Washington state doctors, physical therapists battle over referrals

By Amy Lynn Sorrel

A legal dispute in Washington state has doctors worried that their ability to employ other licensed medical professionals — and ultimately compete in health care — may be compromised.

The owner of a physical therapy group is suing an orthopedic practice, saying the doctors are profiting illegally from referrals they make to physical therapists who work for them. Columbia Physical Therapy also claims that state law prohibits Benton Franklin Orthopedic Associates in Kennewick, Wash., from hiring physical therapists at all. Both sides are asking the Washington Court of Appeals to clarify the issue. Judges have yet to decide whether to accept the case.

The Washington State Medical Assn. disputes Columbia’s legal interpretation. Tim Layton, the association’s director of legal affairs, said state law “permits [doctors] to employ other providers and to make a profit from those employees for providing their services. It’s been going on for years and helps make the practice of medicine more efficient because within one particular group, you can have a number of professionals providing services to patients.”

The WSMA, with the American Medical Association/State Medical Societies Litigation Center, is helping Benton Franklin Orthopedic with financial and legal resources. Doctors say the legal threat is aimed at cutting competition from physician practices.

“This litigation must not be allowed to infringe on physicians’ freedom to determine how their practice can provide optimal care,” said AMA Board Trustee Cyril M. Hetsko, MD. “Undermining this prerogative would inhibit innovation and fair competition.” It also would restrict patient choice and continuity of care.

But Darrin E. Bailey, Columbia Physical Therapy’s attorney, argues that it is doctors who are stifling competition. Arrangements in which doctors employ physical therapists “create a captive referral market where the referring physician controls both the supply and the demand for patient services,” he said.

Bailey also said the case is limited to doctors’ relationships with physical therapists and unlikely to affect other areas. Apart from the anti-kickback statute, state law outlines 21 different types of medical professionals — such as nurses and osteopaths — whom doctors can hire when they form a business of their own, he said. It’s “no accident” that physical therapists are left off that list, he added.

Even if doctors could employ physical therapists, “the courts here have already held that under the anti-rebate statute, physicians must have direct supervision [over patient care], and in this case [the physical therapists] are not even in the same building as the doctors,” Bailey said. He added that the arrangements give physician practices little incentive to improve quality and instead can lead to overutilization and higher costs.

Doctors disagree

But Benton Franklin Orthopedic’s attorney Michael H. Church said the relationships do not trigger the anti-kickback statute because the doctors are not referring patients to a third-party entity with which they are not actively involved.

“It’s perfectly legal for doctors to employ anybody they want to assist in the delivery of health care,” he said. “Any time [doctors] or [their] employees are performing a fee for service, there’s no implication that there is a rebate at all.”

Church likened the situation to doctors providing a prescription — in this case for physical therapy — to patients who have been under their care, rather than a referral. If a patient doesn’t already have a physical therapist, Benton Franklin Orthopedic provides him or her with a list of choices of where to go, he explained.

“Even if you take the profit out of it, it’s physical therapists providing care under the immediate direction of the physician,” Church said. Columbia Physical Therapy’s claims ignore a separate part of state law specifically giving physical therapists the right to choose where they want to work, whether in a doctor’s office, hospital or physical therapy clinic, he added.

Doctors worry that if the court grants special protection from competition to physical therapist clinics, it could hurt relationships with other medical professionals. “If physicians can’t employ physical therapists, nobody can, and they are used in all sorts of medical settings,” Church said. “Where do you draw the line as to who physicians can employ?”
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