Money Machine

Open Advanced MRI, with six Portland-area locations, bills itself as "the easier MRI."

While those words are supposed to apply to patients' comfort, for dozens of local doctors, OAMRI appears to have made earning a living a lot easier.

An investigation by WW indicates that the radiology

company is engaging in practices that other radiologists, medical insurers and one of the country's top medical economists say are highly unethical. Some even speculate that they may be illegal.

An OAMRI marketing document obtained by WW suggests that OAMRI, the subisidiary of a Virginia company, is taking a different approach from most local radiologists, who depend on skill, reputation and service to attract referrals from primary-care doctors—the lifeblood of their business.

Instead, the OAMRI marketing document describes a proposed relationship in which physicians can net nearly $500 for each patient referred for an MRI and a smaller but still substantial amount for other types of scans.

According to the document, at least three local physician groups, which include more than 70 doctors, have agreed to such a contract.

Dr. Gerald Warnock, the owner of Epic Imaging, Portland's oldest and largest imaging center, says the company's proposal appears highly questionable.

"What they're doing sure ought to be criminal," Warnock says. "It can't be legitimate, and if it is, the laws are wrong."

To be sure, the laws and regulations surrounding physician referrals are very complicated. And in an email response to WW, OAMRI denied any wrongdoing, though a company representative would not agree to an interview.

Administrators and doctors at the three physician groups also declined multiple requests to talk about their arrangement with OAMRI.

The arrangement OAMRI is offering doctors may be unique in the Portland area, but similar deals, in which referring physicians receive fees for sending a patient to a particular radiology clinic, have become a serious issue nationally, says Dr. Jean Mitchell, a Georgetown University healthcare economist who specializes in physician-referral issues.

Mitchell and others say that cozy relationships between primary care doctors and imaging companies are a big driver in the rapid escalation in healthcare costs. According to federal statistics, imaging costs are a greater cause of healthcare inflation than more publicized items such as prescription drugs or malpractice insurance.

Mitchell, whose research provided the underpinnings for federal laws prohibiting physician conflicts of interest, says arrangements like the one OAMRI appears to offer local doctors are "scam deals."

"This is a total rip-off of patients and insurance companies," she says. "And people would be amazed to know how widespread these deals are."

The practice of physicians referring patients to facilities in which they have an economic interest or from which they receive a referral fee has a long and ugly history in this country.

The practice was much more common as recently as 30 years ago.

But healthcare advocates, worried that such practices were leading to unnecessary testing, exploding healthcare costs, and doctors motivated by financial incentives, tried to crack down.

In 1972, Congress passed what's known as the "anti-kickback" law, which prohibited doctors from making referrals of Medicaid and Medicare patients in exchange for payment.

In 1989, Congress passed another law, called the Stark Act, which prohibited doctors from referring Medicare and Medicaid patients to labs in which they had ownership.

In 1993, in part due to a study that showed doctors who had a financial interest in imaging centers ordered 54 percent more MRI scans than those who didn't, Congress passed Stark II, broadening the prohibitions against self-referral.

At least 36 states also passed their own laws prohibiting kickbacks and various forms of self-referral. (Oregon is not among them.)

The imaging business has been at the heart of the concerns that led to the federal legislation.

Thirty years ago, when a doctor wanted to look inside a patient's body, there were two basic choices: X-rays, which exposed the patient to potentially harmful radioactivity, or exploratory surgery, which carried a whole different set of risks.

Since then, magnetic resonance imaging (MRI) machines—which use powerful magnets and radio waves to develop images of soft tissue—and other scanning devices have dramatically improved a doctor's ability to see inside a patient. As a consequence, the use of diagnostic imaging has grown exponentially.

Nationally, it is estimated to be a $100 billion-a-year business, and one that has become "unbelievably profitable, just about the most profitable line in all of healthcare," according to Jack Friedman, president of Providence Health Plans, a Portland medical-insurance provider.

The passage of federal and state laws eliminated many of the conflicts of interest that accompanied the development of modern imaging. "In general, it's a phenomenon that's gotten less common," says Jim Kronenberg, chief operating officer of the Oregon Medical Association.

But the rapid advance of medical technology and the skill of lawyers at finding loopholes in existing legislation has created significant "gray areas" around the relationship between referring doctors and imaging centers.

One of those loopholes is what are called "leasing arrangements," in which non-radiologist physicians lease the use of scanning equipment at imaging centers and may be able to get around the legal restrictions.

OAMRI certainly believes it is operating in an above-board fashion. In an email response to WW's request for an interview, OAMRI regional director Tom Sanchez said, "It is always our corporate philosophy to assure compliance with Oregon and federal law. We believe our lease arrangements are compliant with these regulatory requirements."

