1 The United States spends over $800 billion per year, or 14% of the gross national product (GNP) financing health care. Wasted Health Care Dollars, Consumer Rep., July 1992, at 435. In comparison, the United States spends less than six percent of the GNP on education and defense. Id. at 439. No other developed country spends more than 10% of its GNP on health care. Id. at 436. Experts estimate that by the year 2000 the United States will spend 16% of the GNP on health care. the President's Comprehensive Health Reform Program 6 (1992). By the year 2030, this figure could reach between 27 and 43 percent of the GNP. Id.

2 Richard C Leorne, Foreword to Bradford H. Gray, the Profit Motive and Patient Care ix (1991). It has been suggested that the United States could cut its health care spending by at least 20% with no corresponding decrease in quality of care. Wasted Health Care Dollars, supra note 1, at 435; see infra part IV.B.2.

3 The United States ranks 17th in male life expectancy and 16th in female life expectancy. Wasted Health Care Dollars, supra note 1, at 435. Out of 23 industrialized countries, the United States holds 20th place in infant mortality. U.S. Baby Deaths Hit New Low in ‘90, Boston Globe, Mar. 12, 1993, at 8 (reporting 1990 data from Centers for Disease Control and Prevention).

4 Approximately 37 million Americans have no health insurance coverage. Mark A. Goldberg & Theodore R. Marmor, … And What the Experts Expect; Among Health Care Factions, a Common Ground is Emerging, Wash. Post, Feb. 14, 1993, at C3; Wasted Health Care Dollars, supra note 1, at 436.

5 At least 20 million Americans have inadequate health insurance coverage. Goldberg & Marmor, supra note 4.

6 See 138 Cong. Rec. S12,615 (daily ed. Aug. 5, 1992) (statement of Sen. Adams); Physician Ownership/Referral Arrangements: Hearing Before the Subcomm. on Health and the Subcomm. on Oversight of the House Comm. on Ways and Means, 102d Cong., 1st Sess. (1991) [hereinafter Hearing](statement of Rep. Pete Stark).

7 “To direct to a source for help or information.” the American Heritage Dictionary 1038 (2d ed. 1985).

8 Hearing, supra note 6, at 8 (statement of Rep. J.J. Pickle, Chairman). See generally Iglehart, John K., The Debate Over Physician Ownership of Health Care Facilities, 321 New Eng. J. Med. 198 (1989)Google Scholar (presenting helpful overview of physician self-referrals and the current debate surrounding them); McDowell, Theodore N., Jr., Physician Self Referral Arrangements: Legitimate Business or Unethical “Entrepreneurialism,” 15 Am. J.L. & Med. 61 (1989)Google Scholar (describing policy debate regarding physician self-referrals and responses to it); Relman, Arnold S., “Self-Referral“ — What's at Stake?, 327 New Eng. J. Med. 1522 (1992)Google Scholar (arguing that self-referral should be banned).

Any health care professional who is in the position to refer patients and has a financial interest in an ancillary health care facility can self-refer. Mitchell, Jean M. & Scott, Elton, New Evidence of the Prevalence and Scope of Physician Joint Ventures, 268 JAMA 80 (1992)Google Scholar [hereinafter Mitchell & Scott, New Evidence]; Hearing, supra note 6, at 10-11 (statement of Jean M. Mitchell, Ph. D., Associate Professor of Economics, Florida State University, & Elton Scott, Ph.D., Associate Professor of Finance, Florida State University) [hereinafter statement of Mitchell & Scott]. However, the selfreferral debate in general, and the scope of this Note, focus on physician self-referrals.

9 Examples of ancillary health care facilities include diagnostic imaging centers, clinical laboratories, and radiation therapy centers. Mitchell & Scott, New Evidence, supra note 8, at 81. Often, physicians invest in arrangements known as joint ventures. Id. A joint venture is “any ownership, investment interest, or compensation arrangement between referring physicians … and a business providing health care goods or services (excluding physician practices).” Id. Facilities solely owned by “consultative or non-referring” physicians are not classified as joint ventures. Id.

10 See Morreim, E. Haavi, Ph.D., Unholy Alliances: Physician Investment for Self-Referral, 186 Radiology 67, 67-68 (1993)CrossRefGoogle Scholar.

11 Id. Mitchell & Scott, New Evidence, supra note 8, at 80.

12 Morreim, supra note 10, at 67.

13 The Florida Health Care Cost Containment Board (HCCCB) ordered a study [hereinafter Florida study] of physician ownership of ancillary health care businesses. Mitchell & Scott, New Evidence, supra note 8. A detailed description of the Florida Study can be found in Mitchell & Scott, New Evidence, supra note 8, and Hearing, supra note 6.

14 In the Florida Study, researchers discovered that 3.3 tests per patient were performed in physician-owned clinical laboratories while 1.7 tests per patient were performed in clinical labs not owned by physicians. Hearing, supra note 6, at 24.

15 Physician self-referrals also lead to an ethical conflict of interest because physician-investors’ decisions to order treatment for patients may be guided by a desire for their business to earn higher profits. McDowell, supra note 8, at 68-69. However, the debate surrounding conflict of interest falls outside the scope of this Note. For a discussion of that issue, see id. at 68-70.

16 The Florida study revealed that the cost per procedure in physician-owned clinical labs was relatively the same as that in laboratories not owned by physicians. Hearing, supra note 6, at 24 (statement of Mitchell & Scott). However, the physician-owned laboratories earned gross revenues of about $38 per patient compared with $20 per patient in non physician-owned laboratories. Id. Researchers concluded that this difference resulted from higher utilization in the physician-owned labs. Id.

