imaging services, and Westwood would charge the referring physician a flat rate per scan. Then, the physician would bill the thirdparty payer for the scan at the going rate. For example, Westwood would charge physicians $375 for an MRI scan, while the average reimbursement for the scan is estimated at about $700. After deducting about $90 per scan for interpretation and administrative costs (mostly billing and collections), the profit per scan comes in at about $235 per referral. A group practice that refers ten patients a day would pocket about $600,000 annually under this plan. For more expensive PET (positron emission tomography) scans, the same volume would produce an annual profit for the referring group of more than $2 million. For the most part, the thirdparty payers would be unaware of the deal, assuming that the scans were conducted in the doctors office. 239 HAP, 2014. Reproduction without permission is prohibited. Copying and distribution of this PDF is prohibited without written permission. For permission, please contact Copyright Clearance Center at www.copyright.com 240 Cases in Healthcare Finance But wait a minute, arent such arrangements against the law? After all, federal antikickback (Stark) laws prohibit providers such as Westwood from paying doctors for referrals when Medicare or Medicaid patients are involved. These laws also extend to other types of patients under 36 state statutes. The Westwood plan also raises the issue of self-referral, which occurs when physicians refer patients to businesses in which they or relatives have a financial interest. When these prohibitions are considered, isnt the Westwood proposal illegal? It turns out that there are exceptions to the antikickback and selfreferral laws. One exception is that it is permissible to self-refer when the services are provided in the physicians office. For example, it is legal to order an electrocardiogram for a patient and then perform the procedure in the doctors office. Clearly, the Westwood proposal does not meet the exception because the scans are done at Westwoods imaging center. Westwoods solution to the legality issue is to characterize the scan not as a referral but rather as a per use, nonrecurring lease agreement. In other words, when the scan is performed, the equipment and the space around it are owned by the referring physician, and hence the scan qualifies as a procedure performed in the doctors office. Some imaging companies are using a slightly different approach. Instead of paying a charge for each scan, the physician (or group) books a set number of hours per week on a scanner, which they must pay for even if they dont send enough patients to use up all the time booked. This arrangement adds risk to the physician but supposedly is more resistant to antikickback laws. Does anyone get hurt by such deals? Virtually all research done in this area indicates that utilization increases when doctors have a financial stake in providing imaging services. For example, one New York neurology practice with a lease deal ordered almost 50 percent more scans than did similar practices without such deals. It is hard to believe that the increased cost to insurers is medically justified, so the third-party payers (and ultimately the purchasers of health insurance) end up paying more than is necessary.

What do you think about Westwoods proposal to provide physicians with leased diagnostic equipment?

Does this case present an ethical issue? If so, to which party (or parties)?

If you could act as the ultimate authority in this situation, what would you do?