Increased costs and rates of use in the California workers’ compensation system as a result of self-referral by physicians

BACKGROUND: There is widespread concern that ownership by physicians of testing or treatment facilities to which they refer patients leads to overuse of such facilities. We determined the patterns of use of three services--physical therapy, psychiatric evaluation, and magnetic resonance imaging (MRI)--among physicians treating patients whose care was covered under workers' compensation. We then compared the rates of use among physicians who referred patients to facilities of which they were owners (self-referral group) with the rates among physicians who referred patients to independent facilities (independent-referral group).

METHODS: We used a large data base to analyze claims under workers' compensation in California from October 1, 1990, through June 30, 1991, to determine the frequency and cost of these three selected services and determined whether the referring physicians were practicing self-referral or independent referral. We evaluated the cost per case for all three services, measured the frequency with which physical therapy was initiated, and evaluated the medical appropriateness of MRI.

RESULTS: We found that physical therapy was initiated 2.3 times more often by the physicians in the self-referral group (68 percent) than by those in the independent-referral group (30 percent; P < 0.01). The mean cost per case for physical therapy was significantly lower in the self-referral group ($404 +/- 102) than in the independent-referral group ($440 +/- 167; P < 0.01). The mean cost of psychiatric evaluation services was significantly higher in the self-referral group than in the independent-referral group (psychometric testing, $1,165 +/- 728 vs. $870 +/- 482; P < 0.01, psychiatric evaluation reports, $2,056 +/- 1,063 vs. $1,680 +/- 578; P < 0.01). The total cost per case of psychiatric evaluation services was 26.3 percent higher in the self-referral group ($3,222 +/- 1,451) than in the independent-referral group ($2,550 +/- 742; P < 0.01). Of all the MRI scans requested by the self-referring physicians, 38 percent were found to be medically inappropriate, as compared with 28 percent of those requested by physicians in the independent-referral group (P < 0.05). There was no significant difference in the cost per case between the two groups.

CONCLUSIONS: This study demonstrates that self-referral increases the cost of medical care covered by workers' compensation for each of the three types of service studied.