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How Does the Stark Law Regulate Physician Self-Referrals?

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physician self-referrals

In 1989, Congress passed the Stark Law as a response to concerns about physicians referring patients to laboratories in which the physician had a financial interest. Since then, the law has expanded to include other designated health services (DHS) and government-funded medical programs.

The Stark Law, named after its congressional sponsor, was designed to cut down on health care fraud and limit the type of business relationships a physician can enter. It is also known as the physician self-referral law. Essentially, the law:

  • Prohibits a physician from making referrals of Medicare or Medicaid patients for certain designated health services (DHS) to entities in which the physician or their family member has an ownership, investment, or compensation interest, unless an exception applies.
  • Prohibits a physician from presenting or causing to be presented claims to Medicare or Medicaid, or billing another individual, entity, or third-party payer, for those referred services.
  • Establishes specific exceptions and allows the creation of additional exceptions that do not pose a risk of abuse.

A referral is when a physician requests, orders, or certifies the necessity for a designated health service. For the purposes of the Stark Law, the term physician refers to a:

  • Doctor of medicine or osteopathy
  • Doctor of podiatric medicine
  • Chiropractor
  • Doctor of dental surgery or dental medicine
  • Doctor of optometry

Three essential questions can help determine whether the Stark Law applies in each situation:

  • Is the referral for a designated health service?
  • Are the services payable by Medicare or Medicaid?
  • Does the physician or their immediate family member have a direct or indirect financial interest in the referral?

If the answer to these questions is yes and there is no legal exception, the Stark Law applies.

What are Designated Health Services (DHS) under the Stark Law?

Stark Law applies to referrals for the following services. This is not an exhaustive list:

  • Inpatient and outpatient hospital services
  • Clinical laboratory services
  • Physical therapy services
  • Occupational therapy services
  • Outpatient speech-language pathology services
  • Radiology and certain other imaging services
  • Radiation therapy services and supplies
  • Durable medical equipment (DME) and supplies
  • Parenteral and enteral nutrients, equipment, and supplies
  • Prosthetics, orthotics, and prosthetic devices and supplies
  • Home health services
  • Outpatient prescription drugs

What are Exceptions under the Stark Law?

The Stark Law defines financial relationships as ownership/investment interests and compensation arrangements between a physician or a member of the physician’s immediate family and an entity that furnishes designated health services. These financial relationships can be either direct or indirect.

Understanding these arrangements is crucial because they help define whether the physician or entity qualifies for an exception to the Stark Law. Exceptions generally fall under one of three categories, shown below. Consult with a lawyer for specific information on these exceptions, as they are complex.

Ownership and compensation arrangement exceptions

  • In-office ancillary services exception
  • Services furnished by an organization or its contractors or subcontractors to enrollees exception
  • Academic medical center exception
  • Implants furnished by an ambulatory surgical center (ASC) exception
  • Erythropoietin (EPO) and other dialysis-related drugs exception
  • Preventative screening tests, immunizations, and vaccines exception
  • Intra-family rural referrals exception

Ownership arrangement exceptions

  • Publicly traded companies exception
  • Publicly traded securities exception
  • Mutual funds exception
  • Rural providers exception
  • Hospital ownership exception

Compensation relationship exceptions

  • Rental of office space exception
  • Equipment rental lease exception
  • Bona fide employment relationships exception
  • Personal service arrangements exception
  • Physician recruitment and retention
  • Isolated transactions exception
  • Charitable donations by a physician
  • Nonmonetary compensation up to $300 in value
  • Fair-market-value compensation exception
  • Medical staff incidental benefits
  • Risk-sharing arrangements
  • Compliance training
  • Community-wide health information systems
  • Electronic prescribing items and services

An experienced lawyer can help interpret the law and exceptions for your situation.

What are Penalties for Violating Stark Law?

The Stark Law is a strict liability statute. This means that specific intent to violate is not required for someone to be found guilty of violating the Stark Law, even if it was unintentional. Consult a lawyer if you believe there may be a Stark Law violation.

Physicians and entities must comply with Stark Law. When they do not, penalties and sanctions can result and include the following:

Denial of payment. Medicare is prohibited from paying for designated health services that are furnished under a prohibited referral.

Refund of payment. Any entity that collects payment for a designated health service furnished pursuant to a prohibited referral must refund all collected amounts promptly.

Exclusion from federal health care programs. Physicians and entities that violate the Stark Law can be excluded from participating in the Medicare and Medicaid programs.

Monetary penalties. Violators could incur civil penalties up to $15,000 for each illegal referral, a fine of up to $100,000 for each unlawful cross-referral arrangement, and civil penalties up to $10,000 per day for failing to report violations.

What if I May Have Inadvertently Violated Stark Law?

If you as a physician or your company as an entity is unsure if a business relationship or arraignment violates Stark Law, consult with a lawyer who is knowledgeable of physician employment. Many exceptions could apply, and an experienced lawyer can explore them for you.

If you have been accused of or charged with violating the law, consult with a lawyer as soon as possible. There can be many negative implications on your finances, career, and reputation; the sooner you can clear up any issues, the better.

In many cases, a physician or entity does not even realize they have or may have violated the Stark Law, as it was not done intentionally. That does not matter; the sanctions and penalties are the same whether the violation was inadvertent or not. Again, consult a lawyer to understand your options.

Philadelphia Physician Lawyers at Sidney L. Gold & Associates, P.C. Know Physician Referral Law

Physician law, particularly the Stark Law, can be convoluted and complex. Let the knowledgeable Philadelphia physician lawyers at Sidney L. Gold & Associates, P.C. work on your behalf. Whether it is a question about a financial relationship you have as a physician or medical entity or an accusation of Stark Law violation, we are on your side. Contact us online or call us at 215-569-1999 for a free consultation. Located in Philadelphia, we serve clients throughout Wilkes-Barre, Scranton, Northeast Philadelphia, Bucks County, Chester County, Delaware County, and Montgomery County.

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