17 See Hearing, supra note 6, at 60 (statement of Michael B. Isikoff, M.D., Staff Radiologist, Parrish Medical Center); id. at 84 (statement of Donna Miller, CEO, Memphis Business Group on Health).

18 Morreim, supra note 10, at 67.

19 Id. at 68, 69.

20 See Greaney, Thomas L., Physician-Sponsored Joint Ventures: An Antitrust Analysis of Preferred Provider Organizations, 18 Rutgers L.J. 513, 522-37 (1987)Google Scholar (discussing failures of health care market); Brodley, Joseph F., Joint Ventures and Antitrust Policy, 95 Harv. L. Rev. 1521, 1530-35 (1982)Google Scholar (describing anticompetitive risks of joint ventures, facilities in which physicians in a position to self-refer usually invest). But see McDowell, supra note 8, at 62, 71-73 (arguing that physician self-referrals enhance competition).

21 See Physician Ownership and Referral Amendments of 1993, 42 U.S.C.A. § 1395nn (1993) (effective Jan. 1, 1995) (expanding the prohibition against self-referral of Medicare and Medicaid patients contained in the Medicare and Medicaid Antifraud Amendment, 42 U.S.C.A. § 1395nn (1992) (forbidding self-referral of Medicare and Medicaid patients to a clinical laboratory outside the doctor's office in which the doctor or a family member has an ownership interest), to a broader range of health care services in which a physician or a physician's family member has a financial interest); see also infra note 43 (demonstrating that some states have enacted laws banning self-referrals).

22 See Melinda Beck et al., Is it Need? Or is it Purely Greed? The Ama Hits Doctors on Self-Referrals, Newsweek, Dec. 21, 1992, at 58 (arguing that although the American Medical Association declared physician self-referral unethical such ethical guidelines cannot be legally enforced).

23 See generally Gray, supra note 2 (describing changes in the accountability of physicians and hospitals); Paul Starr, the Social Transformation OF American Medicine (1982) (detailing changes in the American health care system); Relman, Arnold S., Shattuck Lecture — the Health Care Industry, Where is it Taking Us?, 325 New Eng. J. Med. 854 (1991)Google Scholar (describing commercialization of health care industry).

24 Leone, supra note 2, at ix; Gray, supra note 2, at 3, 172; see Relman, supra note 8, at 1522 (“Self-referral is a prime example of the current and growing encroachment of commercialism on medical practice.“); Robert Pear & Erik Eckholm, Patients and Profits/ A Special Report; When Healers are Entrepreneurs: A Debate Over Costs and Ethics, N.Y. Times, June 2, 1991, at A1 (“Physician investment in health-care businesses grew rapidly in the 1980's as the medical marketplace became more commercial and competitive.“).

25 McDowell, supra note 8, at 64.

26 See Morreim, supra note 10, at 67-68.

27 Hearing, supra note 6, at 107-34 (letter and business plan describing a typical physicianowned venture). Physician ownership arrangements are also known as joint ventures. See discussion supra note 9.

28 Hearing, supra note 6, at 67-68 (prepared statement of Health Images, Inc.); e.g., Pear & Eckholm, supra note 24 (one imaging center estimated a return of $6,190 in the first year for each $500 cash invested).

29 See Hearing, supra note 6, at 60 (statement of Michael B. Isikoff, M.D., Staff Radiologist, Parrish Medical Center) (relating statement of family practitioner that “the patients belong to me, I control them, they will do whatever I say, and go wherever I send them for x-rays“).

30 Proponents of physician-owned facilities typically advance the argument that such arrangements bring needed medical technology to less affluent geographic locations. See McDowell, supra note 8, at 71-72; Mitchell & Scott, New Evidence, supra note 8, at 80. But see sources cited infra note 40 and accompanying text (demonstrating fallacy of argument).

31 Physicians who wanted their patients to have MRIs (magnetic resonance imaging scans, tests that allow physicians to see in detail a specific area of the body) performed by hospitals were forced to wait in line behind hospital inpatients. Mary Wagner, Ownership Issues Blurring the Future of Imaging Centers; Carefully Crafted Imaging Centers are Likely to Unravel Because of Self-Referral Bans, Tax-Exemption Rules and Payer Pressure, Modern Healthcare, Aug. 17, 1992, at 24. To combat this problem, physicians invested in free standing MRI centers. Id. When new medical technology originally became available, physicians or hospitals were the only investors who were willing to finance its purchase. After the profitability from ownership achieved widespread notoriety, nonphysician investors scrambled to invest. See McDowell, supra note 8, at 72 & n.58.

32 One company that operates MRI facilities discovered that about 50% of the MRI scans ordered by physician-investors were negative, meaning that no abnormality was found. Hearing, supra note 6, at 66 (prepared statement of Health Images, Inc.). The negative rate in most other centers was 25%. Id. The disparity indicates that physicians self-referred patients for unnecessary tests. Id. See, e.g., Wasted Health Care Dollars, supra note 1, at 438 (describing overuse of MRI tests and CT scans although unknown when they benefit patients and when they waste time and money).

33 See discussion infra part IV.B.l.

34 See Gray, supra note 2, at 171-72. In a sociological study that evaluated the “entrepreneurial side of medical practice,” physician interviews revealed “frank admissions that money was a motivating factor, that health care was a commodity to be marketed, and that [physicians] were responding to needs defined by clients rather than defining needs/or patients, as the traditional ideology sees the physician's role.” Id. at 184.

