LB&FC Evaluation of the Extent and Impact
of Physician Self-Referral Practices in Pennsylvania

Physician self-referral--the practice of physicians referring patients to health care facilities in which they have a financial interest--has been banned in several states, and beginning January 1995 the federal government will prohibit self-referral practices for most services in the Medicare and Medicaid programs. PA has not enacted a general ban on physician self-referral but since 1988 has required physicians to inform patients when self-referring.

Report Findings:

  1. Physicians frequently own or have other types of financial interests in a variety of health care facilities. Our survey of 5,075 Pennsylvania physicians found that 11 percent of the 1,674 responding physicians reported that they referred patients to a health care facility in which they or their family had a financial interest. Physicians were, by far, most likely to have financial interests in diagnostic imaging centers (e.g., MRI and ultrasound), with physical therapy/rehab centers, clinical laboratories, and ambulatory surgical facilities also being popular. In 1992 the Health Care Financing Administration found that 34 percent of Pennsylvania physicians who directly bill Medicare had some type of financial interest in a health care facility. (pp. 3 to 8)
  2. Pennsylvania law (Act 1988-66) requires physicians and other health care practitioners to inform patients of any financial interest they have in a facility before referring the patient to the facility for services. The BP&OA, however, does little to enforce these requirements. Our survey of PA physicians found that most self-referring physicians (82 percent) reported that they "always" or "usually" inform their patients of their financial interests when self-referring. Seven percent reported "occasionally" making such disclosures, and 11 percent reported they "rarely or never" disclose their financial interests. (pp. 9 to 18)
  3. Thirty-one states, including PA, have adopted some form of disclosure requirement or statutory restriction on physician self-referral. Fourteen states ban self-referral but typically allow exemptions. Of the 15 states with disclosure requirements, all but 4 require that the disclosure be made in writing to the patient. Pennsylvania is one of four that does not require written disclosure. Regardless of legislative action, changes in the health care system, particularly managed care networks, may substantially alter physician self-referral practices because such networks generally prescribe which facilities physicians can use. (pp. 18 to 22)
  4. Several studies suggest that, at least for some services, utilization rates and charges are higher when physicians have a financial interest in the entities to which they refer patients. However, other studies, including two recent studies of Pennsylvania physicians by the HCFA and Pennsylvania Blue Shield, found that, at least for some services, utilization rates and charges may actually be less at physician-owned facilities. (pp. 27 to 38)
Report Recommendations:

To ensure that physicians inform their patients of their financial interests when self-referring, we recommend the General Assembly consider amending Act 1988-66 to:

  1. provide explicit authority for BP&OA boards to promulgate regulations under the provisions of the act;
  2. require that physician owners post disclosure signs in their offices;
  3. require physicians (or their delegates) to have self-referred patients sign a disclosure statement; and
  4. require physicians, as part of their biennial medical license renewal, to (a)list any health care facilities in which they have a financial interest to which they may self-refer and (b) sign a statement attesting that they comply with Act 1988-66's requirements.

LB&FC: 11/15/94

Response to LB&FC Evaluation of the Extent and
Impact of Physician Self-Referral Practices in Pennsylvania

The Commissioner of Professional and Occupational Affairs' response to the draft report noted that for all practical purposes Act 66 is "virtually unenforceable." The Commissioner suggests that, in addition to requiring physicians to report what facilities they own, health care facilities should also be required to report their ownership interests.

The Secretary of Public Welfare's response to the report pointed out that most of the studies done thus far show increased utilization when physicians have an ownership interest and refer services. The Secretary supports the state collecting information on physician ownership in health care facilities and believes the licensure renewal process is the best way to accomplish this. The Secretary also recommends including facilities in any ownership reporting requirement. Further, the Secretary suggests that financial incentives for self-referral are not limited to physicians and that other provider types should be studied further, such as nursing homes and hospitals. Finally, the Secretary notes that a restriction on self-referral will promote increased consumer confidence that physician judgments are based solely on medical need.

The Secretary of Health reviewed the report but did not provide a response.