Hospitals Steal Doctor Referrals to Increase Income, Reduce Competition

The growing trend of hospitals hiring their own doctors is causing referrals to independents to dry up. Hospital-employed physicians are often asked to refer patients to in-house physicians, disrupting referral patterns that independent physicians have counted on for years.

Steven Lester, MD, a radiation oncologist in the Orlando area, has seen a decline in referrals from hospital-employed urologists, adding that freestanding imaging centers in the area have seen referral patterns from hospital-employed orthopedic surgeons “change overnight.”

Hospitals use their market clout to often obtain higher fees from insurers than independent specialists are able to charge. Even Medicare pays more to hospital-employed physicians than to independent physicians, through the addition of a facility fee.

Furthermore, critics assert that controlling referrals could potentially harm the quality of care. It limits access to a relatively small pool of hospital-employed specialists, bypassing independent doctors who might have more expertise.

When specialists lose referrals to hospital-employed competitors, they are reluctant to tell their story because it might affect their remaining referral relationships, said Tommy Thomas, an Orlando-area accountant.

Even though few independent specialists have come forward, Thomas said, they have been suffering from the trend. “I do not know of any physicians who have been put out of business,” he said, “but I do know of a lot who have had to cut staff or reduce employee hours.”

According to Thomas, the trend has also divided the medical community. Just as employed PCPs refer to employed specialists, independent PCPs tend to refer to independent specialists because they have been burned by employed specialists sending their patients on to hospital-employed PCPs instead of back to them.

Where Employed Physicians Refer

Hospitals do not have to overtly direct their PCPs, according Dr. Lester, the Orlando-area radiation oncologist. Even if it is not stated in the physician’s contract — and it usually is not — “it’s understood that you’ll refer in-house,” he said. If employed physicians allow too much “leakage” of referrals, the hospitals might not renew their contract, which usually lasts only 1-3 years, he added.

In addition, hospitals use “physician liaisons” to check employed physicians’ referral patterns and have a word with the “splitters,” those who refer too many patients outside. “Part of the physician liaison’s job is to maintain complete loyalty to the system,” she said. Electronic health record (EHR) systems make it easy to profile physicians and track their referrals.

Are Hospitals Violating the Stark Law?

Paying an employed physician extra for more referrals is illegal under the Stark Law, which prohibits referrals to facilities for services in which the physician has a financial interest, but hospitals can still require employed doctors to refer in-house, as long as they follow certain rules. Patients could theoretically insist on seeing an independent specialist. But generally, “patients are going to pretty much do what their primary care physician tells them”. And even if they wanted to overrule their PCP, “the problem is that patients don’t know the [Stark] rules,”.

Complicating the Matter Even Further

What makes the situation thornier is that patients may not even know their referring physician is employed by the hospital. Legislation recently introduced in Georgia and Maine would require hospital-employed physicians to reveal their affiliations. Under the Georgia bill, the physician would also have to tell patients they have a right to choose an independent physician, according to Misty Holcomb, a lobbyist for Independent Doctors of Georgia, which has similar aims as the Florida-based organization. Both bills, however, face stiff opposition from hospitals.

Hospital-based neurologists charge 2-7 times more than independent neurologists, a factor that will become more significant as patients’ out-of-pocket payments continue to rise.

Hospital-employed physicians are often overwhelmed with in-house referrals, booking appointments 2-3 months out, but independents can get them in within 1-2 days. But cancer patients don’t tend to choose radiation oncologists on their own. Generally, patients with life-threatening illnesses rely on their PCPs for referrals, and this is also true for specialists like diagnostic radiologists and pathologists.

Organizing for Action

Independent physicians are organizing to fight back. These organizations have a variety of goals. For one, they want to require hospital-employed physicians to inform patients that they can see independent physicians.

Independent specialists face “fee discrimination based on significantly higher charges at hospitals,” said Lawrence Huntoon, MD, a neurologist in Derby, New York, and a past president of the Association of American Physicians and Surgeons, another organization that supports independent specialists.

“What happens is that the hospital (sic) employed physician is accountable to the organization and not to the patient,” he said. “And that’s a problem.”

April 17, 2014  

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