Sample Health Care Essay Paper on Legal and Ethical Issues in Self-Referrals

Legal and Ethical Issues in Self-Referrals


In the medical industry, regulatory frameworks are crucial in ensuring that the healthcare providers comply with the prescribed legal and ethical standards to ensure that the patients receive high-quality services and avoiding malpractices. Medical practitioners have a responsibility of maintaining high levels of ethical standards in their practice to avoid litigations and harming their patients. The number of privately owned hospitals and other health facilities continues to increase in the United States due to the limited number of bed spaces and equipment in publicly owned facilities as well as the enactment of the Affordable Care Act that has increased the affordability of health services (Bazzoli, Brewster, Liu, & Kuo, 2003; Anderson, 2014). The increasing demand for bed spaces and specialized services has also created an opportunity for physicians to invest in offering private health services to the American consumers. Most of the privately owned hospitals and physician-owned hospitals are renowned for maintaining high levels of satisfaction ratings among patients and high quality healthcare services. Additionally, such facilities have the benefit of providing an opportunity to the investors and physicians to have increased control on clinical practices in their facilities (Perry, 2012).

The supporters of physician and privately owned hospitals argue that such facilities provide the competitive force needed to improve the quality of healthcare services and increase the patients’ choices in the United States (Kusserow, 1989). However, serious concerns over the model of allowing physicians to operate private healthcare facilities rise due to the conflict of interests from the issue of self-referrals. Self-referral occurs when a medical practitioner refers his or her patient for diagnosis or treatment to a medical center where the physician has direct or indirect financial interests. In this case, the medical practitioner may share profits or revenue at the referred medical facility without directly offering services to the patient. The primary concern is that the caregivers may refer the patient to their medical facilities although the patients could receive better or cheaper services in alternative facilities. The ambiguous nature of the American healthcare system allows the medical practitioners to invest in the sector and make profits. Nonetheless, several laws exist to discourage any forms of malpractices related to the issue of self-referrals despite the latitude offered to for-profit organizations in the healthcare industry. Additionally, the medical practitioners must avoid contravening the standard of care adopted in the industry to prevent litigations. The current paper analyzes the legal and ethical issues that arise in self-referral issues presented in a case study on Dr. Birch through the IRAC framework.

Legal Issues in Self-Referrals


Does the issue of self-regulation increase the risk of overutilization of private healthcare services in medical facilities where the doctors have financial interests and increase the cost of healthcare services? Such are some of the main concerns that arise when the medical practitioners have some financial incentives to send patients to private healthcare facilities for medical services. As patients’ expectations continue to increase in healthcare, there is an urgent need to improve the quality of healthcare services as well as reducing liabilities (Lateef, 2011). Although private medical facilities offer high quality medical services, the commercial interests have increased the cost of healthcare services and raised the risks of physicians engaging in questionable practices. The legal question that arises from Dr. Birch’s case is whether violated the current regulations by forming a partnership with the Imaging Resources, Inc. directors. While the company offered diagnostic services through its advanced equipment, the issue of engaging Dr. Birch as a shareholder in the company raises the issue of conflict of interest because he was known as one of the leading medical practitioners who referred patients to various hospitals. The increasing number of physician and privately owned hospitals forced the Department of Health and Human Services to investigate their practices during the late 1980s, and the main concern was the issue of illegal practices such as the issuance of kickbacks in the healthcare sector.

The increasing number of self-referrals prompted the HHS department to make inquiries on the systemic problems associated with self-referrals in physician-owned hospitals and the physicians’ practice (Kusserow, 1989). The main concern was that the competing interests increased the risks of patient harm and medical malpractices where the physicians would seek to profit from the patients’ illnesses. Jonathan Birch had offered his private services at reasonable prices for a long time, and this demonstrates his good intentions in serving his community. However, the increasing costs of operating advanced diagnostic equipment such as the computed tomography scans and MRI forced the doctor to refer his patients to the local hospital where the patients were billed directly and this reduced Dr. Birch’s income. Although the doctor operated a private facility that offered diagnostic services, an important issue that rises in the current case is that he charged his services at costs that were moderate enough to repay the purchases he made on his equipment. As such, Dr. Birch’s facility was almost operating as a not-for-profit organization.

