The Hidden System That Explains How Your Doctor Makes Referrals

Patients are often in the dark about why their doctors referred them to a particular physician or facility. Increasingly, those calls are being driven by pressure to keep business within a hospital system, even if an outside referral might benefit the patient, according to documents and interviews with doctors, current and former hospital executives and lawyers.

Losing patients to competitors is known as “leakage.” Hospitals, in response, use an array of strategies to encourage “keepage” within their systems, which in recent years have expanded their array of services.

The efforts at “keepage” can mean higher costs for patients and the employers that insure them—health-care services are often more expensive when provided by a hospital. Such price pressure and lack of transparency are helping drive rising costs in the $3.5 trillion U.S. health-care industry, where per capita spending is higher than any other developed nation.

For hospital systems, doctors’ referrals are a vital source of revenue. A hospital earns an average of $1.8 million annually in revenue from an internal-medicine physician’s admissions, referrals for tests and other services, plus practice revenue for employed doctors, a 2016 survey by recruiter Merritt Hawkins, a unit of AMN Healthcare Services Inc., found. The survey didn’t include hospital revenue from referrals by internal-medicine doctors to specialists, such as orthopedic surgeons or cardiologists.

Hospitals have gained more power over doctors with a wave of acquisitions of practices and hirings in recent years, and hospitals are getting more aggressive in directing how physicians refer for things such as surgeries, specialty care and magnetic resonance imaging scans, or MRIs.

Insurers have been working to steer patients toward doctors’ offices and other non-hospital locations for many types of care, because they are generally less expensive. The same service often costs twice as much or more when delivered in a hospital setting, compared with a doctor’s office, according to an analysis of dozens of medical services performed for The Wall Street Journal by the nonprofit Health Care Cost Institute. Hospitals often have the clout to negotiate higher rates with insurance companies, including extra fees that they often receive.

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Some hospitals have employment contracts that mandate doctors refer within their system, with a few exceptions required by law. In electronic medical records, a system’s own specialists and services are sometimes located in a convenient drop-down menu, while referring to an outsider requires additional steps. Hospitals may train doctors’ staffs on where to direct referrals, since doctors often leave the final decision to them.

A 2016 survey of hospital executives by Nielsen Strategic Health Perspectives found 55% were actively managing, or planning to manage, referrals to keep them inside their systems.

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With the healthcare industry’s shift from fee-for-service payment models to value-based care, it has become increasingly important for healthcare providers to focus on managing the referral process, given the critical need for providers to refer patients to the right place at the right time, every time.

Both the patient and the healthcare organization are vulnerable when the care plan requires a transition from one provider to another. Patients need referrals to the most appropriate provider in a timely, seamless fashion so they receive the level of care they need. Providers need precise transitions of care not only to ensure patients receive high-quality care but also to avoid negative effects on cost and quality scores.

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Consider at an example using a common procedure: knee replacement. According to recent reports, hip and knee replacement surgeries account for more than 400,000 procedures annually with total costs exceeding $7 billion. CMS is developing a mandatory bundled-payment initiative, called Comprehensive Care for Joint Replacement (CJR), to reward and penalize hospitals based on their outcomes for these procedures.

The goal of the program is to reduce CMS expenditures and enhance the quality of care for beneficiaries. Hospitals must make successful referrals to reduce complications and readmissions, a key component of CJR.

Technology plays an important role in this referral decision. For example, referral management software can research which rehabilitation services have experts in knee-replacement therapies and good quality scores. . .

When patients leave the hospital with comprehensive, tailored care plans and referrals, they are more likely to have positive outcomes and avoid complications and readmission.

Successful referrals help the hospital as well, because a healthier post-surgery population can help a hospital earn value-based rewards from alternative payment models, such as the CJR model, and such models will only increase in number.

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Patients with chronic diseases require more resources from health care than any other population. Studies estimate that just 5 percent of U.S. patients create 50 percent of the costs. Two out of every three Medicare beneficiaries have two or more chronic diseases, which often requires multiple providers in multiple specialties.

Coordinating care and referrals for this patient population is especially daunting, because the sickest patients tend to have extremely large care teams. A patient with comorbidities typically sees 16 physicians each year. Coordinating a plan for such patients can be challenging but holds the largest promise of cost efficiencies.

To succeed in managing population health, organizations must actively manage referrals for patients with chronic diseases, especially when a patient transitions from the care of one team member to another. A meta-analysis of four disease areas, for example, shows that “care teaming,” or making sure clinicians are effectively working together, can reduce the impact of disease by 21 percent.

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By assuming shared savings and shared risk collectively under a global budget, physicians in an ACO share the consequences of each other’s referral decisions.

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Referrals also affect prices. Given fee differences across private payers, shifting referrals from more expensive to less expensive clinicians and health care organizations may garner price discounts. Among early ACOs in Massachusetts, initial savings measured through claims were largely achieved by referring patients to physicians and facilities that charged lower prices, consistent with early efforts by these ACOs to control referral patterns.

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In addition, referrals may affect quality. Fragmentation of care increases with the number of physicians a patient sees, reflecting the challenges in communication and teamwork among physicians in a complex delivery system. Medicare beneficiaries with chronic diseases such as heart failure or diabetes see a median of 8 to 10 physicians in a year, and the typical primary care physician needs to coordinate care with hundreds of other physicians for a panel of patients.6 Poor continuity of care is associated with more preventable hospitalizations, complications of chronic illness, and higher costs per episode of inpatient care.

Given their meaningful influence on the volume, cost, and quality of care, referrals should be better evaluated and managed by ACOs.

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Slowing health care spending is challenging. Global budget and other ACO contracts may be a necessary first step, but they are blunt instruments for improving collaboration across specialties. Understanding the causes and consequences of referrals may help ACOs improve the value of teamwork and collaboration among colleagues who previously worked in silos.

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1. Go to a doctor's office.
2. Doctor figures out the matter needs a specialist's attention.
3. Doctor refers patient to a specialist.
   • Generic reference --> Patient has to check with his/her insurer to find one who's "in network."
   • Specific reference to a specialist in the original doctor's practice/organization --> Patient knows the doctor is in or out of network just as is the doctor s/he visited to begin with

• Note: If the patient obtains healthcare from an HMO, of course, the specialist to which s/he's referred will be a provider for that HMO. That's how HMOs work, and one'd be expecting quite a lot to think the doctor is going to posit that his/her HMO patient will instead want to go to a non-HMO specialist. I suppose if the M.D. knows the patient is "made of money" s/he may suggest non-HMO options, but otherwise, the doctor's not going to do that.

• Go to the hospital
  1. Get admitted or be seen in the ER.
     1. Attending physician determines a specialist's input is needed so s/he orders a referral for a specialist.
     2. Specialist comes to the room and sees the patient.
     3. What is the patient going to do? Check out of the hospital to go see some other specialist and have performed whatever procedures the attending physician and/or specialist ordered?
  2. If not admitted, have an outpatient visit whereof the doctor one sees determines one needs to be seen by a specialist
     1. Doctor refers patient to a specialist.
        • Generic reference --> Patient has to check with his/her insurer to find one who's "in network."
        • Specific reference to a specialist in the original doctor's practice/organization --> Patient knows the doctor is in or out of network just as is the doctor s/he visited to begin with.
        • (See note above re: HMOs)