Letter-Trafficking and Self-Referral in Massachusetts

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As in many states, Massachusetts policy makers are examining the impact that ambulatory surgical centers and medical diagnostic imaging services, particularly physician owned, are having on the health care delivery system. Last year, the Massachusetts Legislature created a special study commission to examine these health services and their impact on access and the cost of health care. Part of the commission’s work focused on the issue of over-utilization of imaging services. The commission issued its report on June 30, 2007.

The commission consisted of legislators, state health officials, and representatives of hospitals, insurers, ambulatory surgical centers, and physicians, including a representative of the Massachusetts Radiological Society.

In its review of diagnostic imaging services, the commission focused on those services that are defined by the Department of Public Health (DPH) as “New Technology” or “Innovative Services”. Those services include magnetic resonance imaging (MRI), positron emission tomography (PET), and linear accelerators (radiation therapy). Pursuant to state regulations, such services require a determination of need (DON). A unique feature to our regulatory climate, which adds confusion to the regulatory process governing “New Technology”, is that prior to 1991, physicians were generally exempt from DON requirements under a so-called physician practice exemption and could acquire “New Technology” by simply providing notice to DPH.

No review or approval by DPH was required.

In 1991, the Legislature, viewing the physician exemption as a loophole to the DON law, closed the physician exemption as to New Technology, and requires a DON for all providers. However, the legislature “grandfathered” equipment that was acquired, pursuant to the physician exemption, prior to the effective date of the law. Those physician practices that filed notices to acquire New Technology prior to the effective date of the law were issued a “Physician Letter of Exemption” from the DON requirement. A number of physician practices took advantage of the time period between the passage of the law and its effective date to file Letters of Exemption. DPH issued 24 exemption letters for MRI, 14 letters for linear accelerators (radiation therapy), and 16 for PET.

Under current law the Physician Exemption Letters are transferable, and, in its report to the legislature, the commission reports that individual letters have been purchased by physicians for more than $300,000. Because DPH has not been granting DONs for New Technology, (other than allowing hospitals and clinics with DON-approved MRIs that meet certain volume requirements to acquire additional MRIs), the exemption letters have become something akin to taxi medallions; transferable among physician practices, subject only to the price vagaries of the health care marketplace.

In examining New Technology, the commission spent a good deal of time looking at MRI services and exploring the issue of over utilization with particular concern about inappropriate self-referral of patients by physicians, particularly among those who have acquired a Physician Letter of Exemption. While the commission found that no data has been developed about the experience in Massachusetts, it did note that national studies and studies from other states “consistently show that physicians who are not radiologists operating their own imaging equipment with the opportunity for self-referral have substantially higher utilization than physicians who refer patients to radiologists”. [1]

On the issue of self-referral, the commission focused on the so called “In-Office Ancillary Services Exception to the Stark regulations,” which in certain defined situations allows for physician referral of patients to an MRI owned by the physician or his/her practice. The commission noted allegations of abuse to the in-office exception, such as “per-click” leases; ie, the referring physician leases MRI equipment and the services of an MRI center for the provision of services to his/her patients. The commission reported that there is evidence of such leasing in Massachusetts.

Commission Recommendations

While the commission examined the current regulatory status of New Technology in Massachusetts and explored the issue of inappropriate self-referral, it did not recommend specific legislation. Rather, it issued recommendations that lay out principles and direction for future legislation and possible regulatory