Yet, unlike any other radiology group in Portland that WW is aware of, OAMRI's offers referring physicians the ability to earn money for every patient referred for an MRI or for less expensive scans.

WW does not have copies of the contracts between OAMRI and the three physician groups. What it did obtain was a marketing document that OAMRI presented to physicians (see page 29).

On one page, OAMRI states that referring doctors can net $475 per MRI and $155 per CT scan. The page concludes that a doctor can increase his or her annual compensation by $134,700 in the revenues that he or she will receive from referrals.

To put that sum in perspective, a survey done last year by the American Academy of Family Physicians found the median income for a family doctor in the Northwest is $133,000 per year.

The final page of the document obtained by WW shows that three local primary-care physician groups—Cascade Physicians, Northwest Primary Care and Pacific Medical Group—have agreed to the type of leasing arrangement with OAMRI described in the document.

It is unclear how long these arrangements have been in place. Nor is it clear how many patients the three physician groups have referred to OAMRI through the contracts or whether any of those patients is insured by Medicare or Medicaid.

None of the three physician groups agreed to requests for interviews. One group, Pacific Medical, had its administrator, Linda Kennedy, fax WW a letter stating, "I am not at liberty to discuss details of our business interactions."

It is unclear whether OAMRI and its referring doctors have broken federal law. Department of Health and Human Services guidelines say anyone "who knowingly and willfully receives or pays anything of value to influence the referral of federal health care program business, including Medicare and Medicaid, can be held accountable for a felony."

These days, however, the medical press is full of articles discussing growing concerns about referral practices.

Lawyers Norton Travis and Peter Hoffman wrote in the trade journal Decisions in Imaging Economics last year that they had serious questions about "leases and other common arrangements whereby radiology services are made available to physician groups so they can bill their patients for ancillary services historically referred out to laboratories and imaging facilities."

OAMRI's leasing arrangements have not been challenged by any legal authority. In Louisiana, however, that state's Board of Medical Examiners wrote last year, "It is the board's opinion that an arrangement under which a referring physician 'leases' and/or purchases the full complement of technical and professional services necessary to provide imaging services to the physician's patients on an unscheduled, per-use basis for less than the referring physician's reimbursement from the patient or the patient's [insurer] violates the anti-kickback law."

A variety of healthcare sources, including doctors, insurance-company officials and economists, say that physicians' receiving money for referrals or having a financial interest in facilities that they refer patients to may not be illegal but they believe it is highly unethical .

The American College of Radiology's Rules of Ethics, for example, state, "The practice of physicians referring patients to health care facilities in which they have a financial interest is not in the best interest of patients. Self-referral may improperly influence the professional judgments of those physicians referring patients to such facilities."

Dr. John Santa, an internist who practices at the Portland VA Medical Center and does administrative work at the Center for Evidence-Based Policy at Oregon Health & Science University, says if he were offered a deal like OAMRI's he would not only reject it, he would contact the Department of Health and Human Services' Office of the Inspector General, which investigates healthcare fraud. "Not only would I be in ethical hot water, I'd be very worried I'd wind up on the wrong side of the law," Santa says.

Dr. Bart McMullan, president of Regence BlueCross BlueShield of Oregon, the state's largest medical insurer, says he hasn't seen anything like the OAMRI marketing document before. "We are concerned when there appear to be referrals that are based on revenue," he says.

The three physician groups that have contracts with OAMRI also have contracts with Regence BlueCross.

If a group doing business with Regence BlueCross were found to be taking illegal kickbacks, McMullan says, "I would terminate their contract immediately." McMullan now plans to determine whether the groups' contracts with OAMRI meet BlueCross' standards.

Epic's Warnock, who opened his first imaging center in 1972, says he's never seen anything quite like the OAMRI proposal. "It's pretty brazen," Warnock says. "They're saying, send us the patient and we'll kick you back the money."

Warnock says he has been aware for some time that OAMRI was offering incentives for referrals. A couple of years ago, he recalls, a representative from Pacific Medical asked if his company would offer the same kind of incentives for referral. "Pacific gave us a chance to offer them the same kind of money and we said 'no,'" Warnock says. "It just seemed dirty."

While OAMRI's arrangement may be unusual in Portland, Mitchell says various forms of physician lease deals are increasingly common around the country.

And some experts believe there is a direct correlation between the rise in these arrangements and the increase in the use of MRIs. In other words, some feel such arrangements give doctors an incentive to tell a patient that they need a scan—even when they don't.

Certainly, the growth in the utilization of MRIs is breathtaking. "Diagnostic imaging service paid under Medicare's physician fee schedule grew more rapidly than any other type of physician service between 1999 and 2003," Mark Miller, the director of the Medicare Payment Advisory Commission, told Congress last year.

