Pay for referrals may be illegal as well as unethical

A column examining the ins and outs of contract issues

By — Posted Nov. 17, 2008.

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In today's economic climate, costs are increasing, reimbursements are decreasing and although physicians are working harder, they're making less money.

In battling this inverse relationship, physicians are seeking ways to enhance income. One temptation is referral arrangements, whereby a physician is paid or pays another physician for patient referrals.

While this practice might be standard in other industries, it may be illegal "fee splitting" in the health care industry. Beware that such referral relationships may not be only a breach of ethical and professional standards, but also a violation of federal and state laws.

The American Medical Association's Code of Medical Ethics provides that a "payment by or to a physician solely for the referral of a patient is fee splitting and is unethical." A physician is thought to engage in fee splitting when he or she divides a patient fee with a recommending physician. For example, a surgeon and an internal medicine physician may have an arrangement whereby the surgeon shares part of his or her fee with the physician who referred the patient.

Similarly, the American College of Physicians Ethics Manual states, "a fee paid to one physician by another for the referral of a patient, historically known as fee splitting, is unethical."

The AMA's Code of Medical Ethics goes even further and mandates that "a physician may not accept payment of any kind, in any form, from any source ... for ... referring a patient to said source."

"Anti-referral laws" is a phrase commonly used to describe the collection of federal and state fraud and abuse laws that regulate physician referral arrangements. These laws not only invalidate referral agreements, but more importantly, may subject physicians to monetary fines, imprisonment, license revocation and other disciplinary actions.

Federal regulations

At the federal level, the anti-kickback statute and the Stark law heavily regulate physician referrals.

The anti-kickback statute explicitly states that it is a felony to solicit, receive, offer or pay anything of value, directly or indirectly, overtly or covertly, in cash or in kind, in return for referring patients or services for which payment is made by a federal health care program, such as Medicare or Medicaid.

The law punishes both sides of the deal, the referring and referred physicians. While the statute applies nominally to federal health care programs (thus patients or services not covered by these federal programs are outside the purview of the statute), the Stark law and/or state law may nevertheless prohibit the arrangement.

Under Stark, a physician may not refer Medicare or Medicaid patients for designated health services to an entity with which the referring physician (or his or her immediate family member) has a financial relationship, subject to some exceptions.

State prohibitions

At the state level, each state maintains its own position with regard to fee-splitting and physician referral agreements.

In Illinois, for example, a fee-splitting prohibition is contained in a subsection of the Illinois Medical Practice Act that subjects a physician to potential discipline for "dividing with anyone other than physicians with whom the licensee practices in a partnership, professional association, limited liability company, or medical or professional corporation any fee, commission, rebate or other form of compensation for any professional services not actually and personally rendered."

Steer away from the temptation

The key policy supporting the widespread prohibition of referral agreements and fee splitting is the notion that it creates a conflict of interest for the physician. As the AMA's Code of Ethics states, a referral from a physician should be the product of the patient's needs and the referred physician's reputation, training and skill -- not the basis of an economic arrangement that could undermine patient trust.

Even the appearance of impropriety can compromise the patient's trust for both physicians involved and ultimately can undermine the public's confidence in the medical profession.

When money is tight, human nature often allows otherwise prudent businessmen and women to make financial mistakes. Don't change your practice pattern to include suspect procedures simply to enhance short-term financial relief.

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