The Self-Referral Horror, or How my Profession Screwed up Health Care

I study the law, as evinced by some of my other posts that do not have anything to do with health care. However, an interesting Slate piece caught my eye. In it, it stated that doctors at one time did not do self-referrals, but as a result of the case Goldfarb v. Virginia State Bar, 421 U.S. 733 (1975) that changed. The case held that lawyers who charged the State Bar Association's suggested rate of 1% of the home price for deed matters with home purchase were involved in price fixing, since no one could get a price below that 1%.

This came to apply to health care in the following way. Doctors had professional ethics that prevented them from getting any income except through seeing patients and treating them. However, as the case showed, any sort of thing that a court could interpret as price fixing fell suspect. Here then, the concern was that cordoning physicians off from other sources in such a strict manner could lead to price fixing, which it kind of does, and as a result that, plus some of the market deregulation of the Reagan era helped create a greater incentive for self-referral. The article captures this much better than I do.

A weird area of regulatory law then arose. Rep. Pete Stark, who has fought against such self-referral, has helped pass legislation that limits physician ownership of certain thing like labs. However, the so-called Stark 1 and Stark 2 laws created a complex regulatory scheme, and it has gaping holes that do not just arise out of complexity. It prevents self-referral for the $200 lab test. It does not prevent self-referral though to a hospital that you own a stake in that specializes in orthopedic surgery, which costs $20,000, and on which the margin is greater (I made up these numbers, but the sense of the wide difference in magnitude is the key).

When we talk about capitation and all these other matters, I do not think that just imposing some sort of here's some cash this month is necessarily the only way to go, and indeed, it could act as a blunt tool. We also need to look at some of these practices of self-referral. Indeed, the now famous Atul Gawande piece mentions such practices regarding hospitals in McAllen, Texas.

Yet, the hopes for a Stark 3 that pushes for a regulatory framework that ends the most egregious of these matters (or even amends the Sherman Anti-Trust Act in this regard) is not something that will go forward. Doctors have earned huge profits here through self-referral and do not want to see it end. Unfortunately if we do not address this matter, something that really is an egregious cost-driver, how can you even push for larger more complex action?