Medical loophole: A question of client choice

Doctors can't refer Medicare patients to pharmacies or specialty clinics to which they or someone they're related to are financially tied.

It's known as "referral for profit" when providers refer a patient to another medical service in which they have a monetary interest.

This is the federal "physician self-referral law," commonly referred to as the “Stark Law." It was introduced in 1989 by Fortney “Pete” Stark, a Democrat who represented California's ninth congressional district.

Care providers can, however, refer Medicare patients to physical therapy clinics with which they have ties through a loophole in the Stark Law.

"Thanks to this exception, physicians can steer patients to physical therapy services that help their own bottom line, even when that facility may not be what the patient would prefer," the American Physical Therapy Association states on its website, www.apta.org.

Derek Gerber, president of the Idaho Chapter of the American Physical Therapy Association, said the problem isn't with physicians or physician groups simply owning a physical therapy practice.

"A problem arises when physicians or physician groups either refer patients who do not need physical therapy care to their owned physical therapy clinics, or when patients are told they can only attend the clinics owned by the physician or physician groups," he said. "In the first example, ethics could come into question. The second uses influence for profit."

Gerber said all patients referred for physical therapy have a choice whether or not to attend therapy, and a choice where they receive their care.

"A physician or physician group is welcome to suggest a certain clinic for care, but the choice should always rest with the patient," he said.

Justin Kane, physical therapist and owner of North Idaho Physical Therapy in Hayden, explained that if a physician bills the service "incident to" as an extension of care, that physician can own the physical therapy clinic where the patient is being referred.

"It used to be legal for physicians to own labs, medical equipment companies, pharmacies and other entities they could profit from until the Stark Law was enacted in 1990," Kane said.

Kane believes people should be aware and have a right to know about this medical loophole to understand the choices they have when it comes to their care.

"It is important because people need to know that as long as a provider is credentialed with their insurance, and they want to use insurance to pay for the service, they have a choice in who they see," he said. "People should do their own homework to determine who the best providers are."

Kane explained that a family physician group was the first in the area to start a physician-owned physical therapy clinic in North Idaho in the early 2000s. He said the doctors as a whole weren't unified on the idea and the physical therapists fought it, so it didn't have a huge impact on the small business of private practice physical therapy.

However, Kane said that in the past decade, North Idaho has seen an increase in physician-owned physical therapy clinics owned by surgeons.

"Post-operative rehabilitation used to be the primary business for many therapists, but unless you have a large past patient base like we do, it's getting very difficult to see those patients," Kane said. "Thankfully the growth of the community and our reputation has kept us busy, but I would estimate our lost business from the impact of the physician-owned clinics at about 25%."

The American Physical Therapy Association has been unsuccessful in its attempts to close the physical therapy loophole.

"As we know, money talks in our political system and the physical therapy lobby group is weak," Kane said. "As a whole the American Physical Therapy Association has given up. The main focus physical therapists need is to further improve the profession so we can be seen as the first-line provider for musculoskeletal conditions. Over time, there will be more evidence that physical therapy is actually extremely cost effective because of its ability to avoid more costly conditions so the future of the profession looks good."

Despite the debate over physical therapy and physician referrals, Kane said he considers himself friends with several of the physicians in these groups.

"Most have high character and great ethics," he said.

He said he understands the pressures physicians are under from declining payments, just as physical therapists are experiencing.

"Many surgeons who don’t want to work for hospital groups often only want to be a part of private practices that offer diversified income streams," Kane said. "Most of those docs see physical therapy as something they are responsible for generating and that they should capitalize on the profits of it in order to financially thrive. And it is currently legal to do so."

The problem, Kane said, is the slippery slope that some physicians have gone down, "which is using their influence on patients for financial gain without making it clear to patients they have a choice."

"At one of the clinics, if someone is having surgery, they are automatically scheduled for physical therapy at the doctor's clinic without ever discussing it with the patient," he said. "Again, we have enough past patients that have been pleased with their care that they demand to see us, but that’s not the case with a lot of the smaller clinics who also provide good care."

In many ways, it's similar to someone owning a physical therapy practice and therefore profiting from the services it offers.

"I have the potential to abuse my influence on my patients just like the physicians do — maybe not to the same extent, but it is still there," Kane said. "It has to come back to individual ethics of not ever referring a patient to a service that you do not fully believe is in their best interest and giving them choice."

He said although patients sometimes make bad decisions about which practitioner is best for them, it's a critical piece of the equation to allow them to make the decision.

"All I would ask of physicians in these arrangements is that they ask the patient if they have someone they want to see and if they do, then great. If they don’t and it is in the patient’s best interest to see their therapists then so be it," Kane said. "Again, many of the docs are doing this now, but certainly not all."

The future of physical therapist-owned clinics hangs in the balance because of physician-owned clinics combined with health care delivery that favors hospitals, Kane said. Large hospitals could put a stranglehold on small practices if they so wished.

"Even with the changing health care environment, I still believe there will be a place for smaller practices who provide excellent service," he said.

Regarding big-picture changes ahead for health care, Kane said the system as it stands won't work moving forward.

The United States spends about 20% of its gross domestic product on health care. In 1960, it spent 5%.

"We are on an unsustainable trajectory at the same time our country’s quality of care has slipped way down the list compared to other developed countries," Kane said. "We have no choice but to try and consolidate systems of delivery, but if we kill the entrepreneurial spirit in the process we will be in big trouble.

"We have to avoid the common pitfalls of large organizations that, at their worst, promote bureaucracy, inefficiency and apathy, but also get rid of the worst part of the, 'I’m going to get mine while I can' attitude of the private sector," he continued. "The critical pieces to our health care system needs to be quality, competition and patient choice."