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To Trim Medical Costs, Reduce Physician Conflicts of Interest

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There really are ways to cut medical care costs without shrinking Medicare or insurance coverage and without fattening deductibles and co-payments. Topping our list: eliminating physician ownership interests that distort care and inflate costs, thereby saving billions a year, tops our list. An analysis by McKinsey Global Institute (MGI), the research arm of McKinsey & Company, concluded that, for the year 2005, such expenditures accounted for excess outlays of some $8 billion. With price inflation, expanding total outlays and increased use of imaging equipment especially, those excess expenditures just keep mounting in the absence of countermeasures to restrain them.

Other studies repeatedly show that doctors with financial interests in procedures and drugs prescribe them more frequently than alternatives, including less expensive treatments or none at all. Costly investments in imaging devices such as Catscans, Petscans and MRIs provide a powerful inducement for physicians to pay off their outlays and loans quickly. Such self interest pits the physician's bottom line against patient interests. Many will assert, probably correctly, that most physicians do not deliberately subordinate patients' interests. But, self interest is an insidious thing, often operating below consciousness. Add our human proclivity and ingenuity for rationalization and you have a cogent explanation of the troubling prescription patterns of physicians with financial stakes.

Legislation authored by Congressman Pete Stark, now famously known as Stark I, prohibits Medicare reimbursement of billings that involve "self-referral", ordering services by an enterprise in which the prescribing physician or an immediate family member has a financial stake. But, after vigorous lobbying, the enactment of Stark II exempted several kinds of such charges, including those for use of in-office equipment. That negated Stark I considerably. Moreover, the Stark amendments do not apply to private insurance, leaving those outside Medicare's protection unprotected from the cost inflation flowing from physician conflicts of interests.

The existence of a financial incentive for a physician to serve his/her own ownership sets off dueling interests that often make it impossible to distinguish between appropriate treatments and those impelled by physician desire for profits. We certainly want to preserve physician professional autonomy. That would be best served by preventing such conflicts by across-the-board prohibition on "self-referral". Anything less would relegate private and public programs to attempted disallowance of charges driven by self interest one by one. Such an individualized process, potentially applying to tens of thousands of procedures, would be costly, yield debatable results and inevitably require exploration of physician integrity. Given the importance of trust in medical care, everyone concerned would be better off if questions of physician probity need not arise.

The potential for substantial savings and the urgency of curbing medical costs also recommend prohibition of physician ownership interests as a real "reform." The relatively high incomes enjoyed by physicians without such a source also should recommend it. A ban would be one way to reduce the baleful incentives of fee-for-service arrangements to multiply procedures. While no one welcomes reductions in income, eliminating the possibility of conflict of interest would spare the medical community embarrassing debates and strengthen patient confidence, an important element in treatment. A ban also would reduce the need for irksome, time-consuming and possibly expensive attempts at control.

The drafters of the Affordable Care Act, known to its unfriends as Obamacare, were aware of the problem. They addressed it, but, we fear, confusingly and ineffectually. Title VI apparently seeks to limit the incidence and expansion of self-referrals to hospitals in which a physician has a financial interest. It also requires physicians with financial interests to inform patients that they may obtain such services from other providers. That requirement presents dubious protection against physician self interest but would impliedly raise questions of physician trustworthiness, not a desirable result. Such disclosure late in treatment is a weak-tea measure to pit against the profit motive. It is unlikely to affect choices by patients with more urgent concerns and insufficient knowledge to weigh alternatives.

A legislative ban on physician conflicts of interest is one promising measure to curb the mounting costs of medical care. We would all feel better and our bottom lines would be trimmer.