Opinions Differ on Effectiveness of AB 378 Limiting Physician Self-Referral

There's a new fight brewing in California and I suspect it will provide good entertainment, and an abject lesson in legislative drafting, to workers' compensation observers.

The fight is about physician self-referral of pharmacy goods.

Assembly Bill 378, which took effect Jan. 1, adds to the California Labor Code prohibitions against physicians referring patients to pharmacy goods when the physician has a financial incentive for making the referral.

Proponents claim the new law applies to physician-owned companies that supply spinal and orthopedic implants to workers' compensation patients and that a physician who has an ownership interest in a company that provides durable medical equipment would not be able to use devices supplied by that company on an injured worker.

But others claim that the new law doesn't limit their ability to use their own products in treating injured workers.

Brad Tully, a partner at Hooper Lundy & Bookman in Los Angeles, told WorkCompCentral that the legislative history of AB 378 shows lawmakers were focused on overpriced medical foods or compound drugs, and weren't thinking about physician-owned distributors. He agrees the law, through its definition of pharmacy goods does prohibit self-referral for implants, but doesn't think it applies to the standard business model used by physician-owned companies.

It all hinges on the definition of "referral," which is not defined by statute.

Tully said the California Attorney General in 1982 said to refer means "to send or direct for treatment, aid, information or decision" and a referral is "the process of directing… a patient… to an appropriate specialist or agency for definitive treatment."

Tully said AB 378 wouldn't apply to physician companies under the Attorney General's definitions.

"A referral is a recommendation to a patient that they go someplace to obtain something," Tully said. "It's like a physician choosing what suture to use. He's buying an office supply. That is not a referral of the suture company to the patient."

The insurance industry doesn't buy this argument.

Mark Sektnan, president of the Association of California Insurance Companies, told WorkCompCentral News that physician-owned distributors raise the question of whether a doctor has an incentive to use products that aren't medically necessary, and the purpose of AB 378 was to make sure doctors weren't recommending products for financial gain.

"Physician-owned distributorships should be covered," he said. "If they're not, we need to look at how they can be."

Lach Taylor, a consultant to the Commission on Health and Safety and Workers' Compensation, told WorkCompCentral News that the Labor Code says a carrier doesn't have to pay for a device if the provider has a financial interest, so it could come to a point where a bill is submitted and an insurer refuses to pay.

If a lien is filed, a judge will have to decide on how to interpret AB 378, Taylor said. Until a court interprets the law, Taylor said he doesn't anticipate any subsequent legislation to address physician-owned distributors.

And that, my friends, is how legislative "intent" gets interpreted as THE law.workers compensation, work comp, injured worker