Reform the IOAS self-referral exception

The surprise announcement by Medicare trustees that nearly thirty percent of Medicare beneficiaries could see a demonstrable increase in their premiums come next January has sent some lawmakers quickly looking for a solution to stave off the projected fifty-two percent hike coming out of the pockets of millions of seniors.  

Due to rules banning Medicare from raising most beneficiaries’ premiums more than the cost of living adjustments (COLA) on their Social Security payments, problems arise in a year when the government healthcare payor wants to increase patient premiums but no COLA is granted. The result: nearly sixteen million senior beneficiaries will feel the brunt of a steep increase in Medicare Part B.  

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Help could be on the way if Congress would consider narrowing an exemption to the Medicare self-referral law, specifically the in-office ancillary services exception (IOAS).  This loophole has paved the way, according to the Government Accountability Office (GAO), for spikes in utilization of certain ancillary services and a measurable jump in Medicare payments to physicians.

The Ethics in Patient Referrals Acta law which was put into place to prevent doctors from referring Medicare beneficiaries to entities in which they have a financial interest-- has achieved its aim on the whole.  While almost all healthcare providers have their patients’ best interest in mind, the law combats the small minority of clinicians who may order additional, unnecessary tests. Some exceptions exist to the overall self-referral ban for common-sense flexibility, including the IOAS exception, which allows doctors to continue providing a number of straightforward services as a convenience to the patient.  As a result, Medicare patients can receive simple lab tests, x-rays, crutches and other durable medical equipment, as examples, during an office visit.   

However, lawmakers also included some far more complex services in the IOAS exception, such as advanced diagnostic imaging, anatomic pathology (AP), physical therapy, and radiation therapy.  Given that in most instances, these specific services cannot be provided by physicians during a Medicare patient’s office visit, the IOAS exception needs to be reformed to prohibit self-referral for these four services.  With regard to just AP, the GAO reported “an estimated 918,000 more referrals” for this complex service were made by self-referring physicians in 2010, when compared to those who did not self-refer. And as a result of the increased self-referral, the bill to taxpayers was $69 million higher in 2010 alone. 

In radiation oncology, Intensity Modulated Radiation Therapy (IMRT) is a cancer treatment which normally is provided to patients five days per week for up to six weeks.  Utilization of this treatment method increased by 356 percent among group practices who were self-referring, in contrast to a five percent decrease in non – self-referring practices during the same time period.  

Physical therapy (PT) is often used as a revenue-generating service, as physical therapists can be hired into a group practice and physicians can easily self-refer and bill for those services for more than may be necessary. A recent study in the Forum for Health Economics and Policy found that physicians with an ownership interest in PT services referred more patients for physical therapy, the patients received far less active, hands-on care, and these patients ended up costing significantly more than patients who received care from physicians without an ownership interest.  

Closing the physician self-referral loophole by removing these services from the IOAS exception would realign provider incentives, which is in the best interests of Medicare beneficiaries, taxpayers, and the American health care system.  

Last spring, a report out by the Congressional Budget Office (CBO) indicated the Medicare savings score in the President’s 2016 FY budget for the IOAS exception reform rose $0.1 billion from last year to $3.5 billion, representing a $100 million increase from the prior estimate.  That kind of windfall in Medicare savings could be very useful given the impending jolt soon to be felt by millions of seniors utilizing outpatient services and doctors’ visits when their monthly premium jumps from $104.90 to $159.30.   

States have an enormous stake in the outcome of congressional action and are likely to support creative funding options to lessen the pain of already strained budgets, given that state Medicaid programs cover the premiums of dual eligible beneficiaries, many of whom will be impacted by the unexpected increase. 

The reality is Congress can protect the integrity of medicine by eliminating services from the well-intended IOAS, enhance patient care by minimizing the overutilization of services and unnecessary procedures and soften the blow for the Medicare beneficiaries targeted for premium sticker shock in the New Year.

This is an alternative without a hitch, without a downside and where both the patient and taxpayer win.

Mertz is president of the American Clinical Laboratory Association. Dunn is president of the American Physical Therapy Association. Haffty is chairman of the Board of the American Society for Radiation Oncology.