35 Id. at 204.

36 Id. at 5; see id. at 198-99 (comparing traditional fee-for-service economic conflicts and those generated by self-referrals).

37 Id. at 186.

38 Hearing, supra note 6, at 60 (statement of Michael B. Isikoff, M.D., Staff Radiologist, Parrish Medical Center) (describing how a physician-owned venture stopped all referrals to his radiology office and forced it to go out of business even though the office offered high quality services).

Some hospitals will only make patient referrals if doctors pay for the service. Robert Pear, U.S. Says Hospitals Demand Physicians Pay For Referrals, N.Y. Times, Sept. 27, 1992, at Al. Some hospitals also grant staff privileges based on the physician's ability to generate income for the hospital. Id.

39 In Florida, where the prevalence of physician-owned facilities is quite widespread, see infra note 41, a substantial body of evidence indicates a void of physician-owned businesses in rural or medically underserved areas. Mitchell, Jean M. & Sunshine, Jonathan H., Consequences of Physicians’ Ownership of Health Care Facilities — Joint Ventures in Radiation Therapy, 327 New. Eng. J. Med. 1497, 1499 (1992)Google Scholar; see Mitchell & Scott, New Evidence, supra note 8, at 83.

40 Several reasons may explain why physicians will not form enterprises in underserved areas. First, such areas may have lower populations than more urban areas. Lower population translates into fewer patients that physicians can self-refer. Second, poor areas cannot offer physicians a high enough salary to induce them to practice there. Wasted Health Care Dollars, supra note 1, at 441 (“In 1988, Beverly Hills had one internist for every 566 people. Compton, a poor Los Angeles community, had one internist per 19,422 people.“).

41 More than 40% of the physicians in Florida involved in direct patient care during 1989 had an ownership interest in a health care facility to which they could self-refer. Mitchell & Scott, New Evidence, supra note 8, at 80; accord Mitchell & Sunshine, supra note 39, at 1498-1501; Swedlow, Alex et al., Increased Costs and Rates of Use in the California Workers’ Compensation System as a Result of Self-Referral by Physicians, 327 New Eng. J. Med. 1502 (1992)Google Scholar. However, this percentage underestimates the actual number of physicians in a position to self-refer. Id. In 1989, there were at least 87 MRIs in Florida. Hearing, supra note 6, at 69 (prepared statement of Health Images, Inc.). Canada, a country with a population almost twice that of Florida, only had 12 MRIs in 1988. Id. Moreover, an MRI scan costs about $177 injapan while the same test costs about $1000 in the United States. Wasted Health Care Dollars, supra note 1, at 445.

42 42 U.S.C.A. § 1395nn (1992); see also Physician Ownership and Referral Amendments of 1993, 42 U.S.C.A. § 1395nn (1993) (effective Jan. 1, 1995) (extending self-referral prohibition to a wider range of health care services). But see id. § 1395nn(b)-(d) (setting forth exceptions to ownership and compensation arrangement prohibitions); 42 C.F.R. § 1001.952 (1991) (describing “safe harbors,” ways in which doctors can set up ownership and self-referral arrangements without being subject to the Medicare/Medicaid self-referral ban). Although Congress has prohibited certain referrals in the Medicare and Medicaid settings, it has yet to enact a more comprehensive self-referral ban. See, e.g.. Ethics in Referral and Billing Act of 1992, S. 3186, 102d Cong., 2d Sess. (1992).

For a discussion about the difficulties in self-referral regulation, see Crane, Thomas S., The Problem of Self-Referral Under the Medicare and Medicaid Antikickback Statute: The Hanslester Network Case and the Safe Harbor Regulations, 268 JAMA 85 (1992)Google Scholar. For support of the proposition that the states should regulate self-referrals, see King, Kimberly A., Note, Regulating Physician Investment and Referral Behavior in the Competitive Health Care Marketplace of the ‘90s — An Argument for Decentralization, 65 Wash. L. Rev. 657 (1990)Google Scholar.

43 E.g., Ariz. Rev. Stat. Ann. § 32-1401(21)(ff) (Supp. 1992) (rendering self-referrals “unprofessional conduct” unless written disclosure made to patient); Md. Health Occ. Code Ann. § l-206(c)(l), (2) (Supp. 1992) (banning self-referrals without written disclosure to facility in which health care professional, health care professional's immediate family, or both have a “significant beneficial interest“); Mass. Gen. L. ch. 112, § 12AA (1990) (requiring written disclosure of financial interest and of option to seek treatment elsewhere for self-referral to physical therapy facilities); N.H. Rev. Stat. Ann. § 281-A:23(IV) (Supp. 1992) (prohibiting self-referral of workers’ compensation patients unless “ethically appropriate and medically indicated,” and a waiver is obtained from the state). But see David Burda, States Lag in Regulating Self Referrals, Modern Healthcare, Dec. 23, 1991, at 40 (asserting that although some states have laws banning or restricting self-referrals, such laws are not enforced and do not effectively curb self-referral abuses).

