1 For purposes of this article, business arrangements involving physician referrals to health care facilities in which the referring physician has an investment interest will be referred to as “physician self referral arrangements” or “self referral arrangements.”

The prevalence of self referral arrangements is suggested by a recent report of the Office of Inspector General (OIG), Department of Health and Human Services (HHS) to Congress which concluded, in part, that “twelve percent of physicians who bill Medicare have ownership or investment interests in entities to which they make patient referrals.” Office of the Inspector General, Dep't of Health & Human Serv., Financial Arrangements Between Physicians and Health Care Businesses iii, 11 (May 1989)[hereinafter OIG Report], In addition, the report found that “[n]ationally, at least 25% of independent cinical laboratories, 27% of independent physiological laboratories, and 8% of durable medical equipment suppliers, are owned in whole or in part by referring physicians.” Id. at 14; see also The Ethics in Patient Referrals Act of 1989: Hearings Before the Subcomm. on Health and the Subcomm. on Oversight of the House Comm. on Ways and Means, 101st Cong. 1st Sess. (1989) [hereinafter Hearings](statement of the American Med. Ass'n)(discussing a survey conducted by the American Medical Association (AMA) which found that 7% of the physicians surveyed had an investment interest in a facility to which they refer patients).

2 See infra notes 19-46 and accompanying text.

3 See infra notes 48-73 and accompanying text.

4 See infra notes 81-256 and accompanying text.

5 See infra notes 118-20 and 225-27 and accompanying text.

6 The OIG Report, supra note 1, at iii, 11-13, found that referring physicians invest in a wide range of businesses, including clinical and psychological laboratories, durable medical equipment suppliers, home health agencies, hospitals, nursing homes, ambulatory surgical centers and HMOs. Investment was most frequent in clinical laboratories and diagnostic imaging centers. See also Waldholtz & Bogdanich, Doctor-Owned Labs Earn Lavish Profits In a Captive Market, Wall Street J., Mar. 1, 1989, at 1, col. 6; Barkley, , Hospital-Physician Joint Ventures: An Expanding Field, 1987 Cal. Bus. L. Prac. 113, 114Google Scholar; Relman, , Dealing with Conflicts of Interest, 313 New Eng. J. Med. 749, 749 (1985).CrossRefGoogle Scholar Often the self referral arrangement will involve a hospital-physician joint venture. See Ventures Show Cooperation With M.D.s Up, Hospitals, Oct. 1, 1985, at 37; Anderson, More Hospitals Will Use Joint Ventures To Enter Home Care Market-Experts, Mod. Healthcare, Nov. 8, 1985, at 51; Rosenfield, Market Forces Set Off Skyrocketing Interest In Hospital-Doctor Ventures, Mod. Healthcare, May 1, 1984, at 70; Kickback Rule Uncertainty Doesn't Halt Deals, Hospitals, Jan. 13, 1989, at 19; see generally L. Burns & D. Mancino, Joint Ventures Between Hospitals And Physicians: A Competitive Strategy for the Healthcare Marketplace (1987)(providing a comprehensive analysis of the legal, ethical and economic issues relating to hospital-physician joint ventures).

7 Joint ventures developing nonhospital, ancillary services may adhere to a contractual model, a corporate model or a partnership model. See Rosenfield, supra note 6, at 70; Barkley, supra note 6, at 115-16; Roble, & Mason, , Legal Aspects of Health Care Joint Ventures, 24 DUQ. L. REV. 455, 456-59 (1985)Google Scholar; Kaufman, Hall & Higgins, Joint Ventures in Health Care: More than a Sideline Business, Healthcare Fin. Mgmt., May 1986, at 68; see also Oig Report, supra note 1, at 17 (indicating that of the 208 entities with known physician-owners or investors in the sample of 1,133 health care businesses, 145 (70%) were established as corporations, 50 (2A%) as partnerships and 13 (6%) as sole proprietorships).

8 See Waldholtz & Bogdanich, supra note 6; Barkley, supra note 6, at 116; Hearings, supra note 1 (statement of Arnold S. Relman, M.D.). Self referral arrangements involving limited partnerships were highlighted as potentially abusive in the preamble of the proposed fraud and abuse regulations. 54 Fed. Reg. 3088, 3090 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989). Similarly, Rep. Fortney Stark's statement introducing the Ethics in Patient Referrals Act of 1989 specifies physician interests in partnerships as the most controversial type of venture. See 135 Cong. Rec. H240 (daily ed. Feb. 9, 1989) [hereinafter Stark Introduction] (statement of Rep. Stark); see also Federal infighting Stalk Kickback Rules, Mod. Healthcare, Jan. 6, 1989, at 6 (indicating that one of the major reasons for the delay in the publication of the proposed fraud and abuse regulations was the issue of whether physicians should be provided a safe harbor for investment in limited partnerships); Battle Brews Over Referral Limitation Rule, Mod. Healthcare, Feb. 3, 1989, at 30 (describing the growing controversy surrounding physician investments in limited partnerships).

9 The OIG Report found that limited partnerships with physician investors were structured differently than limited partnership health care ventures not involving physician investors. The report states that “[p]artnerships which included physicians typically have a much larger number of limited partners (average 31) than partnerships between non physicians.” Oig Report, supra note 1, at 17.

10 See Barkley, supra note 6, at 116. For a comparison of the benefits and disadvantages associated with different corporate and partnership forms for a joint venture, see L. Burns & D. Mancino, supra note 6, at 63-65.

11 Pressures from insurers and third-party payors for containment of costs, the development of Medicare's prospective payment system (PPS) for reimbursement of hospital services, the growing presence of investor-owned health care corporations, competition for market share among underutilized hospitals, cost containment strategies aimed at physicians and the growing surplus of physicians are placing hospitals, physicians and other health care providers in a competitive environment similar to that of private industry. See Relman, , Practicing Medicine in the New Business Climate, 316 New Eng. J. Med. 1150 (1987)CrossRefGoogle Scholar; Havighurst, , Doctors and Hospitals: An Antitrust Prospective On Traditional Relationships, 1984 Duke L.J. 1071, 1072Google Scholar; J. Goldsmith, Can Hospitals Survive?: The New Competitive Healthcare Market (1981); Oig Report, supra note 1, at 1-3. Perhaps the most significant change involves Medicare's 1983 shift to PPS, under which hospitals are paid a predetermined price for inpatient services based on the average cost of treating a patient in a particular Diagnostic-Related Group (DRG). Under PPS, hospital reimbursement is not affected by actual hospital costs or services rendered, and thus hospitals are at a financial risk for inefficiencies. PPS has had a profound effect on hospital and physician behavior. See Dolenc & Dougherty, DRGs: The Counterrevolution in Financing Health Care, Hastings Center Rep., June 1985, at 19; Morreim, The MD and the DRG, Hastings Center Rep., June 1985, at 30; Morone, & Dunham, , Slouching Towards National Health Insurance: The New Health Care Politics, 2 Yale J. on Reg. 263 (1985)Google Scholar; see generally P. Starr, the Social Transformation of American Medicine (1982); Hyman, & Williamson, , Fraud and Abuse: Regulatory Alternatives in a “Competitive” Health Care Era, 19 Lov. U. Chi. L.J. 1133 (1988)Google Scholar; Note, The Medicare-Medicaid Antifraud and Abuse Amendments: Their Impact On The Present Health Care System, 36 Emory L.J. 691, 706-13 (1987).Google Scholar

12 See Hyman & Williamson, supra note 11, at 1133. For a discussion of the development of the national health care policy emphasis on cost containment and both competitive and regulatory responses to rising health care costs, see Bovbjerg, , Competition Versus Regulation in Medical Care: An Overdrawn Dichotomy, 34 Vand. L. Rev. 965 (1981)Google Scholar; Marmor, , Boyer & Greenberg, , Medical Care and Procompetitive Reform, 34 Vand. L. Rev. 1003 (1981)Google Scholar; Note, supra note 11, at 699-706.

13 See OIG Report, supra note 1, at 1-3. The OIG Report also suggests that certan cost containment strategies directed at physicians may create the incentive for physicians to protect or supplement their incomes by investing in facilities providing services to their patients. Id; see also Stark Seeks MRI Cost Study, Referral Reform, Hospitals, Apr. 20, 1989, at 18.

14 These competitive pressures have resulted in a decreased demand for inpatient hospital care and a trend toward diversion of many hospital and physician services from the traditional hospital or doctor's office setting to alternate care settings. See OIG Report, supra note 1, at 1-3; Note, supra note 11, at 709-11; Barkley, supra note 6, at 114.

15 See OIG Report, supra note 1, at 1-3; L. Burns & D. Mancino, supra note 6, at 11; Relman, , The Future of Medical Practice, 2 Health Affairs, 5-19 (1983).CrossRefGoogle Scholar

16 L. Burns & D. Mancino, supra note 6, at 15-20; see also Barkley, supra note 6, at 115; Rosenfield, supra note 6, at 70; Kaufman, Hall & Higgins, supra note 7, at 25-27.

17 See 54 Fed. Reg. 3088, 3089 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989); see also J. Goldsmith, supra note 11, at 180 (indicating that a major purpose of hospital-physician joint ventures includes generating a referral stream from physicians who constitute the core market for hospital services).

