CMS Still Reluctant to Close Self-Referral Loophole Despite Mounting Evidence It Drives Up Costs

The evidence is clear: Physicians who self-refer anatomic pathology (AP) services are costing Medicare tens of millions of dollars each year. Even so, the Centers for Medicare and Medicaid Services (CMS) remains reluctant to close the loophole in the Stark law that allows these self-referrals to occur. Pathology and lab groups have long been at odds with other physician specialists over the issue of self-referral. Groups representing urologists, dermatologists, gastroenterologists, and other specialists argue that allowing them to self-refer pathology services is more convenient for patients. But those representing labs and pathologists say the loophole simply drives up costs and allows specialists to make more money. A new report from the Government Accountability Office (GAO) provides further evidence that the lab groups are right. The report, issued July 16, concludes that financial incentives for self-referring providers were likely “a major factor in driving the increase in anatomic pathology referrals.” GAO estimates that in 2010, providers who self-refer made an estimated 918,000 more referrals for AP services than they likely would have if they were not self-referring. These additional referrals cost Medicare about $69 million in 2010. A report published in the April 2012 issue of Health Affairs also concluded that self-referral is driving up Medicare costs. The study by health economist Jean Mitchell found that on average, self-referring urologists billed Medicare for 72 percent more AP specimens than physicians who did not benefit financially from ordering more tests and that the prostate cancer detection rate per biopsy episode was significantly higher for men who had the biopsy performed by non-self-referring urologists. That study was funded by the American Clinical Laboratory Association (ACLA) and the College of American Pathologists. Although the Stark law prohibits self-referral, the in-office ancillary services (IOAS) exception allows patients the opportunity to receive certain medical services during the time of their physician office visit. In response to concerns about potential overutilization of AP services due to physician self-referral, CMS in 2008 imposed an “anti-markup rule” that prohibits providers from billing Medicare for AP services for amounts that exceed what the providers themselves pay to subcontract the services. However, CMS in 2009 allowed an exception to this rule for services provided by a physician who shares a practice with the billing provider. Since then, arrangements in which a provider group practice includes a pathologist in the practice’s office space have become a common self-referral arrangement, notes the GAO. According to the GAO report, self-referred AP services increased at a faster rate than non-self-referred services from 2004 to 2010. During this period, the number of self-referred AP services more than doubled, growing from 1.06 million services to about 2.26 million services, while non-self-referred services grew about 38 percent, from about 5.64 million services to about 7.77 million services. Similarly, the growth rate of expenditures for self-referred AP services was also higher. Three provider specialties—dermatology, gastroenterology, and urology—accounted for 90 percent of referrals for self-referred AP services in 2010. Referrals by these specialists increased substantially the year after they began to self-refer, finds GAO. Providers that began self-referring in 2009—referred to as switchers—had increases in AP services that ranged on average from 14 percent to 58.5 percent in 2010 compared to 2008, the year before they began self-referring. In comparison, increases in AP referrals for providers who continued to self-refer or never self-referred services during this period were much lower. GAO Recommendations GAO recommends that CMS identify self-referred AP services and address their higher use. Specifically, the report recommends that CMS:

1. Insert a self-referral flag on Medicare Part B claim forms and require providers to indicate whether the AP services for which the provider bills Medicare are self-referred or not.
2. Determine and implement an approach to ensure the appropriateness of biopsy procedures performed by self-referring providers.
3. Develop and implement a payment approach for AP services that would limit the financial incentives associates with referring a higher number of specimens per biopsy procedure.

In its comments to the report, CMS concurred with the third recommendation, noting that the payment revaluation for AP services in 2013 decreased payment by approximately 30 percent and significantly reduced the financial incentives associated with self-referral for those services. However, the GAO notes that this does not address the incentive to provide more services. CMS did not concur with the GAO’s recommendations that it insert a self-referral flag on the Medicare Part B claims form and require providers to indicate whether the AP services for which a provider bills Medicare are self-referred or not. Lab Groups Respond Lab and pathology groups quickly applauded the study, saying that it provided new evidence and is consistent with previous studies that have found self-referal for AP services is linked to increased utilization. “Given the mounting evidence, the time has come for Congress to take legislative action to remove anatomic pathology, advanced diagnostic imaging, radiation therapy, and physical therapy from the IOAS exception,” said Alan Mertz, president of ACLA. “For too long, CMS has addressed utilization increases through untargeted and broad cuts to referral laboratories—which have no control over the volume of services ordered by physicians—rather than examining the core drivers of utilization. This reform would restrict self-referral in order to safeguard patient safety and health care quality as well as to allow for better control of our nation’s health care expenditures.” The Alliance for Integrity in Medicare (AIM), while also praising the report, disagreed with the GAO’s recommendations for Medicare to track self-referred AP services, as well as to create policies to ensure appropriateness of biopsy procedures and to develop new payment approaches. “These recommendations do not address the underlying profit incentives associated with this abuse, which continues today and is only possible due to the current regulations and the loophole in the IOAS exception,” said the group in a statement. “AIM believes there is more than enough evidence that self-referral leads to overutilization, and it’s time to get at the root of the problem and close this self-referral loophole.” The College of American Pathologists (CAP) also called on CMS to close the self-referral loophole, noting that the provision was never intended to protect self-referral of AP services because, unlike clinical laboratory services, they can almost never be performed at the time of an office visit. The Takeaway: Despite mounting evidence that self-referrals drive up Medicare costs, CMS remains reluctant to close the loophole that allows physicians to self-refer AP services. Lab and pathology groups have their work cut out for them if they hope to convince CMS and lawmakers that the loophole should be closed once and for all.