44 the Gray Sheet, Dec. 14, 1992. However, the Ama's stance on this issue should not be given much credence since its position has fluctuated dramatically. See Jenni Bergal, How Self- Referral Gives Physicians a License to Steal, Chi. Trib., Dec. 16, 1992, at 27. In December 1991, the Ama urged physicians not to self-refer unless there was “a demonstrated need in the community … and alternative financing [was] not available.” Relman, supra note 8, at 1522. In June 1992, the Ama supported self-referral if physicians disclosed their ownership interest and the existence of any alternative facilities. Bergal, supra. In December 1992, the Ama basically reinstated its December 1991 position. Id. Furthermore, ethical guidelines are not legally binding. Id.

45 See Victor R. Fuchs, the Health Economy 14-17 (1986). See generally John Rapoport et al., Understanding Health Economics 13-33 (1982) (summarizing the competitive market model).

46 Fuchs, supra note 45, at 17; see also Rapoport, supra note 45, at 13 (defining “a competitive market … as one in which there are many reasonably well-informed buyers and sellers.“).

47 Fuchs, supra note 45, at 16-17.

48 Rapoport, supra note 45, at 20 (describing supply theory).

49 Id. at 16 (describing demand theory).

50 Id. at 21.

51 Id. at 22.

52 Id. at 23.

53 Greaney, supra note 20, at 528.

54 See Fuchs, supra note 45, at 16.

55 See supra note 52 and accompanying text.

56 See Alden T. Solovy, Antitrust Debate Centers on Price, Quality, Hospitals, Aug. 20, 1988, at 30 (“Competition is the best guarantor of consumer welfare.“) (citation omitted).

57 Fuchs, supra note 45, at 17; accord Rapoport, supra note 45 at 13.

58 “Unlike the usual market in which consumer demand and ability to pay largely determine what is produced and sold, the health care market is not controlled by consumers, because most payment comes from third parties and most decisions are made by physicians.” Relman, supra note 23, at 856. See generally Fuchs, supra note 45, at 17-31 (discussing principal ways in which health care industry departs from the ideal competitive market); Greaney, supra note 20, at 523-37 (providing an economic analysis of some health care market failures).

59 Greaney, supra note 20, at 525, 525-28 (describing adverse incentives of insurance coverage in more detail).

60 Id. at 531.

61 Id. at 531-32; see also id. at 531-37 (describing provider influence over the market in more detail).

62 Id. at 528; see also id. at 528-31 (detailing information problems in the health care market).

63 Id. at 528.

64 Gray, supra note 2, at 168-69; see Jay Katz, the Silent World of Doctor and Patient 27, 85-86, 95-103 (1984) (discussing the idea of trust in the doctor-patient relationship).

65 Gray, supra note 2, at 168. The doctrine of informed consent requires that the patient make an informed decision based on the information a reasonable patient would want to know about whether she wants to be treated. See id. at 26; Morreim, supra note 10, at 67.

66 See Gray, supra note 2, at 169.

67 Wasted Health Care Dollars, supra note 1, at 438; see also Hearing, supra note 6, at 149 (prepared statement of Dr. Mark N. Cooper) (only one in six respondents to a public opinion poll found it easy to shop for ancillary medical services).

68 Greaney, supra note 20, at 528. Even if patients could accurately evaluate treatment options and shop for the best price, they might not be motivated to do so because insurance pays the health care bill. Wasted Health Care Dollars, supra note 1, at 438. Although most patients pay insurance premiums, the insurance provider bears most of the actual health care costs. See Greaney, supra note 20, at 526.

69 Hearing, supra note 6, at 14 (statement of Mitchell & Scott).

70 See supra note 13.

71 Hearing, supra note 6, at 17 (statement of Mitchell & Scott); supra note 16.

72 Hearing, supra note 6, at 14 (statement of Mitchell & Scott).

73 See Swedlow et al., supra note 41, at 1504; Mitchell & Sunshine, supra note 39; Hearing, supra note 6, at 15-17 (statement of Mitchell & Scott).

74 But cf. McDowell, supra note 8, at 70-73 (arguing that physician self-referrals are procompetitive).

75 Wasted Health Care Dollars, supra note 1, at 438-39.

76 Id.

77 Id. at 439.

78 See supra part II.

79 See supra note 31 (describing MRI).

80 Here, a physician-investor's decision that a patient “needs” an MRI may be clouded by his investment in the MRI unit. See McDowell, supra note 8, at 68-70. For a discussion about how physicians generally control patient demand for services, see Greaney, supra note 20, at 531-37.

81 See, e.g., sources cited infra note 106.

82 One study discovered that 38% of MRI scans ordered by self-referring physicians were medically inappropriate. Swedlow et al., supra note 41, at 1504.

Doctors who order unnecessary tests for patients may also subject themselves to malpractice liability. See Muenstermann v. United States, 787 F. Supp. 499, 520 (D. Md. 1992) (holding that “physicians owe a duty to use the care expected of a reasonably competent practitioner of the same class and acting in the same or similar circumstances“); Connors v. University Assocs. in Obstetrics & Gynecology, 769 F. Supp. 578, 585-86 (D. Va. 1991) (holding that “a health care professional has a legal duty to exercise the degree of care ordinarily exercised by a reasonably skillful, careful, and prudent health care professional engaged in a similar practice under the same or similar circumstances“).

83 See Hearing, supra note 6, at 60 (statement of Michael B. Isikoff, M.D., Staff Radiologist, Parrish Medical Center) (“By controlling the patient, the demand for the service, and the service itself, the doctors produc[e] a vertical monopoly.“).

84 Professor Haavi Morreim, a well-known critic of self-referral, argues that it should be impermissible for a physician to “send” a patient anywhere. Morreim, supra note 10, at 67.