18 See infra notes 38-46 and accompanying text.

19 See Relman, Dealing with Conflicts of Interest, supra note 6, at 749; Relman, Practicing Medicine in the New Business Climate, supra note 11, at 1150; Fuchs, , The Counterrevolution In Health Care Financing, 316 New Eng. J. Med. 749 (1985)Google Scholar; Relman, , The New Medical-Industrial Complex, 303 New Eng. J. Med. 963 (1980)CrossRefGoogle Scholar; Relman, The Future of Medical Practice, supra note 15, at 5-19; Institute of Medicine, Committee on Implications Of oor-Profit Enterprise in Healthcare, for Profit Enterprise in Healthcare 151 (B. Gray ed. 1986)[hereinafter Institute of Medicine]; Fost, Ethical Considerations of Hospital-Physician Joint Ventures, in L. Burns & D. Mancino, supra note 6, at 43; Hearings, supra note 1 (statement of Arnold S. Relman, M.D.); id. (statement of the Consumer Fed'n of America); id. (statement of the Blue Cross & Blue Shield Ass'n); id. (statement of Helen Regina Trilling).

20 See supra note 19.

21 Any increased revenues to the venture resulting from the referral would ultimately inure to the referring practitioner's benefit by either increasing profits or reducing losses. See Relman, Dealing with Conflicts of Interest, supra note 6, at 749.

22 One commentator has classified possible ways in which a physician-investor in a limited partnership operating an imaging center can overutilize services as follows: (1) the ordering of an excessive number of confirmatory tests; (2) the ordering of a battery of tests to investigate a symptom rather than proceeding in a step-wise fashion to obtain answers; and (3) the overutilization of follow-up studies. See Letter from the South Valley Radiology Medical Group to the OIG, HHS (Nov. 17, 1987)[hereinafter South Valley Letter](responding to the HHS’ request for public comments regarding regulations under Medicare's Fraud & Abuse statute)(available at the offices of the HHS).

23 OIG Report, supra note 1, at 18; note, however, the finding that, in contrast to clinical laboratory patients, “[p]atients of physicians who are DME owners or investors do not use any more durable medical equipment than all Medicare patients in general.” Id. at 21-25.

24 Health Care Fin. Admin., Region V Operational Review Branch, Div. of Health Standards & Quality, Diagnostic Clinical Laboratory Services in Region V (May 1983)[hereinafter HCFA Region V Study].

25 Medical Serv. Admin., Michigan Dep't of Social Serv., Utilization of Medicaid Laboratory Services by Physicians with/Without Ownership Interest in Clinical Laboratories (July 9, 1981)[hereinafter 1981 Michigan Study].

26 Id. at 7; see also Blue Cross & Blue Shield of Michigan, Medical Affairs Div., A Comparison of Laboratory Utilization and Payout to Ownership (May 9, 1984)(studying Michigan clinical laboratories and finding that for the physician-owned group, the average number of services per patient were roughly 20 percent higher than the averages for all laboratories, and roughly 40 percent higher than the averages for the non-physician-owned group)[hereinafter 1984 Michigan Study].

27 See South Valley Letter, supra note 22; Letter from the American Physical Therapy Association to the OIG, HHS (Dec. 16, 1987); Letter from the National Association of Small Business Against Hospital Unfair Competition to the OIG, HHS (Dec. 17, 1987) (available at the offices of the HHS).

28 Commentators point to factors such as the intimacy of the physician-patient relationship and the technical complexity of the medical practice as frustrating consumer knowledge and encouraging deference to physician decisions concerning treatment. See Hearings, supra note 1 (statement of Arnold S. Relman, M.D.); id. (statement of the Consumer Fed'n of America); Rosdeitcher, , Contemporary Health Care: Cost Containment and Competition, 17 Forum 690, 691 (1981)Google Scholar; Bovbjerg, supra note 12, at 967-68; Marmor, Boyer & Greenberg, supra note 12, at 1009. Consumer deference to physicians has been advanced as an argument against the policy of competition in the health care industry. The nature of the patient-physician relationship is viewed as an inherent noncompetitive feature of the system. Because the medical marketplace cannot function competitively, it is argued, governmental regulation is necessary to achieve cost control and other health care policies. See Arrow, , Uncertainty and the Welfare Economics of Medical Care, 53 Am. Econ. Rev. 941 (1963).Google Scholar

29 It is asserted that captive referral situations, in addition to producing overutilization, also allow the physician provider to inflate the cost of services. See, e.g., Hearings, supra note 1 (statement of the Consumer Fed'n of America).

30 See Letter from National Medical Care, Inc. to the OIG, HHS (Dec. 16, 1987)(available at the offices of the HHS).

31 See South Valley Letter, supra note 22.

32 Id.; see also Relman, Dealing with Conflicts of Interest, supra note 6, at 749-50.

33 See Relman, Dealing with Conflicts of Interest, supra note 6, at 749-50. Relman points out that “radiologist investors may have less opportunity for self-referrals than the nonradiologist partners, but since they are acting as radiologic consultants, they can recommend follow-up studies. In any case, their entrepreneurial interests in the financial success of the center may be even more compelling than their partners’ because they benefit twice — once as professional supervisors and interpreters of the diagnostic procedure, and again as investors in the facility.” Id. at 750.

34 See South Valley Letter, supra note 22.

35 See Hyman & Williamson, supra note 11, at 1158; Fost, supra note 19, at 51; Waldholtz & Bogdanich, supra note 6; Hearings, supra note 1 (statement of the Consumer Fed'n of America); see also Stark Introduction, supra note 8, at H240 (emphasizing the risk that physician-partners may be influenced to not refer patients to the facility that provides the best care).

36 See, e.g., OIG Report, supra note 1, at 18-21 (finding that increased utilization of clinical laboratory services resulting from self referral arrangements costs the Medicare program $28 million in 1987); see also the following congressional hearings and investigations relating to the 1977 Medicare/Medicaid Anti-Fraud & Abuse amendments, emphasizing the adverse financial effects of overutilization and other fraudulent or abusive practices on the Medicare/Medicaid programs: Subcomm. on Long Term Care of the Special Comm. on Aging, Fraud and Abuse Among Clinical Laboratories, S. Rep. No. 949, 94th Cong., 2d Sess. (1976)[hereinafter Subcomm. on Long Term Care]; H. R. Rep. No. 393, 95th Cong., 1st Sess., pt. 2, at 53, reprinted in 1977 U.S. Code Cong. & Admin. News 3039, 3048-49; Staff of Subcomm. on Health Comm. on Ways & Means and Subcomm. on Health & Environment of the Comm. of Interstate & Foreign Commerce, 95th Cong., 1st Sess., Fraud and Abuse in the Medicare and Medicaid Programs 4-7 (Comm. Print 1977) [hereinafter Fraud and Abuse in the Medicare and Medicaid Programs]; 123 Cong. Rec. S16.011 (1977).

37 See, e.g., Relman, Dealing with Conflicts of Interest, supra note 6; Waldholtz & Bogdanich, supra note 6; Hearings, supra note 1 (statement of Helen Regina Trilling).

38 See L. Burns & D. Mancino, supra note 6, at 90.

39 See Relman, Practicing Medicine in the New Business Climate, supra note 11; Fost, supra note 19. Self referral arrangements are considered just one aspect of the “commercialization” of the medical practice. Other aspects include: economic arrangements between physicians and for-profit health care providers; salaried physicians; and certain types of HMOs (which produce the incentive to underutilize services). See Caper, , Solving the Medical Care Dilemma, 318 New Eng. J. Med. 1535 (1988)CrossRefGoogle Scholar; Relman, , Salaried Physicians and Economic Incentives, 319 New Eng. J. Med. 784 (1988)CrossRefGoogle Scholar; Bock, , The Pressure to Keep Prices High at a Walk-in Clinic: A Personal Experience, 319 New Eng. J. Med. 785 (1988)CrossRefGoogle Scholar; Scovern, , Hired Help: A Physician's Experience in a For-Profit Staff-Model HMO, 319 New Eng. J. Med. 787 (1988)CrossRefGoogle Scholar; Relman, The New Medical-Industrial Complex, supra note 19; see generally P. Starr, supra note 11, at 408-11 (describing the historical factors contributing to the growing “generalized doubt” concerning the efficacy of medicine).

40 See Relman, Dealing with Conflicts of Interest, supra note 6, at 750; Relman, The Future of Medical Practice, supra note 15, at 15-16; Hearings, supra note 1 (statement of Arnold S. Relman, M.D.).

41 Relman argues that the traditional patient-physician relationship engenders a mutual trust which minimizes the inherent conflict of interest in the fee-for-service system. The physician's role in the relationship is that of an agent or trustee for the patient. Ethical standards also place the medical needs of the patient before the financial interests of the physician. Self referral arrangements remove the personal, fiduciary relationship from its central place and introduce a new conflict which Relman feels strains the physician's fiduciary commitment to the patient. See Relman, Dealing with Conflicts of Interest, supra note 6, at 750; Hearings, supra note 1 (statement of Arnold S. Relman, M.D.).

