How Self-Dealing Among Doctors Continues to Push Up Medical Costs

Imaging tests such as CAT scans and MRIs now cost the U.S. more than $100 billion a year, much of it wasted. And as it turns out, doctors' widespread "self-referral" of patients for imaging tests on equipment they own continues to expand the use of these technologies, which are one of the big drivers behind escalating healthcare costs.

Because of strong pressure from medical societies, Congress is unlikely to go much further in limiting Medicare payments to physicians for self-referred imaging tests. But there is another solution: Medicare could confine coverage of in-office imaging tests to X-rays.

Indeed, X-rays for some conditions such as chest pain, respiratory illness and sinusitis have been shown to shorten illnesses. In contrast, other imaging tests -- including MRIs, CT scans, and nuclear medicine tests -- have no effect on the duration of illness but do increase the total cost per episode of care. Those findings contradict claims by some physicians that the use of high-tech imaging tests help people get better faster by speeding diagnoses. While that may be true in some cases, it's also clear that many tests are ordered because of doctors' training, fear of malpractice suits, and, in some cases, pecuniary motives.

One indication of the latter is that, once orthopedists and neurologists began acquiring their own MRI equipment in the early 2000s, their ordering of these tests increased 38 percent. No only did spending on MRIs increase in these practices, but so did the other costs of care.

A new study reveals that one in six U.S. physicians owns or leases advanced imaging equipment. So this is a major trend -- and one that goes way back.

In the late 1980s, studies showed that when non-radiologist physicians invested in freestanding imaging centers, they ordered more imaging tests. The passage in 1991 of federal anti-self-referral legislation -- commonly known as the Stark II law after its principal author, Rep. Pete Stark (D-Calif.) -- ended self-referral to imaging centers in which physicians had a financial interest.

But an exception to the law known as the "in-office ancillary services exception" allowed doctors to continuing profiting from self-referral. Manufacturers began offering smaller, less expensive versions of high-tech imaging machines. As cardiologists and orthopedists, in particular, formed larger groups, they could more easily afford this gear. As a result, from 2000 to 2005, spending on MRI, CT, and PET scans increased at five times the rate of medical inflation.

The Centers for Medicare and Medicaid Services (CMS) tried to slow this growth by banning "per-click" arrangements that let doctors buy time on imaging devices at a rate lower than what Medicare paid. In addition, Congress in 2005 reduced the amount that Medicare could pay doctors for the use of their in-office equipment. That slowed the growth of imaging costs, but many physicians countered by simply ordering more tests.

The Affordable Care Act further cut both technical fees and the amount paid for images of contiguous body parts. It also required public disclosure of facility ownership. Still, a recent study concludes that "the rewards for imaging self-referral remain strong."

Ironically, the last round of cuts in imaging reimbursement prompted many cardiologists to sell their practices to hospitals. Hospitals, however, get higher imaging fees from Medicare than physician practices do, so this consequence could push imaging costs even higher.

The Medicare Payment Advisory Commission has said that payment bundling and the formation of accountable care organizations may contain imaging costs. But as Bruce J. Hillman and Jeff Goldsmith note in a recent Health Affairs paper, this could be a long-term solution, but not a short-term one.

The authors of another study on the association between imaging tests and the duration of illness propose that only X-rays should be covered in-office, and I think their suggestion has a lot of validity -- despite the fact that the authors work for the American College of Radiology. But if Congress took up that idea, it would arouse a firestorm of protest from physicians and their lobbyists. Especially at a time when doctors are facing 25 percent Medicare cut one year hence, such a move is probably not in the cards.

Image supplied courtesy of NASA Images.
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Ken Terry

Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.

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