Federal Agency Takes Action on Physician Self-Referrals Under Medicare

CMS is taking steps to crack down on arrangements where physicians refer patients to businesses in which they have a financial stake, a practice known as self-referral, the Wall Street Journal reports.

In recent years, physicians have been making profits estimated at $8 billion annually through the practice, according to a recent study by McKinsey. Critics say that self-referral results in the ordering of unnecessary tests and procedures, while supporters contend that it "improves medical services, especially outside metropolitan areas, where patients might not otherwise be able to access the latest technologies," according to the Journal.

CMS has said that self-referral arrangements are "creating incentives for overutilization and corrupting medical decision-making." The agency has proposed "tough new restrictions" that would "essentially ban Medicare payments for many self-referred services," the Journal reports. The proposed rules are slated to go into effect in January 2008, but observers say they already are having an effect, according to the Journal.

Daniel Mulholland, a health care attorney in Pittsburgh who has advised hospitals on such arrangements, said, "A lot of people have just called a time out on these deals," adding, "The party is over" (Armstrong, Wall Street Journal, 9/12).