42 See Relman, Practicing Medicine in the New Business Climate, supra note 11, at 1050-52; Hearings, supra note 1 (statement of Arnold S. Relman, M.D.). Fost explains Relman's views as suggesting “that there is a fundamental difference between primary income derived directly from personal services delivered to a patient and secondary income derived from the services of others. In the latter, physicians profit without having a personal relationship with patients who contribute to their income.” Fost, supra note 19, at 46. Relman also points to lack of disclosure in the self referral arrangement as increasing the danger of unethical conduct. Relman, supra note 6, at 750. To the extent that the concern focuses on disclosure, the increasing legal requirements that physicians disclose their interests in a facility prior to referral may alleviate the concern without complete prohibition. See infra notes 156-44 and accompanying text.

43 Fost, supra note 19, at 46.

44 Relman, The Future of the Medical Practice, supra note 15, at 18.

45 See Relman, Dealing with Conflicts of Interest, supra note 6; Hearings, supra note 1 (statement of Arnold S. Relman, M.D.). Relman also advocates avoidance of such practices as physician employment arrangements with for-profit providers or arrangements with organizations which reward physicians for withholding services from patients. Relman, Practicing Medicine in the New Business Climate, supra note 11.

46 Reports of the Judicial Council of the American Medical Association, 253 J. A.M.A. 2424, 2425 (1985)CrossRefGoogle Scholar (conflicts of interest guidelines); see also Veatch, Ethical Dilemmas of Far-Profit Enterprise in Health Care, in the New Health Care For Profit: Doctors and Hospitals in a Competitive Environment 125 (B. Gray ed. 1983)(providing an overview of the AMA's evolving position with respect to physician entrepreneurialism).

47 Bureaus of Competition, Consumer Protection and Economics, Federal Trade Commission, Comments Concerning the Development of Regulations Pursuant to the Medicare and Medicaid Anti-Kickback Statute 15 (Dec. 18, 1987) (presented to the HHS)[hereinafter FTC Comments]; see also Letter from Walter T. Winslow, Acting Director, Bureaus of Competition, Consumer Protection and Economics, Federal Trade Commission to H. Fred Vam, Executive Director, Florida Board of Dentistry 4-5 (Nov. 6, 1985) [hereinafter FTC Letter to Florida Board of Dentistry].

48 See Fost, supra note 19, at 53-55; Note, supra note 11, at 739-44; Hearings, supra note 1 (statement of the American Med. Ass'n); id. (statement of the American Imaging Ass'n); see also the following letters to the OIG, HHS regarding regulations under Medicare's Fraud and Abuse statute, all of which support physician self referral arrangements within certain suggested guidelines: Letter from Drinker, Biddle & Reath (Dec. 18, 1987); Letter from the Federation of American Health Systems (Dec. 17, 1987); Letter from Hooper, Lundy & Bookman, Inc. (Dec. 16, 1987); Letter from Andrew B. Wachler (Dec. 17, 1987); Letter from Powell, Goldstein, Frazer & Murphy (Dec. 18, 1987); Letter from Ober, Kaler, Grimes & Shriver (Dec. 18, 1987); Letter from the HCA Donelson Hospital (Dec. 15, 1987); Letter from Pierson, Ball & Dowd (Oct. 19, 1987); Letter from the American Clinical Laboratory Association (Dec. 18, 1987); Letter from the American Hospital Association (Dec. 18, 1987); FTC Comments, supra note 47; Letter from FTC to Florida Board of Dentistry, supra note 47.

49 FTC Letter to Florida Board of Dentistry, supra note 47.

50 FTC Comments, supra note 47.

51 Id. at 15; FTC Letter to Florida Board of Dentistry, supra note 47, at 5; see also Letter from Drinker, Biddle & Reath to the OIG, HHS 8-9 (Dec. 18, 1987); Battle Brews Over Referral Limitation Rule, Mod. Healthcare, Feb. 3, 1989, at 30 (a spokesman for the AMA asserted that most self referral arrangements are started because physicians want to ensure that patients have access and quality and reasonable prices); Hearings, supra note 1 (statement of the American Med. Ass'n); but see supra note 35 and accompanying text; Hyman & Williamson, supra note 11, at 1161 n. 156 (criticizing the FTC argument concerning quality of care based on the view that “other things being equal, one is more likely to refer to an inefficient or inadequate facility when one has an ownership interest in it”).

52 FTC Letter to Florida Board of Dentistry, supra note 47, at 5.

53 See FTC Comments, supra note 47, at 14-15; FTC Letter to Florida Board of Dentistry, supra note 47, at 5-6; see also Hearings, supra note 1 (statement of the American Med. Ass'n); Letter from the Federation of American Health Systems to the OIG, HHS 7 (Dec. 17, 1987).

54 FTC Comments, supra note 47, at 15; FTC Letter to Florida Board of Dentistry, supra note 47, at 5-6. Critics argue that “efficient capital market theory” eliminates this argument. See Hyman & Williamson, supra note 11, at 1161 n. 156; Hearings, supra note 1 (statement of the Consumer Fed'n of America).

55 FTC Comments, supra note 47, at 15.

56 See Hearings, supra note 1 (statement of the American Med. Ass'n); id. (statement of the American Imaging Ass'n).

57 FTC Letter to Florida Board of Dentistry, supra note 47, at 6; see also Letter from the American Hospital Association to the OIG, HHS 15 (Dec. 18, 1987)(emphasizing that loss of sources of investment capital may be particularly acute in isolated, rural areas where health care professionals may be the sole available source of capital for necessary health care ventures); Hearings, supra note 1 (statement of American Imaging Ass'n)(asserting that without physician investment, sufficient sources of capital may be unavailable); id. (statement of the American Med. Ass'n)(arguing that appropriate physician investment should be encouraged); but see Relman, , Conflicts of Interest and the Physician Entrepreneur, 314 New Eng. J. Med. 252 (1986)Google Scholar(editor's reply)(stating that “[h]ospitals, private corporations, and venture capitalists seeking to start new facilities don't really need physicians’ capital. What they want is their patronage, which they seek to ensure by giving physicians a financial stake in the enterprise.”); Stark Introduction, supra note 8, at H240 (characterizing the capital sources argument as a smokescreen because, if a need exists, traditional lenders will make funds available); Hearings, supra note 1 (statement of Arnold S. Relman, M.D.)(arguing that the investing physician's financial investment, at least in the context of limited partnerships, is usually small and could easily be replaced by other sources of venture capital).

58 See Letter from the American Hospital Association to the OIG, HHS 15 (Dec. 18, 1987); see also Hearings, supra note 1 (statement of the American Imaging Ass'n)(indicating that lenders historically have been unwilling to provide the necessary capital for certain ventures because of competition from other health care institutions, the high risk nature of special purpose facilities and the risk of technological obsolescence associated with specialized technology).

59 FTC Letter to Florida Board of Dentistry, supra note 47, at 5-6; see also Hearings, supra note 1 (statement of the American Med. Ass'n); id. (statement of American Imaging Ass'n).

60 FTC Letter to Florida Board of Dentistry, supra note 47, at 5-6.

61 Id. As a related point, it has been asserted that “[s]ignificant economies of scale can be achieved where physicians’ capital resources are consolidated into a single organization, since capital expenditures and overhead costs associated with the provision of health care services can be shared among a number of physicians, as opposed to the needless and redundant occurrence of such costs by each physician individually.” Letter from Drinker, Biddle & Reath to the OIG, HHS 10 (Dec. 18, 1987); but see Hearings, supra note 1 (statement of Arnold S. Relman, M.D.) (pointing out that physician limited partner investors rarely have professional or managerial responsibility).

62 See Hearings, supra note 1 (statement of the American Med. Ass'n); id. (statement of the American Imaging Ass'n). As a related point concerning competition, some commentators point out that bona fide self referral arrangements and joint ventures “are intended to shift utilization from one provider to another, rather than to increase the aggregate utilization of services.” See Letter from Hooper, Lundy & Bookman, Inc. to the OIG, HHS 2 (Dec. 16, 1987). Clearly, in a competitive system, a legitimate business purpose involves retaining or increasing market share. See sources cited supra note 14. The policy of competition suggests that regulation of self referrals should be limited to preventing overutilization and related abuses, but not overall shifts in market share. The overall shifts in the market should be left to antitrust regulation. But see Stark Introduction, supra note 8, at H240 (indicating that competition is actually undercut because suppliers, in order to maintain market share “are being forced to compete — not on price or quality — but on the cut they give physicians”).

63 FTC Comments, supra note 47, at 15-16; FTC Letter to Florida Board of Dentistry, supra note 47, at 4-5.

64 FTC Comments, supra note 47, at 15-16; FTC Letter to Florida Board of Dentistry, supra note 47, at 4-5.

65 FTC Comments, supra note 47, at 15-16; FTC Letter to Florida Board of Dentistry, supra note 47, at 4-5.

66 FTC Comments, supra note 47, at 16 n.20; FTC Letter to Florida Board of Dentistry, supra note 47, at 4 n.4.

67 FTC Comments, supra note 47, at 16 n.20; FTC Letter to Florida Board of Dentistry, supra note 47, at 4. Many legal restrictions on physician self referral arrangements attempt to specifically exempt such common practices as referrals among practitioners in the same professional service corporation. See, e.g., Ariz. Rev. Stat. Ann. § 32-1401(12) (1988); Fla. Stat. Ann. § 458.33l(gg)(2) (West 1989); Minn. Stat. Ann. § 147.091(p)(4) (West 1989); H.R. 939, 101st Cong., 1st Sess., § (b)(1) (1989)(Ethics in Patient Referrals Act of 1989).

