90% of Your Doctor's Referrals Can Belong to the Hospital by Contract
Turn to page 77550 of Volume 85 of the Federal Register, published in December 2020, and you will find one of the most consequential sentences in American medicine.
A public commenter asked the Centers for Medicare & Medicaid Services whether a hospital could terminate an employed physician's contract if the doctor failed to send a set percentage of referrals to the hospital's own network.
CMS answered yes, and worked the commenter's own number into the final rule: a 90% referral requirement, enforced by contract termination, is lawful under 42 CFR 411.354(d)(4)(vi).
As healthcare analyst Dutch Rojas detailed in The Rojas Report, federal Stark rules forbid a hospital from paying a doctor a bonus for each referral. What the rule expressly allows, however, is a signed employment contract requiring a salaried physician to route an established percentage or ratio of referrals, 80%, 90%, or more, to the hospital that signs the paycheck.
On paper, the regulation includes 3 carve-outs. The quota doesn't apply if the patient expresses a preference for a different provider, if the patient's insurer dictates where to go, or if the physician decides an outside referral is in the patient's best medical interest.
In a 12-minute appointment inside a hospital-owned clinic, how often does a patient know to invoke a federal regulatory override?
The electronic health record defaults to the hospital's imaging center, the hospital's outpatient lab, and the hospital's specialist down the hall. The physician wants to keep her job. The patient assumes the referral was chosen for quality and value, right up until the hospital facility fee arrives in the mail.
Dr. Dan Swartz, a family physician in West Michigan, recently borrowed a term from wealth management to describe the alternative. He calls a direct primary care doctor a "health fiduciary."
In finance, a fiduciary is bound to act solely in the client's best interest rather than steering the client toward house-brand funds that pay a commission. In medicine, an independent direct primary care physician has the exact same alignment. Because the doctor is paid directly by the patient through a flat monthly membership, and owns no stake in a hospital tower, there is no referral quota in the desk drawer.
When you need an MRI, a colonoscopy, or an orthopedic consult, a direct care doctor can call around, compare outcomes, and send you to the independent imaging center charging $400 cash instead of the hospital outpatient department charging $2,800 against your deductible.
And if your current primary care doctor works for a hospital system, remember the 6 words tucked inside 42 CFR 411.354: the patient's preference overrides the contract. You always have the right to ask where else your referral can go. Better yet, hire a doctor whose contract only has your name on it.
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