Imagine: Your knee hurts. Your orthopedist says that he needs to do an MRI…and for your convenience, he has an MRI machine just down the hall. After checking your scan, the orthopedist recommends surgery, which can be done at an adjoining outpatient surgery center…after which you’ll attend physical therapy, again conveniently located in the doctor’s office complex.

Hassle-free, one-stop medical care for the patient? Or a money-making racket for the doctor? Consider: If your doctor owns or leases the MRI machine used to examine your knee or if he owns part of the surgery center and/or physical therapy center, he is making money on every phase of your examination and treatment. He not only collects his professional fees for your office visit, but he also shares in any profits generated by the scan, the surgery or the physical therapy.

Those are huge monetary incentives.

Of course, it’s quite possible that you really need the MRI, the operation and the physical therapy. But the doctor’s financial involvement in so many of your health-care services creates a serious conflict of interest that makes it hard to know whether he is protecting your well-being or his own bottom line.

A Toothless Law

The process described above is called self-referral, and in many circumstances, it’s illegal. The federal government prohibits doctors from referring patients to facilities in which they have a financial interest. This regulation, known as the Ethics in Patient Referrals Act or the Stark Law (after the congressman who sponsored the bill), applies only to Medicare and Medicaid patients, but about half of the states have similar laws that apply to privately insured patients.

The loophole problem: The law is simply not enforced…and there are loopholes so big you can fit an MRI machine through them. The biggest loophole is the in-office ancillary services exception, which allows doctors to self-refer if the service is provided by them or by members of their practice in their office—which pretty much takes the teeth right out of the law.

Doctors have figured out other ways to circumvent the law, too. For example, a medical practice can enter into a contract with an independent imaging facility and agree to pay the facility a reduced, set fee for each service performed (a practice called payment per click). The referring doctor then bills the insurance company for the full-price service—and pockets the difference between what he collects from the insurance company and what he pays the imaging facility.


The biggest problems with self-referral involve three types of overutilization of health care…

Overtesting: Self-referral can lead to a lot of unwarranted tests, many of which carry risks. For instance, CT scans and X-rays involve radiation…the contrast materials used in some CT and MRI scans can cause kidney problems or allergic reactions…biopsies can be painful and can leave scars…and testing is highly stressful, particularly as anxious patients await the results.

Does ownership really affects doctors’ decisions about the amount of testing to do? You bet it does. Consider this evidence from recent studies…

Doctors who owned imaging centers or leased imaging equipment referred their patients for imaging tests more than twice as often, on average, as doctors in the same specialties but without this financial interest.

Patients of doctors who owned or leased MRI machines were 33% more likely to have normal MRIs than patients of doctors who didn’t have MRI machines—because owner-doctors were less selective in determining which patients really needed the test.

Male patients who had prostate biopsies performed by doctors with an ownership interest in the pathology lab had 72% more specimens examined than patients of doctors without a financial interest—yet the patients of the lab-owning doctors were less likely to actually have cancer.

Overtreating: As if unwarranted tests weren’t bad enough, self-referring doctors on average provide more unneeded treatments, too. Examples from recent studies…

Surgeons who were partial or full owners of surgery centers performed at least twice as many of five studied procedures (such as knee arthroscopy and carpal tunnel surgery) as non-owner surgeons in the same specialties.

Prostate cancer patients being treated by urologists who owned the equipment needed to perform intensity-modulated radiation therapy (IMRT) were nearly three times more likely to undergo this expensive treatment than men treated by urologists who did not own IMRT equipment.

Doctors who purchased IMRT equipment more than quadrupled their use of this treatment after acquiring the equipment, on average—even though studies show that for low-risk disease (which accounts for the vast majority of prostate cancers), IMRT is no better than other treatments that cost about half as much. However, before these urologists purchased their IMRT equipment, they were no more likely than non-owner urologists to refer patients for IMRT.

Overcharging: Even when a test or procedure is necessary, the “convenience” of self-referral comes at a price. For instance, a recent study showed that for imaging tests, with the exception of X-rays, fees are higher, on average, when doctors self-refer patients rather than sending patients elsewhere for services. Even if you don’t pay directly for those medical expenses, the excess costs still affect you—and everyone else—in the form of increased insurance premiums and copays.

I spoke with Jean Mitchell, PhD, an economist and professor at the McCourt School of Public Policy at Georgetown University, whose groundbreaking study on the impact of self-referral in Florida led to the Stark Law. My main question: How can consumers protect themselves in this era of self-referral?

Professor Mitchell acknowledged that consumers are in a bind. “As patients, we don’t have the clinical expertise to know whether we truly need a particular procedure, so we rely on our physicians to act as our agents. But when a physician is motivated by financial incentives, he may err on the side of recommending a test or procedure even if the patient is likely to have minimal or no benefit,” she said. “And the problem is rampant in all areas of medicine. If regulators actually enforced the Stark Law and closed the loopholes, you would see a lot of unhappy doctors. But you would also see health-care utilization and spending drop dramatically, with no change in the quality of care.”

Self-Defense Against Self-Referral

Until such time as the law is fixed and enforced, what can you do to protect your own health and wallet rather than the doctors’ financial interests?

Ask your doctor directly whether he/she is self-referring. When your doctor recommends a test or treatment, you can say point-blank, “Doctor, do you have any financial interest in this test or treatment?” If the answer is yes, inquire whether the results of the test will affect the treatment decision (if it won’t, there’s no reason to get the test)…and whether a particular treatment is the gold standard for your condition (if it isn’t, the doctor should have a darn good explanation for why he’s recommending it). You can keep your eyes open for subtler clues, too. “If the service you’re being sent for, such as physical therapy or imaging, is offered right in the doctor’s office, it’s quite likely that your doctor is self-referring. Or you can look at the doctor’s Web site to see if it advertises the doctor’s own imaging, surgery or radiation center,” Professor Mitchell said.

Get a second opinion. Consulting a second physician, especially before having an operation or starting a treatment program, is always a good idea. Just be sure that second doctor is not in the same practice as the first doctor—and again, ask this second doctor whether he’s self-referring.

Feel free to go elsewhere for services. You are under no obligation to limit yourself to the providers and facilities that your doctor recommends. Get referrals from friends or professional medical associations. Or consider seeing a doctor who’s on staff at a hospital associated with a university—according to Professor Mitchell, these practitioners may be more likely to follow established guidelines on testing and treatment. “Doctors on hospital staffs are frequently on salary,” she said, “so although they may feel some indirect pressure from their institutions, they are less likely to be motivated by direct financial incentives.”

Bottom line: If you have explored your options and decided that the convenience of a self-referral outweighs the downside, that’s your right. Just don’t let yourself be unwittingly herded into tests or treatments that do little more than create revenue for your doctor.