68 FTC Comments, supra note 48, at 16; but see Hyman & Williamson, supra note 11, at 1161-62 n.156 (criticizing the FTC's position).

69 See, e.g., Hyman & Williamson, supra note 11, at 1161-62.

70 See Scovern, supra note 39, at 789.

71 See Relman, Salaried Physicians and Economic Incentives, supra note 39, at 784.

72 While PPS has placed hospitals directly at financial risk for inefficiencies, see sources cited supra note 11, PPS has not altered the physician's incentives since the physician continues to be reimbursed retrospectively. Consequently, one of hospital managements’ new tasks has been described as modifying physician behavior to conform with cost-efficient practice patterns. The danger is that such pressure may compromise the physician's primary role as an independent patient advocate and detrimentally affect the quality of patient care. See Dolenc & Dougherty, supra note 11, at 24-25; Morreim, supra note 11, at 32; Stern, & Epstein, , Institutional Responses to Prospective Payment Based On Diagnosis-Related Groups, 312 New Eng. J. Med. 621, 623 (1985).CrossRefGoogle Scholar

73 See generally Letters, Conflicts of Interest and the Physician Entrepreneur, 314 New Eng. J. Med. 250-53 (1986)CrossRefGoogle Scholar; see also Hyman & Williamson, supra note 11, at 1163 n.162; Waldholtz & Bogdanich, supra note 6. But critics argue that while some conflict of interest may exist in all compensation systems, the increasing entrepreneurialism may dangerously accentuate the conflict. The Institute of Medicine has stated:

Institute of Medicine, supra note 19, at 153.

74 See generally P. Starr, supra note 11 (providing an in-depth historical analysis of these problems).

75 See supra notes 11-15 and accompanying text.

76 See supra notes 44-45 and accompanying text.

77 See, e.g., Stark Introduction, supra note 8.

78 See sources cited supra note 48; see also OIG Report, supra note 1, at 5 (indicating that “the current view of Federal authorities is that physician ownership does not, in and of itself, violate [the Medicare] anti-kickback laws”)(emphasis in original).

79 See letters cited supra note 48.

80 FTC Comments, supra note 47, at 17; FTC Letter to Florida Board of Dentistry, supra note 47, at 6-7.

81 Pub. L. No. 100-360, § 203(c), 1988 U.S. Code Cong. & Admin. News (102 Stat.) 722.

82 See infra notes 90-109 and accompanying text.

83 Pub. L. No. 100-360, § 203(c)(d), 1988 U.S. Code Conc. & Admin. News (102 Stat.) 722.

84 Id. at § 203(c)(d)(3), (102 Stat.) at 722-23.

85 Id. at § 203(c)(d)(3)(D), (102 Stat.) at 723.

86 Id. at § 203(c)(d)(3)(B), (102 Stat.) at 723.

87 Id. at § 203(c)(d)(3)(C)(i), (102 Stat.) at 723.

88 See H.R. Conf. Rep. No. 661, 100th Cong., 2d Sess. 44 (1988)[hereinafter Conference Report].

89 42 U.S.C. § 1395m (d)(3)(C)(ii).

90 See Conference Report, supra note 88. Increased scrutiny of self referral arrangements is reflected by the fact that the General Accounting Office and the Congressional Research Service also are conducting studies of such arrangements. See Hearings, supra note 1 (statement of the American Med. Ass'n). Even certain states, such as New York and Florida, are reviewing such arrangements. See OIG Report, supra note 1, at 6.

91 See generally OIG Report, supra note 1.

92 See Conference Report, supra note 88. The Conference Report acknowledges the growing prevalence of ownership and compensation arrangements which are meant to bind together the financial interests of referring physicians and providers. These arrangements are viewed in the Conference Report as posing a risk of influencing the referring physician's independent judgment and of “inducing overutilization even if the physician's income does not vary in proportion to the number of referrals made.” Id. The Conference Report also highlights, as potentially abusive, an arrangement involving indirect referral fees or investment opportunities restricted to practitioners who are able to refer substantial business and which may have returns substantially higher than what would be expected from comparable investments. Id.

93 Id.

94 See supra note 1.

95 See supra note 23 and accompanying text.

96 The OIG Report recommends that HCFA pursue the necessary legislative and regulatory channels to: “(1) require entities billing Medicare to disclose the names of physicianowners and investors to the program; and (2) require claims submitted by all entities providing services under Medicare Part B to contain the name and provider number of the referring physician.” OIG Report, supra note 1, at 28-29.

97 Id. at iv.

98 Id. at 29. This option would require modifications to the current Medicare system for collecting information. Id. Also, the review would be “timely, costly and difficult to administer” and more facts than just a peer review finding of over-use would be needed to justify sanctions. Id.

99 Id. at 30. The OIG, however, points out that disclosure requirements may be ineffective in the self referral context. Id.

100 Id. The OIG Report indicates that the OIG has pursued 442 cases in the past two years involving self referral arrangements and physician compensation. Id. at 26. Also, implementation of post payment utilization review by Medicare carriers and disclosure of financial interests by the physicians to the Medicare program would aid OIG enforcement. Id. at 30. At the same time, however, the report discusses numerous obstacles to effective enforcement. Id. at 26-27.

101 Id. at 30. A private right of action “would encourage self-policing among health care providers and allow the Government an additional source of cases brought against abusive arrangements.” Id. Consideration would need to be given to the appropriate private remedy. Id.

102 Id. at 31. This option is supported by the OIG Report's constrasting findings regarding overutilization as to clinical laboratories and DME suppliers. See supra note 23. “However, this option may result in certain unintended consequences, such as a negative effect on availability of services; reduced competition; or a drive of services into the physician office laboratory market.” OIG Report, supra note 1, at 31. Certain exceptions also would need to be fashioned and compliance might be difficult to monitor. Id.

103 Id. at 31. The OIG Report points out that this option has the same potential disadvantages as the selective prohibition option. See supra note 102.

104 H.R. 939, 101 Cong., 1st Sess. (1989).

105 The Stark Bill proposes to amend Title XVIII of the Social Security Act by inserting a new Section 1877. Section 1877(a)(1) would contain the general prohibition and would provide:

• (1) In General.— Except as provided in subsection (b), if a physician (or immediate family member of such physician) has a financial relationship with an entity specified in paragraph (2), then —

• (A) the physician may not make a referral to the entity for the furnishing of an item or service for which payment otherwise may be made under this title, and

• (B) the entity may not present or cause to be presented a claim under this title or bill to any individual, third-party payor, or other entity for an item or service furnished pursuant to a referral prohibited under subparagraph (A).

H.R. 939, 101st Cong., 1st Sess. (1989).

The scope of this prohibition would be extremely broad based on the definition of “financial relationship,” which would be defined in subsection (a)(2) as “an ownership or investment interest in the entity; or … other compensation arrangement [defined later in subsection (f)(1) as “any arrangement involving remuneration between a physician … and an entity”] between the physician (or immediate family member) and the entity. An ownership or investment interest described in subparagraph (A) may be through equity, debt or other means.” See generally Stark Introduction, supra note 8 (summarizing and explaining the proposed bill).

106 H.R. 939, 101st Cong., 1st Sess. (1989). In addition, a request for physicians’ services consisting solely of professional services provided by the referring physician himself would not constitute a “referral” by a “referring physician.” Id. The term “group practice” is central to two of the general exceptions, and would be defined in § 1877(f)(B)(3).

107 Id.

108 Id. The rationale for the exemption is that “most physician-owned hospitals were established years ago typically in smaller communities to provide access to care that would not otherwise be available. Many communities still depend on these hospitals for access.” Stark Introduction, supra note 8, at H241. The limitations on the exemption attempt to proscribe the recent hospital practice of “spinning off a hospital operating company and selling the company to a group of physicians.” Id.

109 H.R. 939, 101st Cong., 1st Sess. (1989).

110 See, e.g., Cal. Bus. & Prof. Code § 4080.5 (West Supp. 1989)(providing prohibitions relating to issuance of pharmacy permits to physicians with “financial interests] in the permit sought”); Op. Mich. Att'y Gen. 5498 (1979)(determining that Michigan's statutory scheme prohibits physician ownership interests in clinical laboratories); Day v. Inland Empire Optical, Inc., 456 P.2d 1011, 76 Wash. 2d 407 (1969)(determining that Washington's fraud and abuse statute prohibits a self referral arrangement involving ophthalmology services); Pa. Stat. Ann. tit. 63, § 390-5(a)(9)(v), (xii) (Purdon 1961) (prohibiting mutually beneficial financial arrangements between pharmacists and physicians); 55 PA. CODE § 1101.51(c)(5) (1984) (prohibiting physician self referral arrangements involving a “Medicaid recipient”); see generally L. Burns & D. Macino, supra note 6, at 91-93.

111 Mich. Stat. Ann. § 14.15 (1101) (Callaghan 1985). This statute was challenged on constitutional grounds by two physicians in 1979. The Circuit Court for the County of Oakland, State of Michigan, issued a preliminaty injunction against enforcing the law in July 1979. In October 1982, however, the court upheld the constitutionality of the law and vacated the preliminary injunction. See Office of the Inspector General, Dep't of Health & Human Serv., Financial Arrangements Between Physicians and Health Care Businesses: State Laws and Regulations 4 (Apr. 1989)[hereinafter OIG Report on State Laws].

