January 6, 2019

The Legality of Self-Referrals

Nebraska recently updated their medical, surgical, and hospital services fee schedules, and among the changes was the deletion of a clause stating that a “physician may not send an employee to a facility in which the physician has an ownership.”

This change has raised attention as it opens the door to self-referrals, the practice where physicians can order patients to obtain prescriptions, tests, medical products, or other services that are either fulfilled by the physician, or by an entity to which the physician has financial interest. This can encompass physician dispensing in office pharmacies, durable medical equipment (DME), physical therapy clinics and ambulatory surgical centers, and more.

According to the American Medical Association, physician self-referrals can be ethically challenging as medical interests may come in tension with financial interests and potentially undermine professionalism in medicine, depending on the circumstance, unless certain exceptions or procedures are followed. In fact, entities such as Medicare and Medicaid will not reimburse prescriptions or other services where physicians have referred patients to facilities in which they have financial interest.

Though many critics have spoken against this Nebraska change, in an article from WorkCompCentral, some have argued that this could open up more treatment options in rural areas where medical services may be far and few between. Furthermore, general arguments in favor of self-referrals point out that these referrals may be more convenient and increase the speed of diagnosis and care, as patients can accomplish multiple things all at once instead of visiting multiple facilities at different appointment times.

Regardless, the legality of self-referrals when it comes to health programs beyond Medicaid and Medicare – including workers’ comp – varies across the country.

According to a 2017 investigative report from The Philadelphia Inquirer, a Pennsylvania law firm that specialized in workers’ comp claims instructed clients to visit a preferred network of doctors, who would then direct patients to pharmacies owned by the law firm, and which the physicians themselves often had financial interest in.

This practice resulted in the distribution of medically unnecessary and clinically ineffective pain creams for prices as high as $4,100, when FDA-approved medications were available for less than $100.

While many found these practices questionable, there was no legal recourse for this practice, prompting State Senators to begin the process of creating laws to counteract these practices, which to date have not been established.

The practice of self-referral in workers’ comp could potentially open the door to wasteful or abusive practices across pharmacy and ancillary services, and relying on the legal system to handle these concerns may be ineffective as legislative wheels may be slow to turn, or in the case of Nebraska, rolling back.

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