A page 1 story in The Wall Street Journal1 is bringing national attention to a practice that allows physicians to profit from lab tests performed by others. The most disturbing aspect of this practice is that it could have a detrimental effect on patients when an inferior lab is chosen to perform tests because of an arrangement with a physician looking to maximize profits.

The Wall Street Journal article discusses referral deals wherein a physician sends a patient sample to an outside lab for testing, the lab charges the physician a discounted fee, and the physician bills the patient’s insurer for a much higher amount. In most cases, the physician doesn’t tell the insurer that someone else performed the test at a discount. These arrangements appear to be wrong on so many different levels. They create a climate in which one shaky deal leads to another. To profit financially, some physicians are moved to order tests when a medical necessity has not been established, and other unethical practices follow. These include upcoding medical problems to get higher reimbursements; billing for tests not actually performed; accepting kickbacks from labs looking to increase business; and bundling tests, but billing for them individually to increase profits. Even when physicians haven’t crossed the line into clearly illegal territory, referral deals are a questionable business at best.

How do physicians justify what appear to be clear-cut ethics violations in referral deals? Some insist that so-called markups are a minor profit center that offset staff costs and other overhead expenses required to obtain and preprocess specimens, interpret and document the results, communicate results and treatment decisions to the patient, and bill for all of the above. Indeed, in its code of ethics, the American Medical Association says that while physicians should not charge a markup, commission, or profit on services rendered by others, they can levy a processing charge on these services.

While private insurers can require those performing lab tests to do the billing themselves, few believe that this would put an end to questionable physician-lab alliances. For example, this would not prevent labs from rewarding physicians who bring them business.

Even as more attention is being focused on referral deals, these arrangements are increasing rapidly as physicians look for new sources of income and labs look to increase business. Unfortunately, those who stand to lose the most are patients—especially when labs are selected based not on quality, but because of a business deal with a physician.

Carol Andrews
candrews@ascendmedia.com

Reference
1. Armstrong D. How some doctors turn a $90 profit from a $17 test. Wall Street Journal. September 30, 2005:A1.