112 Op. Mich. Att'y Gen. 5498 (1979). It is interesting to note that a 1977 Michigan Attorney General's opinion stated that Michigan's statutory scheme did not restrict physician self referral arrangements unless they represented forms of kickbacks, rebates or fee splitting. See Op. Mich. Att'y Gen. 5229 (1977). The Michigan legislature responded by adding the statutory language directly addressing financial interests. Mich. Stat. Ann. § 14.15 (1101) (Callaghan 1985). The subsequent 1979 attorney general opinion prohibits self referral arrangements, regardless of whether the services are medically necessary and regardless of any disclosure to the patient. See also L. Burns & D. Mancino, supra note 6, at 139 (discussing the status of Michigan law regarding self referral arrangements).

113 See L. Burns & D. Mancino, supra note 6, at 91; see also Waldholtz & Bodganich, supra note 6 (indicating that the Michigan Attorney General recently has filed criminal complaints against a clincial laboratory because of referral sources investing in the lab as limited partners); but see OIG Report on State Laws, supra note 111, at 4 (indicating that two physicians presently are requesting a declaratory ruling from the Michigan Board of Medicine on whether the statutory language “directing or requiring” is synonomous with “referring” and are arguing that disclosure to patients provides the patients with freedom of choice, and thus, they are not “director or required” to use the physician's entity).

114 L. Burns & D. Mancino, supra note 6, at 101 n.102; see also OIG Report on State Laws, supra note 111, at 5 (indicating that “[s]everal states are [unfriendly] to such ventures; New York, for example, has considered not certifying some physician-owned laboratories”).

115 Cal. Bus. & Prof. Code § 4080.5(a) (West Supp. 1989).

116 55 Pa. Code § 1101.51(c)(5) (1984).

117 See infra notes 225-27 and accompanying text.

118 Koska, CEOs Cautioned to Watch Stark's Referral Bill, Hospitals, Jan. 20, 1989, at 60.

119 American College of Physicians, Ethics Manual (1984).

120 See Fost, supra note 19, at 53 (stating that “[o]n the surface, this would seem to preclude referring or admitting a patient to any facility in which the physician had a financial interest”); Relman, Dealing with Conflicts of Interest, supra note 6, at 751 (supporting this type of “firm and unequivocal statement of conscience”).

121 See supra notes 40-46 and accompanying text.

122 See supra notes 37-39 and accompanying text.

123 See supra notes 44-46 and accompanying text.

124 See supra notes 48-68 and accompanying text. The Stark Bill, in particular, seems to be based on the view that self referral arrangements serve the sole purpose of “lock[ing] in referrals by creating a web of financial relationships binding the referring physicians to the provider.” Stark Introduction, supra note 8, at H240. Consequently, the Stark Bill attempts to provide a bright line comprehensive prohibition with no loopholes. Id.

125 For instance, referrals among physicians in a group practice are common and widely accepted. See Ariz. Rev. Stat. Ann. 32-1401(12)(ff) (Supp. 1988); FTC Comments, supra note 47, at 15; FTC Letter to Florida Board of Dentistry, supra note 47, at 4-5. Also, investment by referral sources in publicly traded companies generally is accepted as a legitimate practice. See, e.g., 54 Fed. Reg. 3088, 3090 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989)(proposing a safe harbor for investments in publicly traded corporations under the Medicare Fraud & Abuse Statute); Fla. Stat. Ann. § 458.331(1)(gg) (West Supp. 1989)(exempting ownership interests in publicly traded corporations from disclosure requirements). Similarly, rural providers often are accorded special treatment. See, e.g., infra note 154 and accompanying text; Letter from Don Nicholson, Director, Office of Program Integrity, Department of Health, Education & Welfare to Rep. Leon E. Panetta (Oct. 30, 1978) (informal opinion that physician recruitment practices attempting to attract physicians to a rural area did not violate the Medicare Fraud & Abuse Statute). The special treatment afforded rural providers is based on access problems in rural areas. See Stark Introduction, supra note 8, at H241.

126 Rep. Stark acknowledges that the exemption for services provided by a group practice would be “to accommodate existing relationships among physicians in group practices.” Stark Introduction, supra note 8, at H241.

127 See supra notes 63-73 and accompanying text. The proposed in-office ancillary services exemption reveals the policy problems. The justification is that “there often is a clear need for quick turn-around time on crucial tests.” Stark Introduction, supra note 8, at H241. This justification seems no more compelling in terms of overriding the potential for abuse than the policy arguments forwarded by the FTC regarding referral arrangements in general.

128 The policy of selective prohibition recognizes that certain types of facilities may be more vulnerable to abuse than others. For instance, the OIG Report found that clinical and physiological laboratories were vulnerable to overutilization while DME suppliers were not. See OIG Report, supra note 1, at 28 (explaining the contrast as “due to the elasticity and consumability of laboratory services… . In DME, many goods are non-consumable… .); but see id. at 31 (indicating that selective prohibition, as with complete prohibition, “may result in certain unintended consequences, such as a negative effect on availability of services; reduced competition; or a drive of services into the physician-office … market.”).

129 For documentation of overutilization and abuse in the clinical laboratory context, see generally id.; Fraud And Abuse in the Medicare and Medicaid Programs, supra note 36; Subcomm. on Long Term Care, supra note 36; see also H. Rep. No. 393, 95th Cong., 1st Sess. 44, 46, reprinted in 1977 U.S. Code Cong. & Admin. News 3039, 3048-49; Hcfa Region V Study, supra note 24; 1981 Michigan Study, supra note 25; 1984 Michigan Study, supra note 26; Koska, supra note 118, at 60 (indicating that Rep. Stark in his comments while introducing the Stark Bill “singled out diagnostic and therapeutic radiology, clinical labs, durable medical equipment, home health care and home infusion therapies as ventures most commonly involved in referral abuse”). For documentation of overutilization and abuse in the pharmacy context, see Staff of Subcomm. on Oversight and Investigations of the House Comm. on Interstate and Foreign Commerce, Fraud and Abuse in Nursing Homes: Pharmaceutical Kickback Arrangements, H.R. Rep. No. 502, 95th Cong., 1st Sess. (1977); Fraud and Abuse in the Medicare and Medicaid Programs, supra note 36, at 15.

130 For regulatory responses specifically addressing or referencing clinical laboratories or pharmacies, see, e.g., Cal. Bus. & Prof. Code § 4080.5 (West Supp. 1989) (addressing pharmacy permits); Pa. Stat. Ann. tit. 63, § 390-5(a)(9)(v), (xii) (Purdon 1961)(physicians may not have a controlling interest in a pharmacy); 84 Op. Cal. Att'y Gen. 806 (1985)(addressing limited partnership interests in clinical laboratories); Cal. Bus. & Prof. Code § 650.1 (West Supp. 1989)(regulating lease or rental arrangements with pharmacies); Cal. Bus. & Prof. Code § 654.1 (West Supp. 1989)(establishing disclosure requirements for self referrals to clinical laboratories); W. VA. Code § 30-3-14(6), (7) (1982)(regulating self referral arrangements in both the pharmacy and clinical laboratory context); 55 PA. Code § 1101.51(c)(5) (1989) (prohibition regarding Medicaid recipients specifically listing independent laboratories and pharmacies); Fla. Stat. Ann. § 458.331(l)(h)(i) (West 1989)(anti-fraud and abuse statute specifically listing clinical labs and pharmacies); N.Y. Gen. Bus. Law § 801 (McKinney 1989)(regulating practitioner-clinical laboratory relationships); see generally Oig Report on State Laws, supra note 111 (providing a summary of state laws relating to self referral arrangements); see also OIG Report, supra note 1, at 31 (suggesting that the laboratory industries are logical targets for such restrictions).

131 A related problem is exhibited by the Stark Bill, which is partially intended to address specific high risk types of ventures, but, as drafted, extends beyond the specified contexts. See Koska, supra note 118, at 60.

132 Relman, Dealing with Conflicts of Interest, supra note 6, at 750.

133 See Healthweek, May 1, 1989, at 28, col. 3 (indicating that the AMA prefers self-regulation based on its own ethical code).

134 Relman, Dealing with Conflicts of Interest, supra note 6, at 751. Further, ethical canons that prohibit participation in entrepreneurial activity might raise antitrust issues if deemed to be anticompetitive.

Costilo, , Antitrust Enforcement in Health Care: Ten Years After the AMA Suit, 313 New Eng. J. Med. 901 (1985).CrossRefGoogle Scholar

135 See, e.g., Ariz. Rev. Stat. Ann. § 32-1401(12)(ff) (Supp. 1988); Cal. Bus. & Prof. Code §§ 654.1, 654.2 (West Supp. 1986); 85 Op. Cal. Att'y Gen. 105 (1985); Fla. Stat. Ann. §458.331(gg) (West 1986); Mass. Gen. Laws Ann. ch. 112, § 1 (West 1989); Mass. Gen. Laws Ann. ch. 440, § 2 (West 1989); Nev. Rev. Stat. § 631.305 (1989); Minn. Stat. Ann. § 147.091 (p)(3), (4) (West 1989); Pa. Stat. Ann. tit. 35, §§ 449.21-449.23 (Purdon 1961); N.J. Stat. Ann. 45:9 (West Supp. 1989); Va. Code § 54-278.3 (1989); Wash. Rev. Code Ann. § 19.68.010 (1989); W. Va. Code § 30-3-14(6), (7) (1989); see generally OIG Report on State Laws, supra note 111 (summarizing state laws regulating self referral arrangements).

