Conflict of Interest – Physician Self-Referral

1. Physician investment in health-care facilities can provide important benefits for patient care. However, when physicians refer patients to facilities in which they have an ownership interest, a potential conflict of interest exists. In general, physicians should not refer patients to a health care facility outside their office practice at which they do not directly provide care or services when they have an investment interest in the facility.
2. Physicians may invest in and refer to an outside facility, whether or not they provide direct care or services at the facility, if there is a demonstrated community need for the facility and alternative financing is not available. There may be situations in which a needed facility would not be built if referring physicians were prohibited from investing in the facility. Need might exist when there is no facility of reasonable quality in the community or when use of existing facilities is onerous for patients. In such cases, the following requirements should also be met:
   1. Individuals who are not in the position to refer patients to the facility must be given a bona fide opportunity to invest in the facility, and they must be able to invest on the same terms that are offered to referring physicians. The terms on which investment interests are offered to physicians must not be related to the past or expected volume of referrals or other business from the physicians.
   2. There is no requirement that any physician investor make referrals to the entity or otherwise generate business as a condition for remaining an investor.
   3. The entity must not market or furnish its name or services to referring physician investors differently than to other investors.
   4. The entity must not loan funds or guarantee a loan for physicians in a position to refer to the entity.
   5. The return on the physician's investment must be tied to the physician's equity in the facility, rather than to the volume of referrals.
   6. Investment contracts should not include "non-competition clauses" that prevent physicians from investing in other facilities.
   7. Physicians must disclose their investment interest to their patients when making a referral. Patients must be given a list of effective alternative facilities if any such facilities become reasonably available, informed that they have the option to use one of the alternative facilities, and assured that they will not be treated differently by the physician if they do not choose the physician-owned facility. These disclosure requirements also apply to physician investors who directly provide care or services to their patients in facilities outside their office practice.
   8. The physician's ownership interest should be disclosed, when requested, to third-party payers.
   9. An internal utilization review program must be established to ensure that investing physicians do not exploit their patients in any way, as by inappropriate or unnecessary utilization.
   10. When a physician's financial interest conflicts so greatly with the patient's interest as to be incompatible, the physician must make alternative arrangements for the care of the patient.
3. With regard to physicians who invested in facilities under the council's prior opinion, it is recommended that they reevaluate their activity in accordance with this opinion and comply with the guidelines to the fullest extent possible. If compliance with the need and alternative investor criteria investor is not practical, it is essential that the identification of reasonably available alternative facilities be provided.

(JC Rpt D, A-93) (Reaffirmed A-23)

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Abbreviations for House of Delegates report origination:

EC – Executive Committee; BT – Board of Trustees; CPA – Council on Professional Affairs; JC – Judicial Council; CHS – Community and Health Services