REVERSE REFERRAL FEES

Observe, also, that the referral law’s bias toward complete integration is at odds with the corporate practice of medicine doctrine, which prohibits physician employment, and it is in tension with tax exemption law that imposes greater scrutiny when doctors are “insiders.” Also, the safe harbors protect physician ownership p. 572in for-profit entities, but have no equivalent protection for physicians who are insiders in nonprofits, which discourages adoption of the nonprofit form. Complete the Problem on page 573 "Reverse Referral Fees" as a two to three-page paper. A general description of the Marcus Welby Hospital is located here. You are outside counsel to the Marcus Welby Healthcare Corporation (MWHC), which is concerned that expenses in some of its ancillary departments are causing it to lose money under Medicare and HMO insurance. It would like to start charging its hospital-based physicians for some of the costs of running their departments. Its current relationship with these physicians is one in which they have exclusive contracts to work in these departments, but no money changes hands between them. The hospital handles all billing, staffing, and overhead, but it bills separately for facility charges versus professional fees, and the physicians keep all the professional fees the hospital collects on their behalf. This is the standard practice in the industry. MWHC has the following suggestions for changing this arrangement: • Have the radiology group pay for services, supplies, personnel, utilities, maintenance, and billing services furnished by the hospital. In a non-hospital, office-based setting, this package would normally cost about $100,000 to $150,000 per year. The hospital will charge the radiology group only $25,000 at first, but increase the charges to $100,000 over four years. Payments are due only if the hospital's gross revenue derived from radiology services exceeds $1,000,000 in the previous year. • The hospital's clinical laboratory, under the direction of the pathology group, would pay the hospital a 20 percent fee for “specimen collection and handling services” when a physician on the MWHC medical staff orders a test from the clinical lab. What advice would you give? Critics have also observed that referral fee prohibitions make little sense in the context of bundled or capitated payment systems because these laws were meant to address the abuses of fee-for-service reimbursement, and incentives within managed care systems are likely to reduce costs in the long run by encouraging more efficient practice patterns. Recognizing this, a 1999 safe harbor protects providers who practice under capitation and other “at risk” incentives that discourage overutilization. Similarly, a 2011 ruling protects provider payments within ACOs that participate in the Medicare shared savings program. And, a 2015 law protects the sharing of payments among providers under Medicare’s new approach that bundles payment based on certain episodes of illness (see Chapter 3.E.4).