136 Compare Minn. Stat. Ann. § 147.091(p)(3), (4) (West 1989)(relying solely on disclosure) with Cal. Bus. & Prof. Code § 654.2 (West Supp. 1986) and 89 Op. Cal. Att'y Gen. 105 (1985) (utilizing disclosure as one component of a regulatory scheme also requiring medical necessity for referrals and prohibiting return on investment from being dependent on, or fluctuating according to, the number or value of referrals).

137 See infra notes 225-27 and accompanying text.

138 See 54 Fed. Reg. 3088 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989).

139 Ariz. Rev. Stat. Ann. § 32-1401(12)(ff) (Supp. 1988).

140 Minn. Stat. Ann. § 147.091 (p)(3), (4) (West 1989). The statute further notes that the statutory provision:

Id.

141 See OIG Report on State Laws, supra note 111, at 5-6 (discussing the variations in state disclosure requirements).

142 See, e.g., Ariz. Rev. Stat. Ann. § 32-1401(12)(ff) (Supp. 1988); Cal. Bus. & Prof. Code §§ 654.1, 654.2 (West Supp. 1986); Minn. Stat. Ann. § 147.091(p)(3) (West 1989); N.J. Stat. Ann. § 45:9 (West Supp. 1989); W. Va. Code § 30-3-14(6), (7) (1989). In certain states the form of the disclosure is prescribed by the statute or regulation. For instance, New Jersey requires the following form:

N.J. Stat. Ann. § 45:9 (West Supp. 1989).

143 Cal. Bus. & Prof. Code § 654.2(b) (West Supp. 1986).

144 See, e.g., Ariz. Rev. Stat. Ann. § 32-1401(12)(ff) (Supp. 1988)(exempting referrals in group practice); Fla. Stat. Ann. § 458.331(gg)(1)-(3) (West 1986)(exempting equity interests in large publicly held corporations, the physician's own practice or his group practice, and interests in real estate resulting in a landlord-tenant relationship); Cal. Bus. & Prof. Code § 654.2(e) (West Supp. 1986)(exempting certain lease arrangements and interest held in publicly traded stock); W. Va. Code § 30-3-14(b), (7) (1984)(exempting fair market value lease arrangements); Minn. Stat. Ann. § 147.091(p)(3), (4) (West 1989)(exempting group practices, prepaid or capitated health care premiums and certain fee-for-service withhold amounts).

145 Note, supra note 11, at 742.

146 See supra notes 27-28 and accompanying text; see also Mod. Healthcare, Dec. 16, 1988, at 21 (staff member of House Ways and Means arguing that disclosure is meaningless because patient trust will override any suspicion of wrongdoing); 54 Fed. Reg. 3088, 3089 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989)(questioning whether notice requirements are unduly burdensome compared with potential benefits to health care consumers); Op. Mich. Att'y Gen. 5498 (1979)(rejecting disclosure as adequate patient protection because of patient trust and reliance on the judgment of the physician); OIG Report, supra note 1, at 30 (indicating that the two states in the study sample with disclosure requirements “experienced the same higher utilization rate among patients of physician owners as did other States without disclosure laws… . Patient choice in this environment may have little meaning.”).

147 See supra notes 27-28.

148 See Hearings, supra note 1 (statement of the American Med. Ass'n); OIG Report, supra note 1, at 28-29.

149 Hearings, supra note 1 (statement of the American Med. Ass'n); but see OIG Report, supra note 1, at 29 (indicating that such a monitoring mechanism would be “timely, costly and difficult to administer at the carrier level”).

150 42 C.F.R. §405.1633.

151 42 C.F.R. § 105.1633(d).

152 52 42 C.F.R. § 405.1633(d)(2).

153 42 C.F.R. § 405.1633(d)(3).

154 42 C.F.R. § 405.1633(e).

155 Pa. Stat. Ann. tit. 63, § 390-5(a)(9) (Purdon 1961).

156 Colo. Admin. Code § 1.00.15 (1985); see generally L. Burns & D. Mancino, supra note 6, at 90-92.

157 Fla. Stat. Ann. § 458.331(gg) (West 1986).

158 Cal. Bus. & Prof. Code § 654.2 (West Supp. 1986); see also N.J. Stat. Ann. § 45:9 (West Supp. 1989).

159 L. Burns & D. Mancino, supra note 6, at 91.

160 See Hearings, supra note 1 (statement of the American Imaging Ass'n). This same type of rationale also is used to justify the common exemption for investment interests in large publicly traded corporations. See 54 Fed. Reg. 3088, 3090 (1989)(to be codified at 42 C.F.R. pt. 1001) (proposed Jan. 23, 1989) (justifying the exemption for investment in large corporations under the Medicare Fraud and Abuse Statute by the tangential relationship between return on investment and referrals).

161 See Hearings, supra note 1 (statement of the American Imaging Ass'n); id. (statement of Arnold S. Relman, M.D.); OIG Report, supra note 1, at 17.

162 In fact, the preamble to the Medicare fraud and abuse regulations highlights as potentially abusive the situation where physicians make “nominal” investments and receive much higher returns than would be expected from comparable investments. See infra note 209 and accompanying text; but see Hearings, supra note 1 (statement of the American Imaging Ass'n)(challenging the proposition that most physician instruments are nominal). Percentage of ownership limitations would fail to regulate such practices.

163 For a thorough discussion of the distinction between the investment side and referral side of an arrangement, see infra notes 240-48 and accompanying text.

164 The “appropriateness” of this strategy may turn on whether studies can confirm the claims of critics that a prevalent abuse involves physicians making nominal investments and receiving high returns. See supra note 162. This claim has been challenged. See Hearings, supra note 1 (statement of the American Imaging Ass'n). Studies should be conducted to verify both the typical and problematic relationships between percentage of ownership, amount of investment and investment return.

165 See supra notes 145-47 and accompanying text.

166 Social Security Act, § 11,288, 42 U.S.C. § ll,320a-7b (1987).

167 See infra notes 211-24 and accompanying text.

168 See infra notes 198-210 and accompanying text.

169 Social Security Amendments of 1972, Pub. L. No. 92-603, §§ 242(b), 242(c), 278(b)(9), 86 Stat. 1419 (1972)(prior to 1977, 1980 and 1987 amendments)(codified at 42 U.S.C. §§ 1395nn(b), 1396(b)).

170 The 1972 version of 42 U.S.C. § 1395nn(b) provided:

• (b) Whoever furnishes items or services to an individual for which payment is or may be made under this subchapter and who solicits, offers, or receives any —

• (1) kickback or bribe in connection with the furnishing of such items or services or making or receipt of such payment, or

• (2) rebate of any fee or charge for referring any such individual to another person for the furnishing of such items or services, shall be guilty of a misdemeanor and upon conviction thereof shall be fined not more than $25,000 or imprisoned for not more than one year, or both.

The 1972 version of 42 U.S.C. § 1396h(b) used substantially the same language.

171 H.R. Rep. No. 231, 92d Cong., 1st Sess. 108-08, reprinted in 1972 U.S. Code Cong. & Admin. News 5093.

172 Id.

173 For detailed discussions of the congressional hearings and findings, see Hyman & Williamson, supra note 11, at 1151-85; Pies, , Control of Fraud and Abuse in Medicare and Medicaid, 3 Am. J.L. & Med. 323 (1977)Google Scholar; Comment, Physician Fraud in the Medicare-Medicaid Progiams — Kickbacks, Bribes and Remunerations, 10 Mem. St. U.L. Rev. 684 (1980)Google Scholar; Note, supra note 11, at 713-27.

174 H. Rep. No. 393, 95th Cong., 1st Sess. 53, reprinted in 1977 U.S. Code Cong. & Admin. News 3039, 3040. One of the difficulties in prosecuting under the 1972 statute involved the conflicting judicial construction of the terms “kickback” and “bribe.” For a narrow interpretation, see United States v. Porter, 591 F.2d 1048 (5th Cir. 1979); United States v. Zacher, 586 F.2d 912 (2d Cir. 1978). For broad interpretations under the 1972 statute, see United States v. Hancock, 604 F.2d 999 (7th Cir. 1979); United States v. Perlstein, 23 F.2d 661 (7th Cir. 1980); United States v. Tapert, 625 F.2d 111 (6th Cir. 1980); United States v. Weingarden, 468 F. Supp. 410 (E.D. Mich. 1979). The utilization of the term “remuneration” to replace “kickback” and “bribe,” at least partially, was an attempt to resolve this judicial controversy. See United States v. Stewart Clinical Laboratory, 652 F.2d 804, 806 (9th Cir. 1981); see generally Note, supra note 11, at 715-27.

175 See Hyman & Williamson, supra note 11, at 1156-66 (indicating that the two strands of reasoning which form the foundation for the statute are the separate concerns of fraud and abuse).