85 See Hearing, supra note 6, at 137 (statement of Larry Schauf, Chairman, Independent Private Practitioners of Physical Therapy) (relating how patient load of non-physician-investor dropped from 40 to three per day after formation of physician-owned facility).

86 Some physician-investors even refuse to treat patients who want testing from a facility other than their facility. E.g., Hearing, supra note 6, at 67 (prepared statement of Health Images, Inc.) (relating story of self-referring physician who refused to refer a patient to another facility even when patient specifically asked to go there).

87 One health care practitioner described captive referral as follows:

Id. at 141-42; accord id. at 160 (testimony of Donna Miller, Ph.D, CEO, Memphis Business Group on Health); see Key Enters, of Del., Inc. v. Venice Hosp., 919 F.2d 1550, 1552 (11th Cir. 1990) (“captive referrals ‘refers to situations where the patients do not have the freedom of choice’ “).

88 Proponents of self-referral argue that banning the practice would lead to fewer providers. See McDowell, supra note 8, at 72 & n.58.

89 Hearing, supra note 6, at 149 (statement of Dr. Mark N. Cooper).

90 Wasted Health Care Dollars, supra note 1, at 438.

91 See supra note 82. But see Hearing, supra note 6, at 165 (prepared statement of Thomas L. Mills on behalf of Radiation Care, Inc.) (asserting that investment of self-referring physician is so “minuscule as to negate any incentive to cloud his therapeutic judgment“).

92 Robles v. Humana Hosp. Cartersville, 785 F. Supp. 989, 998 n.7 (N.D. Ga. 1992) (citations omitted).

93 As of July 1992, there had been no study directly analyzing the impact of self-referrals on quality of care. Crane, supra note 42. Even though two researchers evaluated quality of care in a study reported in November 1992, their evidence was quite limited. Mitchell & Sunshine, supra note 39, at 1498.

94 Hearing, supra note 6, at 36 (statement of Mitchell & Scott).

95 McDowell, supra note 8, at 71; accord Gray, supra note 2, at 197; see also Council on Ethical and Judicial Affairs, American Medical Association, Conflict of Interest; Physician Ownership of Medical Facilities, 267 JAMA 2366 (1992); Wagner, supra note 31, at 26-28.

96 McDowell, supra note 8, at 71 (citation omitted).

97 See Gray, supra note 2, at 192-93.

98 See Hearing, supra note 6, at 52 (statement of Mitchell & Scott).

99 Roble, Daniel T. & Mason, John H., The Legal Aspects of Health Care Joint Ventures, 24 Duq. L. Rev. 455, 457 (1986)Google Scholar.

100 Id.; Hearing, supra note 6, at 52 (statement of Mitchell & Scott).

101 Hearing, supra note 6, at 63 (statement of Robert D. Carl, III, President, Chairman, and CEO, Health Images, Inc.).

102 McDowell, supra note 8, at 74.

103 E.g., Pear & Eckholm, supra note 24 (if 1,200 imaging procedures are performed per year, investors earn 15% of all scan revenues; if more than 1,700 procedures are performed, investors earn 30% of revenues); see also Hearing, supra note 6, at 67 (prepared statement of Health Images, Inc.).

104 See statistics cited supra notes 32, 82.

105 Hearing, supra note 6, at 66-67. But see Hillman, Bruce J. et al.. Frequency and Costs of Diagnostic Imaging: In Office Practice — A Comparison of Self-referring and Radiologist-referring Physicians, 323 New. Eng. J. Med. 1604, 1608 (1990)Google Scholar (discovering that self-referring physicians ordered imaging four to four and one-half times as frequently as radiologist-referring physicians; but, “[i]t is impossible to determine from our results whether the imaging practices of the self-referring physicians or those of the radiologist-referring physicians represent the more appropriate care.“).

106 Michael Mason, A Little Clinic on the Side, Newsweek, Mar. 30, 1992, at 71; see also Duff Wilson, Prescription for Profits: Surgeons Order Tests at Firm They Own, Seattle Times, July 26, 1992, at 71 (doctor ordered MRI scan of patient's knee after patient complained of pain in thigh).

107 Granted, some procedures, such as blood tests, do not put the patient at a greater risk although such procedures may cause the patient discomfort or pain.

108 Hearing, supra note 6, at 63 (statement of Robert D. Carl, III, President, Chairman, and CEO of Health Images, Inc.) (referrals at one Health Images center dropped from thirteen to seven per day because physician-investors believed they were not getting enough money).

109 Id. at 63.

110 See id. at 60 (statement of Michael B. Isikoff, M.D., Staff Radiologist, Parrish Medical Center) (describing how physician who used to refer patients to Dr. IsikofFs imaging facility ceased to do so when physician opened his own imaging center).

111 The following example illustrates this low cost, high profit mentality prevalent in physician- owned facilities.

I know of a mammography center that charges $110 per exam, while the price at a nearby competing facility is $55. For $110, a woman gets a mammogram performed by a technician in a nonaccredited facility, with a several-day delay before initial results are reported, and further weeks of delay if she needs to be recalled for additional views or better quality films. The delays are caused by the fact that there is no physician on site to monitor the study … at the competing facility … for $55, the patient gets a screening mammogram at an ACR accredited facility with an onsite radiologist who can immediately obtain additional views as required, and who issues his report the same day.

Id. at 61; accord Mason, supra note 106.

