Senate seeks review of rich MRI business

Some Massachusetts doctors are referring patients to MRI centers in which they have a financial interest, prompting the state Senate to seek a review of how the lucrative magnetic resonance imaging business is regulated.

Lawmakers have received complaints from community hospitals and the state's largest provider of MRI scans , Shields Health Care Group , who say such arrangements constitute a conflict of interest on the part of doctors.

The Senate also wants more information about some unusual practices that are a byproduct of strict state regulations regarding MRI use. For instance, doctors have paid $300,000 and more for the right to set up MRI equipment, similar to the way taxi medallions or retail liquor licenses sometimes are transferred from one party to another.

And in addition to opening MRI centers in Massachusetts, a few state doctors have opened centers in New Hampshire, Rhode Island, and New York, where regulations governing MRI use are less stringent.

The Senate has added an amendment to the state budget directing the inspector general to investigate the MRI market and come up with recommendations to prevent abuses.

``There's an appearance of a conflict, if not outright conflict, when the physician makes money, whether it's by owning or leasing" MRI equipment, said state Senator Richard Moore , a Democrat of Uxbridge who is chairman of the Legislature's Health Care Financing Committee. ``We need to see if there's a problem here."

MRI machines can generate hundreds of thousands of dollars in annual billings. In an effort to control healthcare costs, the state has made it virtually impossible to win a new license for an MRI machine. Excluding MRI centers set up across state lines, there are about a dozen physician-owned MRI units in the state, out of a total of about 100 machines. Shields owns 24 of the remaining devices, and the rest are in hospitals.

Demand for the scanners is increasing because they help provide highly accurate diagnosis of bone and joint problems and have become the standard of care for analysis of tears, sprains and ruptures, as well as imaging of organs, the brain, and other complex structures.

The Senate measure is now part of broader budget negotiations by a Senate and House conference committee. Physicians and MRI leasing companies oppose the proposed investigation, while hospitals and Shields support it.

``We think its wasting time and energy," said Dr. Kenneth Peelle , a radiologist and president of the Massachusetts Medical Society, which represents the state's doctors.

The federal government says physicians and MRI leasing companies around the country have found loopholes in a federal prohibition on physician self-referrals, which has contributed to escalating healthcare costs.

A federal report last year by a Medicare advisory panel outlined how the loophole works: A doctor invests in MRI equipment, leases it to an imaging center, and refers patients to the center. Because the center, not the doctor, handles the billing, the arrangement is technically legal.

In addition to using lease arrangements, some Massachusetts doctors have circumvented state restrictions by purchasing ``exemption letters" the state issued to a few dozen doctors and institutions in the early 1990s, just before the Legislature halted the issuance of new licenses.

For example, to open an MRI unit in Brookline, Longwood MRI Specialists paid an unidentified hospital on the North Shore more than $300,000 for an exemption letter. Longwood MRI doctors, who are radiologists and do not make referrals of patients to their own facility, declined to identify the seller.

``It's like a taxi medallion for a cab company," said Jasmine Vartikar , president of Longwood MRI Specialists . There was a sense of urgency to the purchase, she said, because ``we were told there were other buyers."

Vartikar said she is looking for another exemption letter to purchase, to add a second machine, but can't find one. She said the letters cost $300,000 to $500,000. Varkitar said radiologists, not orthopedic doctors or primary care physician groups, should be operating MRI facilities, because they have expertise in reading the results and do not refer patients to their facilities.

Some community hospitals oppose the selling of exemption letters. Berkshire Medical Center , which successfully pushed for legislation banning the use of exemption letters in Berkshire County, wrote a research report accusing doctors and companies of misusing the letters, saying ``they create a privileged class of those who can afford to buy their way out of compliance with the law" and `'has wreaked havoc on the statewide planning process."

Meanwhile, other physicians are venturing across state lines to conduct business.

``This is the economics of supply and demand," said Dr. Scott Sigman , an orthopedic doctor with a practice based in Lowell and Chelmsford. He opened an MRI center in Nashua . New Hampshire reviews installation of new medical equipment based on the size of the investment, but unlike Massachusetts it does not have special limitations on imaging machines. Other bordering states have similar practices.

An orthopedics practice in southeastern Massachusetts has set up an MRI unit in a Tiverton, R.I., office, and physicians in western Massachusetts have opened one in upstate New York.

Shields and Massachusetts community hospitals that do not want to lose market share to doctors have seized on potential conflicts of interest and the other peculiarities of the Massachusetts market in their attempts to limit the availability of MRI equipment. In past years, Shields has lobbied for a state ban on physician-owned MRIs that would close the federal loophole for Massachusetts physicians. The bill has been blocked at the State House two years in a row. The Senate amendment calling for an investigation is viewed as a compromise.

Shields said it did not ask for the Senate amendment, but supports the measure. ``We expect that an independent review will enlighten the debate by demonstrating what the federal government and 36 other states already know -- that referral kickbacks lead to over-utilization and higher costs in healthcare," said Raymond P. Howell , a spokesman for the company.

A large physician group, HealthOne Care System , opposes the Senate amendment. Made up of Harvard Vanguard Medical Associates and several other physician groups, HealthOne is planning expansions of imaging services and other outpatient care now often conducted in hospitals.

Doctors who have opened new MRI units cite patient convenience as a major reason. Sigman said additional income was also a factor for him and his partners, but that since the group practice opened its MRI center in Nashua in 2004, the waiting time for an appointment has dropped from three to four weeks to one to two weeks.

Sigman said his group also continues to refer patients to imaging machines at Saints Memorial Medical Center in Lowell and Lowell General Hospital .

``We have not taken business away from them," he said. ``What we have done is made patient access more available in the Merrimack Valley."

Christopher Rowland can be reached at crowland@globe.com.