California Assembly Bill 378, which was signed into law by Gov. Jerry Brown on Oct. 7, added pharmacy goods to the items listed in California Labor Code Section 139.3(a) for which physician self-referral is prohibited in workers' compensation cases.
This was a little observed addition to the bill prior to its passage and enrollment into the laws.
The definition of pharmacy goods includes compound drugs, medical foods, co-packs, physician-dispensed over-the-counter medications and durable medical equipment. Financial interest includes any ownership, interest or payment between a physician and a person or entity to whom the physician refers a patient, under the new law.
The prohibition on self-referral applies to physician-owned companies that supply spinal and orthopedic implants. Those companies are now prohibited from supplying implants for workers' compensation patients treated by physicians who also have a financial interest in the company according to experts that WorkCompCentral News talked to.
The law was inspired by a Wall Street Journal article published 2011 about a Portland, Ore., neurosurgeon who lost surgical privileges at a hospital after an investigation found he was performing spinal fusions on Medicare patients at a rate 10 times the national average. The doctor was reportedly a partner in the company that distributed the devices he was using, Omega Solutions of Fresno, and U.S. Sen. Orin Hatch, R-Utah, who released a report in June 2011 questioning surgeons who use their ability to generate referrals for hospitals to induce them to buy medical devices from the companies in which physicians have an ownership interest.
There are exceptions to the self-referral prohibitions in Labor Code Section 139.31, such as when a provider's practice is in a rural location or when there is a loan or lease between the physician and the recipient of the referral at "commercially reasonable terms" and that is unaffected by the referral.
The practice was previously legal, according to an analysis by former California Attorney General Bill Lockyear.
In 2006 Lockyear issued a formal opinion that a physician can prescribe a medical device distributed by a company in which the physician has an ownership interest, "provided that any return on investment is based upon the physician's proportional ownership share and requisite disclosures are made."
It now appears that AB 378 makes Lockyear's opinion obsolete.
Now such self-referral practices in California's workers' compensation system is a misdemeanor subject to fines of up to $5,000 for each offense. Violations are also subject to review by licensing boards and could result in disciplinary action for unprofessional conduct.
I suspect that this law, which essentially flew under the radar because most of the focus was on the bill's provisions concerning reimbursement rates for compound drugs, will have a measurable impact on the cost of medical treatment in California's work comp system. Assuming positive data by the various research institutes that watch the California system, look for similar provisions to be adopted throughout the nation in the coming years.workers compensation, work comp, injured worker