112 One general partner's experience with physician-investors’ skewed priorities is particularly insightful.

[P]hysician investors often told us they did not care what we charge or how good our service is… . They always wanted more distributions, even if no profits were earned … once the company bought out the physician-investors at [one] center, these physicians never referred another patient to the facility. Apparently, they were only willing to use our center so long as they had a financial interest in it.

Hearing, supra note 6, at 63, 66 (statement of Robert D. Carl, III, President, Chairman, and CEO of Health Images, Inc.); see also id. at 66 (prepared statement of Health Images, Inc.) (mere fact that Health Images takes a strong stance against self-referrals causes some physicians to refuse referrals to their centers and to tell other physicians to do the same).

113 Hearing, supra note 6, at 63 (statement of Robert D. Carl, III, President, Chairman, and CEO, Health Images, Inc.) (Health Images no longer has physician investors because the company believes physician-investors impeded the delivery of high quality care).

114 See Wasted Health Care Dollars, supra note 1, at 436 (estimating that health care system will waste $200 billion this year and that $130 billion will be spent on clearly unnecessary procedures and services).

115 Greaney, supra note 20, at 525.

116 See Mason, supra note 106 (estimating that overcharges and over-utilization of services at physician-owned facilities in Florida add $500 million per year to Florida health care costs).

Besides cost in terms of price, physician self-referrals inflict other intangible costs on patients. For example, when physicians order unnecessary tests, patients waste time having those tests done. Furthermore, patients endure the risk of treatment-caused (iatrogenic) injury. See Wasted Health Care Dollars, supra note 1, at 443.

117 E.g., Swedlow et al., supra note 41, at 1502 (indicating that a recent study concluded that self-referring physicians “charged 4.4 to 7.5 times more per episode of care than other physicians“); Mason, supra note 106, at 71.

118 McDowell, supra note 8, at 72.

119 Id. at 72-73 (citing 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 5-6 (Nov. 6, 1985)); accord id. at 73 n.61.

120 See supra notes 98-101 and accompanying text.

121 See supra note 103 and accompanying text.

122 See FUCHS, supra note 45, at 21.

123 See supra notes 79-82 and accompanying text.

124 See, e.g., sources cited supra note 111.

125 McDowell, supra note 8, at 73 n.61.

126 Morreim, supra note 10, at 68. A complete ban may also fall short of preventing abuse and may actually be unnecessary. Id. at 68-69.

127 Id. at 68; see also Gray, supra note 2, at 202-03 (describing other reasons why disclosure would not necessarily provide the best answer to the self-referral dilemma).

128 See supra text accompanying notes 62-68.

129 Hearing, supra note 6, at 47 (statement of Rep. Johnson, Comm. Member, Subcomm. on Oversight, House Comm. on Ways & Means) (“It is a very difficult area, because we are denying a specific group of people the right to make investments, which in a market economy is sort of fundamental.“).

130 Morreim, supra note 10, at 68.

131 15 U.S.C.A. §§ 1-7 (1973 & West Supp. 1993). Other federal antitrust laws also exist. See, e.g., Clayton Act, 15 U.S.C.A. §§ 12-27 (1973 & West Supp. 1992); Federal Trade Commission Act, 15 U.S.C.A. §§ 41-48 (West 1973 & Supp. 1993). Further, most states also have antitrust laws. See, e.g., I.L.C.S. 10/1-11 (West 1992 & Supp. 1993); Mass. Gen. L. Ann. ch. 93 (West 1984 & Supp. 1993); Minn. Stat. Ann. § 325D (West 1981 & Supp. 1993).

132 Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 4 (1958); see also Apex Hosiery Co. v. Leader, 310 U.S. 469, 492 & n.15 (1940) (discussing legislative history of Sherman Act and supporting conclusion that Act aimed at preventing “business combinations” which restrain trade).

133 Northern Pacific Ry. Co., 356 U.S. at 4.

134 21 Cong. Rec. 2,455, 2,456 (1890) (statement of Sen. Sherman); see, e.g., 15 U.S.C.A. § 1 (West 1973 & Supp. 1993) (“Every contract, combination … or conspiracy, in restraint of trade or commerce among the several States … is declared to be illegal.“).

135 Cf. United States v. National Ass'n of Real Estate Bds., 339 U.S. 485, 492 (1950) (failing to decide whether the Sherman Act covers the learned professions but leaving the issue open); American Medical Ass'n v. United States, 317 U.S. 519, 528 (1943) (failing to decide whether “a physician's practice of his profession constitutes trade” under the Sherman Act).

136 See, e.g., Federal Baseball Club v. National League, 259 U.S. 200, 209 (1922) (“a firm of lawyers sending out a member to argue a case … does not engage in … commerce because the lawyer … goes to another State.“).

137 Cf. Goldfarb v. Virginia State Bar, 421 U.S. 784, 786-87 (1975) (asserting that classically competition distinguishes trades and professions).

138 FTC v. Raladam Co., 283 U.S. 643, 653 (1931) (“medical practitioners … follow a profession and not a trade … .“).

139 According to Senator Sherman:

21 Cong. Rec. 2,455, 2,461-62 (1890) (statement of Sen. Sherman); see also 15 U.S.C.A. § 12 (West Supp. 1993) (defining “commerce” to mean “trade or commerce among the several states“); Bruce Little, Note, A Case of Judicial Backsliding: Artificial Restraints on the Commerce Power Reach of the Sherman Act, 1985 U. ILL. L. REV. 163, 168-73 (1985) (relating that the enacting Congress viewed commerce and the intended scope of the Sherman Act narrowly).