Over the past six years for which there are data (1998-2003), the number of MRIs done in Oregon alone went up 131 percent—a little faster than the nation as a whole.

Without question, some of the growth is medically legitimate, Miller told Congress. And there are also other pressures: Patients, accustomed to seeing MRIs advertised or mentioned routinely in the media, have become more demanding, and doctors also practice defensively, often ordering tests when there is any doubt.

Miller also expressed concern about overutilization of imaging machines being caused by referrals from physicians who have a financial interest in them, a phenomenon that has been well-documented.

"When doctors have a financial interest in imaging machines, utilization goes up by four to seven times," says Dr. David Soffa, the San Francisco radiologist, whose company helps insurers reducing imaging costs. (Soffa is citing a landmark study published in The New England Journal of Medicine in 1990.)

There are a number of consequences to the huge increase in MRI usage in recent years. Regence BlueCross' McMullan says the large number of unnecessary tests drives up healthcare premiums for everybody. He says it is widely believed that about 30 percent of all MRIs are unnecessary.

A 2004 study done at Jefferson Medical College in Pennsylvania put the cost of "unnecessary imaging resulting from self-referral by non-radiologists at $16 billion per year." If that sum is allocated to Oregon on a per capita basis, the cost in this state would be nearly $200 million—or about $55 for every man, woman and child in the state.

It's easy to see why some doctors might find OAMRI's proposition attractive. Over the past decade, Medicare and private insurance companies have ratcheted back reimbursement for primary care doctors.

"It is very difficult for primary care physicians to make a competitive income compared to 15 years ago," says the OMA's Kronenberg. "There are exceptions in the larger, better organized group practices. But for the classic solo family physician it's pretty hard going."

Nobody is arguing that patients were better off before the invention of MRIs. The extraordinary images that powerful magnets produce offer better diagnoses and fewer risks than earlier approaches such as X-rays and exploratory surgery.

But the march of technology combined with the incentives created by current healthcare reimbursement policies have created a fertile opportunity for exploitation. "Leasing arrangements are just a way to get payment for referral," Mitchell says. "Patients should get tests because they need them, not to put money in doctors' pockets."

Federal officials are taking a two-pronged approach to reining in the utilization of diagnostic imaging.

Last year, members of Congress introduced legislation that proposed to reduce federal reimbursement for MRIs by as much as 50 percent over the next couple of years. That effort failed, but the American College of Radiology expects it will be revived.

Last July, The Wall Street Journal reported that federal prosecutors in Florida and at the Department of Justice in Washington, D.C., began a probe into the issue of physician referrals to imaging centers. A Justice Department spokesman declined to comment on the progress of that investigation.

Informed of OAMRI's marketing document, U.S. Sen. Ron Wyden, a member of the Senate Finance Committee, which oversees Medicare spending, expressed concern.

"These allegations will be of interest to members of the Senate Finance Committee because this goes to the critical question of how to strike the right balance between providing necessary medical services and being judicious with limited health dollars," Wyden said in an email. "While most physicians make responsible care choices—and I would need more detail to offer a judgment on these specific allegations—we have an obligation to work to ensure that no physician is simply running a bunch of tests to pad his income."

The Providence Factor

A policy shift last year by the Providence Health Plan, the insurance arm of the city's largest hospital group, had the indirect effect of greatly increasingly the competition among independent providers of MRIs.

After watching diagnostic imaging costs skyrocket for years, Providence decided to take a good deal of its work in-house.

The insurer told doctors participating in its plan that they could no longer refer patients to two large Portland providers of imaging services—Epic Imaging, owned by Dr. Gerald Warnock, and another company called Body Imaging—and would instead have to refer to Providence's newly built imaging centers.

Almost overnight, the supply of patients available to independent imaging centers plummeted, which meant that Epic Imaging, Body Imaging, Mount Scott Diagnostic Imaging, Siker Medical Imaging and other independents such as OAMRI were suddenly battling over a much smaller pie.

"When nearly 40 percent of the patient pool was pulled out of the market, it had a tremendous effect," says Dr. David Siker, a radiologist who owns Siker Medical. "Competition really ramped up."

—NJ

Unlike imaging devices such as X-ray machines and CT scanners that use potentially harmful radiation, MRI machines are unregulated in Oregon. Anybody can buy one.

According to a 2005 study done by the consulting firm Booz Allen Hamilton, diagnostic imaging costs Americans $100 billion a year.

Open Advanced MRI is owned by Medical Imaging & Diagnostic Imaging Inc. of McLean, Va. MIDI has imaging centers in Portland, Gresham, Tigard and Clackamas. as well as in Longview and Vancouver, Wash., and 15 centers in the Midwest.

According to the Oregon Board of Medical Examiners registration data, there are 680 radiologists in the Portland area.

WWeek 2015