176 H. Rep. No. 393, 95th Cong., 1st Sess., reprinted in 1977 U.S. Code Cong. & Admin. News 3039, 3050.

177 Id.

178 See Hyman & Williamson, supra note 11, at 1180.

179 Numerous informal advisory opinions issued by HCFA emphasize this point. See generally Stiller, Legal Boundaries in Physician Recruitment Practices, the Hospital Medical Staff (1981)(summarizing these advisory opinions).

180 The Medicare and Medicaid Program Protection Act of 1987 unified 42 U.S.C. §§ 1395nn(b) and 1396h(b) into one statutory provision redesignated as 42 U.S.C. § 1320a-7b. This provision provides in pertinent part:

• (b)(1) Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind —

• (A) in return for referring an individual to a person for the furnishing of any item or service for which payment may be made in whole or in part under title XVIII or a State health care program, or

• (B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under title XVIII or a State health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

• (2) Whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person —

• (A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under title XVIII or a State health care program, or

• (B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under title XVIII or a State health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

• (3) Paragraphs (1) and (2) shall not apply to —

• (A) a discount or other reduction in price obtained by a provider of services or other entity under this subchapter if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under title XVIII or a State health care program, and

• (B) any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services;

• (C) any amount paid by a vendor of goods or services to a person authorized to act as a purchasing agent for a group of individuals or entites who are furnishing services reimbursed under title XVIII or a State health care program if —

• (i) the person has a written contract, with each such individual or entity, which specifies the amount to be paid the person, which amount may be a fixed amount or a fixed percentage of the value of the purchases made by each such individual or entity under the contract, and

• (ii) in the case of an entity that is a provider of services (as defined in section 1861 (u)), the person discloses (in such form and manner as the Secretary requires) to the entity and, upon request, to the Secretary the amount received from each such vendor with respect to purchases made by or on behalf of the entity; and (D) any payment practice specified by the Secretary in regulations promulgated pursuant to section 14(a) of the Medicare and Medicaid Patient and Program Protection Act of 1987.

42 U.S.C. § 1320a-7b.

181 Pub. L. No. 100-93, § 2, 101 Stat. 680, 697-98 (1987).

182 See Note, supra note 11. For instance, physician recruitment programs, physician incentive plans, hospital-physician joint ventures, shared service agreements and hospital waivers of coinsurance have all caused considerable controversy under the Medicare Fraud & Abuse Statute. Id.; see also 54 Fed. Reg. 3088, 3088 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989).

183 760 F.2d 68 (3rd Cir. 1985). Greber is considered the broadest interpretation of the statute. See Note, supra note 11, at 721-24; Hyman & Williamson, supra note 11, at 177-79; 54 Fed. Reg. 3088, 3088 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989).

184 Greber, 760 F.2d at 70.

185 Id.

186 Id.

187 Id. at 71.

188 See Note, supra note 11, at 722.

189 871 F.2d 105 (9th Cir. 1989).

190 Id.

191 Id.

192 Id. The Kats decision may have undercut the hope within the health care industry that Greber was an anomoly which would be rejected by other courts. See Burda, Decision Broadens Definition of Kickbacks, Mod. Healthcare, Apr. 14, 1989, at 3, col. 1.

193 These advisory opinions were discontinued in the early 1980s. See Note, supra note 11, at 728; but see HCFA Intermediary Letter No. 84-9, Suppliers of Durable Medical Equipment Offering “Finders” and “Referral” Fees, (Sept. 1984), reprinted in Medicare and Medicaid Guide (CCH) ¶ 34,127, modified in HCFA Program Memo (carriers) B85-2, Suppliers of Durable Medical Equipment Offering “Finders” and “Referral” Fees, (Apr. 1985), reprinted in Medicare and Medicaid Guide (CCH) ¶ 34,544 (suggesting a narrow interpretation of the statute); Hyman & Williamson, supra note 11, at 1181-83 (discussing the DME Intermediary Letter); Note, supra note 11, at 740-42 (discussing the DME Intermediary Letter).

194 See generally Stiller, supra note 179. For advisory opinions discussing self referral arrangements, see Letter from Irv Cohen, Deputy Director, Office of Program Validation, Health Care Financing Administration (Nov. 25, 1980); Letter from Martin L. Kappert, Director, Bureau of Quality Control, Health Care Financing Administration (Dec. 10, 1980).

195 Letter from Irv Cohen, Deputy Director, Office of Program Validation, Health Care Financing Administration (Nov. 25, 1980). The letter, in relevant part, states:

Id.

196 Id.

197 The legislative history behind the call for regulations in the Medicare/Medicaid Patient & Program Protection Act of 1987 reveals a concern “that the breadth of this statutory language has created uncertainty among health care providers as to which commercial arrangements are legitimate, and which are prescribed.” H.R. REP. NO. 85, 100th Cong., 1st Sess. 27 (1987).

198 Pub. L. No. 100-93, § 14, 101 Stat. 680, 697-98 (1987).

199 54 Fed. Reg. 3088 (1989)(to be codified at 42 C.F.R. pt. 1001)(proposed Jan. 23, 1989). On December 23, 1988, the HHS formally published proposed rules in the Federal Register. See 53 Fed. Reg. 51,856 (proposed Dec. 23, 1988). On December 28, 1988, however, the HHS withdrew the rules. See 53 Fed. Reg. 52,448. The unusual withdrawal of the proposed rules apparently was caused by congressional pressure and disagreements among the three administrative agencies required to review the rules — HHS, the Department of Justice and the Office of Management and Budget. See Mod. Healthcare, Jan. 6, 1989, at 6. The major controversies centered on hospital waivers of Medicare deductibles, physician self referral arrangements and HCFA authority to issue advisory opinions. Id. The rules, republished on January 23, 1989, were revised and left the controversial issues open for public comment. See Mod. Healthcare, Jan. 27, 1989, at 6.

200 54 Fed. Reg. 3088, 3090-93 (1989)(to be codified at 42 C.F.R. pt. 1001).

201 Id. at 3090. This conclusion was “based on the fact that there are other provisions of Medicare law that pertain specifically to physician-owned home health agencies. Obviously, these provisions would make little sense if the kickback provisions prohibited, per se, referrals by physicians to entities in which they had any investment interest.” Id. See also OIG Report, supra note 1, at 5 (indicating that “the current view of Federal authorities is that physician ownership does not, in and of itself, violate the anti-kickback laws”). Another point which supports this view is the fact that self referral arrangements are a long standing practice which existed prior to the inception of Medicare and Medicaid. See Letter from the Federation of American Health Systems to the OIG, HHS 7 (Dec. 17, 1987).

202 54 Fed. Reg. at 3089.

203 Id. at 3094 (§ 1001.952(a)). Paragraph (a) provides:

• (1) Total assets exceeding $5,000,000, and

• (2) A class of equity security held of record by at least 500 persons.

204 Id. at 3090.

205 Id.

206 Id. Similarly, if an investment interest safe harbor is included as part of the final regulations but a specific venture fails to come within the safe harbor, such a venture would not be a per se violation of the statute. Rather, such a venture would be subject to scrutiny under the same facts and circumstances analysis which has been employed in the past. It can be argued, however, that as a practical matter a venture falling outside the safe harbor would be subject to a presumption of illegality.

207 Id. The suggested safe harbors were included as part of the proposed rules which were published on December 23, 1988, and withdrawn on December 28, 1988. See supra note 199.

208 This intent is seen in the preamble to the proposed rules which were published on December 23, 1988, and subsequently withdrawn. See 53 Fed. Reg. 51,856, 51,858 (proposed Dec. 23, 1988).

209 54 Fed. Reg. at 3090.

210 See id. at 3089 (stating that “if … the business arrangement involves several payments, for example, rental of both space and equipment, then each payment will be analyzed to determine if all the provisions of each applicable exemption have been fulfilled”).

211 The following state statutes specifically address fraud and abuse relating to the Medicaid program:

Ala. Code § 22-1-11 (1984); Ark. Stat. Ann. § 5-55-103 (1987); Cal. Welf. & Inst. Code § 14,107 (West Supp. 1989); Colo. Rev. Stat. § 26-1-127 (1982); Conn. Gen. Stat. Ann. 17-134a (West 1958); Fla. Stat. Ann. § 409.2664 (West 1986); Haw. Rev. Stat. § 346.43.5 (1988); Kv. Rev. Stat. Ann. § 194.505 (Michie/Bobbs-Merrill 1982); La. Rev. Stat. Ann. § 14.70.1 (West 1986); Mass. Gen. Laws Ann. ch. 118E § 21A-E (West 1989); Mich. Comp. Laws Ann. § 400.604 (West 1988); Miss. Code Ann. § 43-13-207 (Supp. 1986); N.C. Gen. Stat. § 108A-63 (1988); Ohio Rev. Code Ann. § 5111.03 (Page 1989); R.I. Gen. Laws § 40-8.2-3 (1984); Utah Code Ann. § 26-20-4 (1989); Vt. Stat. Ann. tit. 33, § 2581 (1981); Va. Code Ann. § 32.1-315 (1985); Wash. Rev. Code Ann. § 74.09.210 (1982); W. Va. Code Ann. § 9-7-5 (1984); Wis. Stat. Ann. § 49.49(2) (West 1987).

The states also regulate physicians through licensing. Most states have statutory language relating to kickbacks, fee splitting and other unprofessional conduct. For a listing of these statutes, see OIG Report on State Laws, supra note 111.

