Physician Ownership of Medical Equipment

Physician Ownership of Medical Equipment

Data Bulletin No. 36
December 2010
James D. Reschovsky, Alwyn Cassil, Hoangmai H. Pham

Policy makers have long worried that physicians who hold ownership stakes or other financial interests in medical facilities and equipment would generate more referrals than clinically warranted. A significant body of evidence confirms that physician ownership of facilities and equipment does influence referral patterns.

In 1989, Congress passed the federal physician self-referral statute, widely known as the Stark Act after U.S. Rep. Pete Stark of California. Taking effect in 1992, the law initially prohibited physician self-referrals of Medicare patients for clinical laboratory services. Subsequently, the Stark law was broadened to encompass Medicaid patients and additional health services, including inpatient and outpatient hospital care and radiology services. However, the self-referral restrictions contain numerous exceptions, most notably for services delivered within the physician's own office or practice.

Since the Stark laws were enacted, technological progress has enabled more services to be performed in outpatient settings, including doctors' offices. Simultaneously, the expense and scale of high-tech equipment, including advanced imaging devices such as computed tomography (CT) and magnetic resonance imaging (MRI) scanners, has decreased, making office-based installations more financially viable.

While earlier research on physician self-referral concentrated on specific services like advanced imaging, little national data has been available about the broader prevalence of physician ownership or leasing of medical equipment. HSC's nationally representative 2008 Health Tracking Physician Survey asked doctors whether their primary practice owned or leased equipment used for: laboratory testing, including routine blood work; X-rays; other diagnostic imaging, such as CT or MRI scans; non-invasive testing besides electrocardiograms, or EKGs (e.g., echocardiograms, treadmill, nuclear testing, sleep testing); and invasive procedures, such as endoscopy or cardiac catheterization.

Among the 2,750 physicians in community-based, physician-owned practices -- representing 58 percent of all doctors -- 25.2 percent reported their practice owned or leased laboratory testing equipment, 22.7 percent for X-rays, 17.4 percent for advanced imaging, 28.9 percent for non-invasive procedures, and 11.4 percent for invasive procedures. Overall, nearly one in seven physicians (13.2%) indicated that their practice owned or leased three or more categories of equipment.

Differences by Specialty

Across the various equipment categories, ownership rates varied meaningfully by physician specialty. Primary care physicians who treat adults were more likely than other doctors -- except pediatricians -- to own laboratory testing equipment, while adult primary care physicians and surgeons were more likely to own X-ray equipment.

Although surgeons were the most likely to own advanced imaging equipment (30.3%), notable ownership rates were also found among primary care physicians treating adults (10.6%), non-procedure-based medical specialists such as neurologists (13.5%), and procedure-based medical specialists such as cardiologists (15.7%).

Roughly one in four adult primary care physicians and procedure-based specialists owned equipment for non-invasive procedures, while 20.9 percent of procedure-based specialists and 17.5 percent of surgeons owned equipment for invasive procedures.

Differences by Practice Size

Consistently, equipment ownership was more common in larger practices, where the equipment can be utilized more regularly and costs recovered more quickly. A majority of physicians in the largest practices -- those with more than 50 doctors -- owned equipment for laboratory services, X-rays, advanced imaging, and non-invasive procedures.

However, roughly two in 10 physicians in the smallest practices -- solo or two-physician groups -- owned equipment for non-invasive procedures, and 15.7 percent owned laboratory testing equipment. Additionally, slightly less than a third of physicians in groups of three to 10 doctors owned laboratory, X-ray, and non-invasive procedure equipment, while 20.3 percent owned advanced imaging equipment.

Policy Implications

In response to rapid growth in Medicare spending on advanced imaging services, Congress and the Centers for Medicare and Medicaid Services have taken steps in recent years to make physician ownership and use of certain types of advanced imaging less financially appealing by reducing Medicare reimbursements. Furthermore, under the health reform law, beginning January 1, 2011, physicians who refer Medicare and Medicaid patients for certain advanced imaging services, including MRI and CT scans, within their own practices must disclose their financial interest and provide patients with a list of alternative providers.

Given the accumulating evidence that physician self-referral contributes to unnecessary and costly care, policy makers might reconsider the breadth of the in-office ancillary service exemption to the Stark law. Ultimately, transitioning away from fee-for-service payment toward reimbursement mechanisms that compensate physicians for a broader unit of service, such as an episode of care, or placing physicians at least partially at financial risk for care costs will reshape the incentives that currently encourage physician self-referrals.

Notes

1. See for example, Casalino, Larry P., Physician self-referral and physician-owned specialty facilities, Research Synthesis Report No. 15, Robert Wood Johnson Foundation, Princeton, N.J. (June 2008); and Mitchell, Jean M., The Prevalence of Physician Self-referral Arrangements after Stark II: Evidence from Advanced Diagnostic Imaging, Health Affairs, Vol. 26, No. 3 (May/June 2007).

2. The HSC 2008 Health Tracking Physician Survey identifies physicians by the following three broad specialty categories: primary care, medical specialist, and surgical specialist. Medical specialists have been further classified as non-procedure-based medical specialists and procedure-based medical specialists.

3. Patient Protection and Affordable Care Act (Public Law No. 111-148), Section 6003.

4. Health Affairs, "Health Affairs Studies Puncture Arguments About Benefits of Physicians' Self-Referrals for Imaging," News Release (Dec. 8, 2010).

Data Source

This Data Bulletin draws on findings from the Center for Studying Health System Change (HSC) 2008 Health Tracking Physician Survey, a nationally representative mail survey of U.S. physicians who provide at least 20 hours per week of direct patient care. The physician sample was drawn from the American Medical Association master file and included active, nonfederal, office- and hospital-based physicians. Residents and fellows were excluded, along with radiologists, anesthesiologists, and pathologists. The survey includes responses from more than 4,700 physicians, and the response rate was 62 percent. Since this Data Bulletin examines the extent of physician practice ownership or leasing of medical equipment, the sample was limited to 2,750 physicians practicing in community-based, physician-owned practices. Physicians employed by hospitals, those who practiced in hospital-based settings, or those who worked in hospital-owned practices were excluded. More detailed information on survey content and methodology can be found at www.hschange.org.

Funding Acknowledgement

This research was supported by the Robert Wood Johnson Foundation.

Sources and Further Reading

CMS Physician Self-Referral (Stark Law) Overview — The Centers for Medicare and Medicaid Services page explaining the federal physician self-referral law, its exceptions, and enforcement.

Health Affairs: Physician Self-Referral Arrangements After Stark II — Jean Mitchell's peer-reviewed study examining the prevalence of self-referral arrangements in advanced diagnostic imaging after Stark II implementation.

Robert Wood Johnson Foundation Research Library — The RWJF research archive, including Casalino's synthesis report on physician self-referral and physician-owned specialty facilities.

AMA Physician Practice Benchmark Survey — American Medical Association data on physician practice arrangements, ownership patterns, and employment trends.

CMS Medicare Physician Fee Schedule — Medicare reimbursement rates and policy changes affecting physician payments for imaging and ancillary services.