140 Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 743 n.2 (1976) (citing Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 201-02 (1974)).

141 American Medical Ass'n v. United States, 317 U.S. 519, 536 (1943).

142 Goldfarb v. Virginia State Bar, 421 U.S. 784, 787 (1975) (holding that Congress did not intend a “sweeping exclusion” of the learned professions but intended “to strike as broadly as it could in § 1 … .“). See generally Gilmore, Debra A., The Antitrust Implications of Boycotts by Health Care Professionals: Professional Standards, Professional Ethics and The First Amendment, 14 Am. J. L. & Med. 221, 222-25 (1988)Google Scholar (examining how antitrust law and the First Amendment constrain health care professionals).

143 E.g., Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332 (1982) (price-fixing by medical society members); Wilk v. American Medical Ass'n, 719 F.2d 207 (7th Cir. 1983) (boycott of chiropractors by the Ama and other professional associations); cf Anesthesia Advantage, Inc. v. Metz Group, 759 F. Supp. 638 (D. Colo. 1991) (although no violation found, plaintiff charged defendant with market division, price-fixing, and group boycott).

144 Morreim, supra note 10, at 69. However, self-referrals have been prohibited in other ways. See sources cited supra notes 41-43.

145 Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 4 (1958); Barry Furrow et al., Health Law 785 (2d ed. 1991). Generally, antitrust law strives to further competition. Northern Pacific Ry., 356 U.S. at 1. However, legal scholars have failed to agree on this issue. Greaney, supra note 20, at 522-23 n.35 (discussing other goals of antitrust law).

146 See supra note 142.

147 Key Enters, of Del., Inc. v. Venice Hosp., 919 F.2d 1550, 1559 (11th Cir. 1990) (involving durable medical equipment (DME) supplier who claimed that defendant competitor “unreasonably restricted competition by channeling patient choice … and by excluding all competing DME vendors’ access to [certain] patients“); accord Advanced Health-Care Serv. v. Radford Community Hosp., 910 F.2d 139 (4th Cir. 1990).

148 Morreim, supra note 10, at 69.

149 If read literally, the Sherman Act would prohibit all contracts, combinations, and conspiracies. Standard Oil Co. v. United States, 221 U.S. 1 (1911). Therefore, the Supreme Court has interpreted it to prohibit only “unreasonable” restraints of trade. Id.

150 15 U.S.C.A. § 1 (West 1973 & Supp. 1993); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1410 (9th Cir. 1991), cert, denied, 112 S. Ct. 617 (1991).

151 Tidemore Oil Co., Inc. v. BP Oil/Gulf Prods. Div., 932 F.2d 1384, 1388 (11th Cir. 1991), cert, denied, 112 S. Ct. 339 (1991); see, e.g., Bhan v. NME Hosps., Inc., 669 F. Supp. 998, 1015 (E.D. Cal. 1987) (“A ‘combination,’ ‘contract,’ or ‘conspiracy’ under the antitrust laws may be defined as concerted action intended to achieve a common goal.“); Michigan State Podiatry Ass'n v. Blue Cross/Blue Shield of Mich., 671 F. Supp. 1139 (E.D.Mich. 1987), reh’g denied, 681 F. Supp. 1239 (E.D. Mich. 1987) (“For antitrust purposes, the terms ‘contract,’ ‘combination,’ and ‘conspiracy’ retain their normal common law connotations.” (citation omitted)).

152 Compare 15 U.S.C.A. § 1 (1973 & West Supp. 1993) (“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States … is declared to be illegal.“) with 15 U.S.C.A. § 2 (West 1973 & Supp. 1993) (“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States … shall be deemed guilty of a felony.“).

153 Stratmore v. Goodbody, 866 F.2d 189, 191-92 (6th Cir. 1989), cert, denied, 490 U.S. 1066 (1989); see also Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984) (noting that section 1 “does not reach conduct that is ‘wholly unilateral’ “); Monsanto Co. v. Spray-rite Serv. Corp., 465 U.S. 752, 761 (1984). Courts judge concerted activity more sternly than unilateral activity because concerted activity “deprives the marketplace of the independent centers of decisionmaking that competition assumes and demands.” Copperweld Corp., 467 U.S. at 768-69.

154 See Coffey v. Healthtrust, Inc., 955 F.2d 1388, 1391 (10th Cir. 1992).

155 Five Smiths, Inc. v. National Football League Players Ass'n, 788 F. Supp. 1042, 1045 (D. Minn. 1992); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1410 (9th Cir. 1991), cert, denied, 112 S. Ct. 617 (1991).

156 Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5 (1958).

157 Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp. 1186, 1190 (W.D.N.C. 1988).

158 See, e.g., Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332 (1982); Todorov v. DCH Healthcare Auth., 921 F.2d 1438 (11th Cir. 1991).

159 See, e.g., Wilk v. American Medical Ass'n, 719 F.2d 207 (7th Cir. 1983). Boycotts are also called concerted refusals to deal. Id. at 220. These restraints may be treated as per se or rule of reason violations depending on whether the boycott always tends to be anticompetitive. See Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1412 (9th Cir. 1991), cert, denied, 112 S. Ct. 617 (1991) (citing Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 298 (1985)).

160 See, e.g., Palmer v. BRG of Ga., Inc., 111 S. Ct. 401 (1990); MLC, Inc. v. North Am. Philips Corp., Inc., 671 F. Supp. 246 (S.D.N.Y. 1987); United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), afd, 175 U.S. 211 (1899).

