Medicare To Ban Doctor Referrals to Hospital-MD Joint Ventures

Everybody knows,

• Hospitals account for 50% of total health spending and doctors account for 25% of total spending.

• Procedures cost at least 50% more in hospitals than in doctors’ offices because of Medicare pays “facilities fee” and needs revenues for cross-subsidization of money-losing services.

• Hospitals are scrambling to decentralize into ambulatory facilities to offer more convenient access to patients and preserve outpatient revenues.

• Hospitals can’t be everything to everybody, and can’t effectively manage a large range of specialized activities for every specialty with equal efficiency.

• Hospitals are interested in hospital-physician joint ventures to share costs, keep specialists loyal to the hospital, and to share profits.


• Hospitals are threatened by doctors running efficient “specialty hospitals,” which might siphon off profits from general hospitals.
• Hospital CEOs would rather share “half-a-pie” rather than “no pie at all.”

• The public thinks hospitals and physicians ought to cooperate and collaborate for the common good of patients and the community.

Everybody, it seems, except Medicare officials, Office of the Inspector General, and Representative Pete Stark who are bent on preventing hospitals and doctors from innovating and “colluding “ for mutual profitability.

At least, that’s what a Sept. 12 WSJ piece “Medicare Moves to Cut ‘Self-Referral’ Practice: Proposed New Rules the Rise of Doctors Sending Patients to Centers They Own.” Physicians, McKinsey data indicates, are profiting to the tune of $8 billion/year by sending patients to facilities doctors own, often because of increased efficiencies and excellent outcomes achieved by focusing on specialized procedures.

Not so, says Medicare, profit-mongering doctors are referring to themselves and doing unnecessary procedures because of their ownership stake and “creating incentives for over-utilization and corrupting medical diagnosis.” That is the main reason why, Medicare says, the money expended on imaging(CT and MRI) increased from $9.6 billion in 2003 to $13.7 billion in 2006.

In any event, Medicare is taking dead aim to joint ventures between doctors and hospitals and the shared investments and profits that ensue from MRIs, CTs, endoscopies, and outpatient and diagnostic surgery units.

• Never mind that anticipation of the Medicare joint-venture ruling is causing doctors and hospitals across the land to cancer joint ventures activities that cuts costs and create convenience.

• Never mind that primary care doctors and specialists alike are flocking to hospitals for employment.

• Never mind that hospitals account for almost 50% of excessive 2003 costs in the United States, relative to its wealth, compared to othe developed countries (Carlos Angrisano, et al, “Accounting for the Cost of Health Care in the Untied States, McKinsey & Company, McKInsey Global Institute, January 2007).

• Never mind that hospitals and doctors, working separately, may not be able to afford the public wants or demands and will go elsewhere to get.

• Never mind that hospitals can’t afford to lose the services of specialists who may abandon the hospital ship to keep their own economic boats afloat.

In a “perfect world,” you see, in the eyes of Medicare and their lawyers, hospitals and doctors should have a completely arms-length relationships, even though everybody knows that’s an impossible situation to sustain for long because of the intertwining, intimate, and interdigitating nature of the relationship. But no matter. To Medicare officials and their legal advisors, “pursuing the perfect” is preferable to “preserving the good” that could be achieved by realistic collaborative joint ventures.