However, his association with Imaging Resources, Inc. raises serious concerns because the company is for-profit and offered attractive conditions meant to lure Dr. Birch through loans and profits as well as partial ownership opportunities. Additionally, this could influence the doctor’s decisions when making referrals because he knew that he could benefit from the referrals. The doctor agreed to the offer presented to him because he believed that it would enable him to recoup the losses he made when referred patients to the local hospital for diagnostic services. Nonetheless, referring the patients to Imaging Resources, Inc. would increase the costs of diagnostic services on the patients because the company had to make profits, and this makes Dr. Birch’s decision to involve himself with the company directly raise legal issues.


Although Dr. Birch may have acted without ulterior motives, his situation may have contravened some of the regulations guiding the practice of physicians. Some of the pertinent laws that relate to Dr. Birch’s issue include the Anti-Kickback Statute and the Stark Law. The Anti-Kickback statute governs the financial relationships between physicians and hospitals to prevent hospitals associated with the physicians from benefitting from payments through questionable referrals (Winger & Shufeldt, 2014). The Anti-Kickback Statute, U.S.C. § 1320a-7b, establishes fines to parties engaged in prohibited transactions that go against the law, and guilty persons or entities are liable to mandatory exclusion from engaging in healthcare programs as well as five years imprisonment and a fine of $25,000 or both (United States Congress House, 2009). Nonetheless, statute U.S.C. § 1320a-7b(b)(3) excludes some of the transactions from penalties and grants safe harbor to medical practitioners who engage in private businesses in the healthcare sector. Some of such exclusions include specified types of investments, equipment or space rentals, employment arrangements, management contracts, and personal services among others (United States Congress House, 2009). While the law allows people to engage in diverse business transactions, the medical practitioners are expected to reveal their interests in the facilities where they refer their patients (Rodwin, 2011).

The second legislation contravened in the Dr. Birch’s case is the Stark Law that prohibits doctors who make referrals from profiting inappropriately from their actions when they refer patients to other healthcare facilities as established by the Centers for Medicare and Medicaid Services (Kazmier, 2008). According to Goldstein (1996), the Stark Law stipulates the acceptable conditions for physicians engaged in group practice. The Stark Law is highly complex, and it requires hospitals to observe caution on issues regarding compensation arrangements. The statute also species some of the acceptable terms that determine the validity of agreements between physicians and various hospitals. Olson, Stanley, & Coker Group (2007) notes that such agreements must be written, cover identifiable services, indicate specified times, last for less than one year, and have advanced compensation conditions among others to be valid. The medical practitioners are also expected to duly fill the self-referral disclosure protocol provided by Medicare.


Although the laws governing business transactions and practice in the healthcare sector allow physicians to operate, co-own, or invest in private medical facilities, Dr. Birch’s actions are illegal. Dr. Birch understood that the Imaging Resources, Inc. company was focused on making profits by forming partnerships with leading referring physicians, and as one of the leading referring doctors would give the company undue advantage over other businesses offering similar services. Moreover, the company offered him favorable terms to become one of the shareholders in exchange for his referrals, and this is tantamount to bribing which is illegal in the American laws. The introduction of new laws represents the need for new interactions in handling self-referral issues.


In conclusions, the relationship between Dr. Birch and the referred hospital represents the challenges in determining the complexity in determining the validity of self-referrals in the Medicare industry. Dr. Birch’s case highlights the need of some programmed attention on the relationship between physicians and patients on the safety of interpersonal relationships between employees in the servitude industry and healthcare sector. Additionally, the interactions between the doctor and patient reflects some conflict of interest in attending to patient’ needs.

Ethical Issues in Self-Referrals


The main ethical issue highlighted presented in the case is whether Dr. Birch contravened ethical standards, or standards of care in the United States. Although Dr. Birch agreed to accept the investment opportunity presented by Imaging Resources, Inc., the main question that arises from his actions is whether he contravened any of the available legislations or rules by engaging with Imaging Resources Inc. The standards of care legislation oppose the involvement of medical practitioner.


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