GAO Report: Self-Referrals Cost Medicare Millions

A new report, Medicare: Action Needed to Address Higher Use of Anatomic Pathology Services by Providers Who Self-Refer, from the Government Accountability Office (GAO) found a dramatic increase in self-referred anatomic pathology services compared with non–self-referred services from 2004 to 2010, suggesting that financial incentives for self-referring providers may be driving the rise in referrals.

Policymakers have raised questions about the role of self-referral in the rapid growth in Medicare Part B expenditures, including the extent to which this growth may be attributable to financial incentives that exist for physicians to self-refer services. Although federal law generally prohibits self-referral under Medicare, exceptions for certain services and arrangements are allowed. Anatomic pathology services, in which physicians prepare and examine tissue samples to diagnose disease and guide patient care, fall under these exceptions. The GAO was tasked with analyzing the prevalence of anatomic pathology of self-referral and its affect on Medicare spending. The report examined (1) trends in the number of, and expenditures for, self-referred and non–self-referred anatomic pathology services, (2) how provision of these services may differ based on whether providers self-refer, and (3) implications of self-referral for Medicare spending.

The GAO analyzed Medicare Part B claims data from 2004 through 2010 and interviewed officials from the Centers for Medicare & Medicaid Services (CMS) and other stakeholders. The GAO developed a claims-based approach to identify self-referred services because Medicare claims lack such an indicator.

The findings, published in June, found that while both the number of self-referred and non–self-referred anatomic pathology services showed overall growth from 2004 to 2010, self-referred services increased at a faster rate than non–self-referred services. Specifically, the number of self-referred anatomic pathology services more than doubled, growing from about 1.06 million services in 2004 to about 2.26 million services in 2010. In contrast, the GAO noted that non–self-referred services increased about 38%, growing from about 5.64 million services to about 7.77 million services.

Expenditures for self-referred anatomic pathology services also increased at a faster rate than non–self-referred services. The costs for self-referred anatomic pathology services grew about 164% from 2004 to 2010, increasing from about $75 million in 2004 to $199 million in 2010, while non–self-referred expenditures rose about 57%, from $473 million to about $741 million.

Three provider specialties—dermatology, gastroenterology, and urology—accounted for 90.2% of referrals for self-referred anatomic pathology services in 2010. In the analysis, the GAO found that referrals for anatomic pathology services by these 3 providers substantially increased the year after they began to self-refer. Providers that began self-referring in 2009—referred to as “switchers”—had increases in anatomic pathology services that ranged from 14% to 58.5% in 2010 compared to 2008, the year before they began self-referring. This increase was much lower among providers who did not self-refer for these services during this period (See Graph).

The agency estimated that Medicare would have saved about $69 million on anatomic pathology services in 2010 if self-referring providers performed biopsy procedures at the same rate and referred the same number of services per procedure as non–self-referring providers. This additional spending can be attributed to the fact that providers who self-referred made approximately 918,000 more referrals for anatomic pathology services.

To improve the ability of CMS to identify self-referred anatomic pathology services and help the agency avoid unnecessary increases in these services, the GAO made 3 recommendations: (1) insert a self-referral flag on Medicare Part B claim forms and require providers to indicate whether the anatomic pathology services for which the provider bills Medicare are self-referred or not; (2) determine and implement an approach to ensure the appropriateness of biopsy procedures performed by self-referring providers; and (3) develop and implement a payment approach for anatomic pathology services that would limit the financial incentives associated with referring a higher number of specimens—or anatomic pathology services—per biopsy procedure

The US Department of Health & Human Services (HHS) disagreed with the first 2 suggestions. In a letter responding to the findings, HSS officials indicated that neither strategy would have a significant impact on the problem. HHS, however, concurred with the third recommendation and reported it has already addressed higher use of self-referral through a payment approach.

“This increase raises concerns, in part because biopsy procedures, although generally safe, can result in serious complications for Medicare beneficiaries,” concluded the GAO in the report. “Further, our analysis shows that across these provider specialties, providers’ referrals for anatomic pathology services substantially increased the year after they began to self-refer.”

This report was the second in a series of GAO reports examining the rise of self-referrals. A 2012 report investigated the growth of self-referral in magnetic resonance imaging and computed tomography services over the same 2004 to 2010 period. The report also found a dramatic increase in imaging services ordered by physicians who owned their own imaging equipment. The GAO estimated that providers who self-referred made 400,000 more referrals for advanced imaging services than they would have if they were not self-referring. Those referrals cost Medicare about $109 million.