212 See Adams, Fraud and Abuse Implications in Joint Ventures in L. Burns & D. Mancino, supra note 6, at 137-39.

213 Wash. Rev. Code Ann. § 19.68 (1978).

214 76 Wash. 2d 407, 456 P.2d 1011 (1969).

215 Id. at 410, 456 P.2d at 1018.

216 Id. at 410, 456 P.2d at 1019.

217 Cal. Bus. & Prof. Code § 650 (West Supp. 1989).

218 Id.

219 68 Op. Cal. Att'y Gen. 28 (1985).

220 Id.

221 Id.

222 Id. Medical necessity is required by the statute. Cal. Bus. & Prof. Code § 650 (West Supp. 1989). The California Attorney General has applied the medical necessity requirement to referrals within a group practice. See 70 Op. Cal. Att'y Gen. 65 (1987) (opining that where physicians form a professional corporation to which other physicians refer their patients for the performance of pulmonary and cardiac stress tests, payment of a fee by the corporation to the referring physician for preparing an evaluation report of the referred patient's test data would violate the statute if no legitimate reason exists for the report to be prepared as part of the referral).

223 See Adams, supra note 212, at 138-39 (comparing the California and Washington statutory schemes).

224 Id.

225 L. Burns & D. Mancino, supra note 6, at 79-80 (citing American Med. Ass'n, Current Opinions of the Judicial Council § 4.04 (1984)) (Section 4.04 provides: [A] physician may own or have a financial interest in a for-profit hospital, nursing home or other health facility, such as a free-standing surgical center or emergency clinic. However, the physician has an affirmative obligation to disclose his ownership of a health facility to his patient, prior to admission or utilization).

226 The report, in pertinent part, provides:

• (1) the physician has an affirmative ethical obligation to disclose to the patient or referring colleagues his or her ownership interest in the facility or therapy prior to utilization;

• (2) the physician may not exploit the patient in any way, as by inappropriate or unnecessary utilization;

• (3) the physician's activities must be in strict conformance with the law;

• (4) the patient should have free choice either to use the physician's proprietary facility or therapy or to seek the needed medical services elsewhere; and

• (5) when a physician's commercial interest conflicts so greatly with the patient's interest as to be incompatible, the physician should make alternative arrangements for the care of the patient.

L. Burns & D. Mancino, supra note 6, at 79-80 (citing American Med. Ass'n, Current Opinions of the Judicial Council § 4.04, at 14).

227 See supra note 222 and accompanying text. It should be noted that from a legal standpoint the AMA supports even more extensive structural guidelines. The AMA supports: (1) the establishment of an advisory opinion process; (2) the creation of a safe harbor under the Medicare proposed regulations similar to the suggested safe harbors in the preamble to the proposed regulations; (3) patient disclosure requirements; and (4) disclosure to the Medicare carrier. See Hearings, supra note 1 (statement of the American Med. Ass'n).

228 See supra note 197.

229 See 54 Fed. Reg. at 3090; Note, supra note 11, at 753.

230 See Hyman & Williamson, supra note 11, at 1150, 1156-66.

231 See supra notes 19-36 and accompanying text.

232 See Hyman & Williamson, supra note 11, at 1150.

233 See supra notes 225, 201-02 and accompanying text; see also supra note 48 (comments concerning the Medicare Fraud & Abuse regulations which take the AMA position).

234 See supra notes 63-64 and accompanying text.

235 See supra note 125; see also Mod. Healthcare, Jan. 27, 1989, at 6 (indicating that the proposed rules essentially side-step the controversial forms of self referral arrangements).

236 See supra notes 207-10 and accompanying text. Further, even if these suggested safe harbors are not included, they should provide guidance in terms of how to structure self referral arrangements in order to avoid prosecution under a facts and circumstances analysis.

237 For a discussion of percentage of ownership limitations, see supra notes 150-64 and accompanying text. Basically a referring physician is limited in terms of the extent of his ownership in a facility, and consequently, the economic, investment side of the transaction is restricted.

238 For a discussion of disclosure requirements, see supra notes 135-46 and accompanying text.

239 This goal is reflected in the widespread legal opinion that the self referral arrangements: (1) cannot tie the amount of remuneration (i.e., partnership distributions) to the number or value of referrals; and (2) cannot require the physician venturer to use exclusively the venture services. See Richman, Physician Incentive Plan Study May Give Guidance, Mod. Healthcare, July 19, 1985, at 49; Sax, HHS Begins to Monitor Recent Joint Ventures, Hospitals, Nov. 1, 1985, at 64; Adams, supra note 212, at 13; Note, supra note 11, at 743; Stark Introduction, supra note 8, at H240; see also letters cited supra note 48.

240 See supra note 145 and accompanying text.

241 See supra note 239.

242 Commentators suggest that such a requirement would make it almost impossible for the typical self referral arrangement to fall within the suggested safe harbor. See Tokarski, Kickback Rule Uncertainty Doesn't Halt Deals, Mod. Healthcare, Jan. 13, 1989, at 19. Consequently, to the extent self referral arrangements continue in the future, the majority may continue to be subject to a facts and circumstances scrutiny.

243 Generally ownership of a stock or investment as a limited partner does constitute ownership of a “security” for purposes of federal and state securities laws. See Roble & Mason, supra note 7, at 487. Most ventures involving ancillary services attempt to obtain exemption from federal and state registration in order to avoid the expensive and time-consuming registration process. Id. Under most exemptions, public notice and offerings are prohibited.

244 See Stark Introduction, supra note 8, at H240; H.R. Conf. Rep. No. 661, 100th Cong., 2d Sess. 44 (1988).

245 See supra notes 222, 227 and accompanying text.

246 See 70 Op. Cal. Att'y Gen. 65 (1987); see also Hyman & Williamson, supra note 11, at 1193-94 (suggesting that medical necessity may be one general criterion which begins to incorporate cost-containment goals, yet safeguard the ethical integrity of the medical profession). A related referral side guideline might involve requirements concerning internal peer review and utilization review groups to both ensure quality of health care and to address and eliminate any unnecessary services. See Hearings, supra note 1 (statement of the American Med. Ass'n); id. (statement of the American Imaging Ass'n); Letter from Andrew B. Wachler to the OIG, HHS (Dec. 17, 1987); Letter from Powell, Goldstein, Frazer & Murphy to the OIG, HHS (Dec. 18, 1987). Similarly, disclosure to third parties, such as Medicare carriers, could facilitate the monitoring of self referral arrangements. See supra notes 148-49 and accompanying text. In addition, it has been pointed out that numerous other regulatory provisions can be utilized to address overutilization in the Medicare context. See Hyman & Williamson, supra note 11, at 1172; Letter from Drinker, Biddle & Reath to the OIG, HHS 7 (Dec. 18, 1987).

247 See Hearings, supra note 1 (statement of the American Imaging Ass'n). These requirements would tend to force physician investors to be at financial risk. This risk suggests that a legitimate business purpose is likely to exist other than the mere lock-in of referrals. See Letter from Drinker, Biddle & Reath to the OIG, HHS 11 (Dec. 18, 1987); L. Burns & D. Mancino, supra note 6, at 133.

248 For discussion of the concern, see Stark Introduction, supra note 8, at H240; 54 Fed. Reg. 3088, 3089; H.R. Conf. Rep. No. 661, 100th Cong., 2d Sess. 44 (1988). In order to address this concern, it has been suggested that “if a provider's ownership interest in the joint venture is granted free or sold for a token price with the expectation of securing a stream of referrals from the physician in return, then a violation of [the fraud and abuse statutes] may be indicated.” L. Burns & D. Mancino, supra note 6, at 133. The above type of venture could be scrutinized under a facts and circumstances analysis to determine whether actual fraud or abuse has occurred.

249 This failure may relate to the fact that the safe harbors as presently proposed are very transaction specific and do not provide any generic criteria.

250 See supra note 108 (discussion of special treatment often afforded rural providers).

251 See supra notes 127-31 and accompanying text.

252 See supra note 129 (documentation of abuse in the clinical laboratory).

253 See 54 Fed. Reg. 3088, 3089 (“We, therefore, invite public comments on how we can best achieve the twin goals of keeping the industry aware of our views of particular business practices, and assuring that our regulations remain current with new developments.”). The use of advisory opinions has been a point of controversy between the HHS and the Department of Justice. See Federal Infighting Stalls Kickback Rules, Mod. Healthcare, Jan. 6, 1989, at 6.

254 See Hearings, supra note 1 (statement of the American Med. Ass'n); Note, supra note 11, at 753.

255 The OIG Report also lists factors used to examine a self referral arrangement under a facts and circumstances analysis. These factors include: “(1) whether the amount of return is related to referral volume in any way; (2) whether opportunities to invest are offered only to those in a position to refer business, or if those in a position to refer greater amounts of business are offered a greater investment opportunity; (3) whether the investing physicians’ referrals are monitored by the entity; (4) whether restrictions are placed on transferability of the investment interest; (5) whether the return on investment is excessive in light of the nature of the business risk; and (6) whether the amounts invested reflect the capital needs of the entity.” OIG Report, supra note 1, at 26.

256 It should be noted, however, as a practical matter, that self referral arrangements which do not come within a safe harbor should be structured with the following high-risk investment side characteristics in mind: investors limited to referral sources, nominal investment, and higher than usual rates of return.