161 See, e.g., Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984). A seller, with market power in the tying product, uses its market power to force buyers to also purchase the tied product, or at least to refrain from buying the tied product from another supplier. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958) (footnote omitted). Tying arrangements may also be attacked under the rule of reason. Virtual Maintenance, Inc. v. Prime Computer, Inc., 957 F.2d 1318, 1323 (6th Cir. 1992).

162 Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958) (footnote omitted).

163 Northwest Wholesale Stationers, Inc. v. Pacific Stationary & Printing Co., 472 U.S. 284, 289-90 (1985).

164 Cf. Five Smiths, Inc. v. National Football League Players Ass'n, 788 F. Supp. 1042, 1045 (D. Minn. 1992) (noting that the court decides whether to analyze an alleged restraint under per se or rule of reason analysis).

165 See id. at 1055 (citation omitted).

166 United States v. Brown, 936 F.2d 1042, 1045 (9th Cir. 1991). Under the rule of reason, courts should consider

the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.

Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918).

167 See Five Smiths, 788 F. Supp. at 1051. A geographic market can be defined as “the area of the country where a firm can increase its price without attracting additional sellers or lose customers to sellers outside the area.” Kirsch, Todd, Note, Ball Memorial Hospital: Section 2 Sherman Act Analysis in the Alternative Health Care Delivery Market, 14 Am. J.L. & Med. 249, 265 & n.85 (1988)Google Scholar. “A firm with market power has the ability to raise prices while reducing output, thereby acquiring profits that are larger than they would be under competitive conditions.” Id. at 254.

168 See, e.g.. Summit Health, Ltd. v. Pinhas, 111 S. Ct. 1842, 1847 (1991); Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 743 (1976); Mann, Richard A., The Affecting Commerce Test: The Aftermath of McLain, 24 Hous. L. Rev. 849, 851 (1987)Google Scholar. But see McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232 (1980) (holding that defendants’ general business activities must have a nexus with interstate commerce).

Recently, there has been a debate surrounding the interstate commerce requirement. See Calkins, Stephen, The 1990-91 Supreme Court Term and Antitrust: Toward Greater Certainty, 60 Antitrust L.J. 603, 631 (1992)Google Scholar; Donald Flexner, Going Nowhere in Interstate Commerce, Legal Times, June 17, 1991, at 38.

169 Rex Hosp., 425 U.S. at 743 (quoting United States v. Employing Plasterers Ass'n, 347 U.S. 186, 189 (1954)).

170 E.g., Summit Health, 111 S. Ct. at 1847.

171 Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp. 1186, 1218 (W.D.N.C. 1988) (quoting Interface Group, Inc. v. Mass. Port Auth., 816 F.2d 9, 10 (1987) (emphasis added)); accord Town of Concord, Mass. v. Boston Edison Co., 915 F.2d 17, 21-22 (1st Cir. 1990).

172 Morreim, supra note 10, at 71; see SD Collectibles, Inc. v. Plough, Inc., 952 F.2d 211 (8th Cir. 1991).

173 See supra notes 158-61 and accompanying text.

174 See Wilk v. American Medical Ass'n, 719 F.2d 207 (7th Cir. 1983); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1412 (9th Cir. 1991), cert, denied, 112 S. Ct. 617 (1991) (citing Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 298 (1985)).

175 See supra note 161 and accompanying text.

176 Quemos Theatre Co., Inc. v. Warner Bros. Pictures, Inc., 35 F. Supp. 949, 950 (D.N.J. 1940) (citation omitted).

177 See, e.g., Key Enters, of Del., Inc. v. Venice Hosp., 919 F.2d 1550, 1557 (11th Cir. 1990).

178 See GRAY, supra note 2, at 168 (noting that doctors can influence patient decisions); id. at 212 (describing how physicians obtain their patient base).

179 See id. at 207. The following example reveals the extent of doctors’ control over patients. A doctor who used to refer patients to another doctor's radiology office stopped doing so after becoming an investor in an ancillary facility. The self-referring physician told his colleague,

Hearing, supra note 6, at 60 (statement of Michael B. Isikoff, M.D., Staff Radiologist, Parrish Medical Center).

180 See Morreim, supra note 10, at 71.

181 Id. at 69-71.

182 Jefferson Parrish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984); accord Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1411 (9th Cir. 1991), cert, denied, 112 S. Ct. 617 (1991).

183 See supra note 110-11; Hearing, supra note 6, at 61 (statement of Michael B. Isikoff, M.D., Staff Radiologist, Parrish Medical Center) (asserting doctors tell patients who question why procedures cost more at a physician-owned entity or who do not go where the doctor recommends to find themselves another doctor).

184 Morreim, supra note 10, at 71.

185 See Watson v. Sharp Air Freight Servs. Inc., 788 F. Supp. 722, 724 (E.D.N.Y. 1992) (noting that generally “[p]hysicians … are not bound to serve all who seek their services“).

186 Morreim, supra note 10, at 71.

187 15 U.S.C.A. § 15 (West 1973 & Supp. 1993).

188 See Morreim, supra note 10, at 71.

189 Id. at 71-72 (citing example showing that antitrust defendant could lose approximately nine million dollars in one lawsuit).

190 Id. at 72.

191 Id.

192 See discussion supra part I.

193 Morreim, E. Haavi, Conflicts of Interest: Profits and Problems in Physician Referrals, 262 JAMA 390, 391 (1989)Google Scholar.

194 Morreim, supra note 10, at 72.

195 Id.