The Stark Law, officially codified at 42 U.S. Code § 1395nn, is a set of federal regulations designed to prevent healthcare fraud and abuse within the Medicare and Medicaid programs.
Also known as the Physician Self-Referral Law, it prohibits physicians from referring patients for "designated health services" (DHS) to entities with which the physician or an immediate family member has a financial relationship.
The Stark Law is a regulation found in Section 1877 of the Social Security Act. Understanding this complex law is critical for physicians and healthcare providers to ensure compliance and avoid significant penalties.
A financial relationship under the Stark Law can be an ownership or investment interest in the entity or a compensation arrangement.
The law is a strict liability statute, meaning a physician's intent to violate it is irrelevant. If a prohibited referral is made, the law has been broken, and you can be penalized.
Key Takeaways
- Physicians should be aware that the Stark Law forbids referring patients for specific "designated health services" (DHS) to a provider with whom they or an immediate family member has a financial interest.
- This law applies to Medicare and, indirectly, to Medicaid, but there are numerous exceptions exist under the Stark Law.
- It is crucial to understand financial relationships such as ownership, investment, and compensation arrangements, as violations can lead to fines, exclusion from federal programs, and the requirement to refund improper payments.
- Make sure all compensation agreements are documented in writing, signed by both parties, and comply with legal standards, including being commercially reasonable and not based on referral volume.
- If a physician makes a prohibited referral, they cannot bill for DHS provided as a result, and the entity cannot bill for those services either.
- Physicians should know about any ownership, investment, or compensation arrangements you or your immediate family members have with organizations that provide DHS.
- The ban applies to both the referring doctor and the receiving entity. All healthcare team members must be aware of the law and raise concerns if they suspect violations.
- A related law, California Business and Professions Code 650, known as the anti-kickback law, bans healthcare providers from offering or accepting any rebate, refund, or "thing of value" as compensation for referring patients or clients.
Main Points of Compliance
The core of the Stark Law is its general prohibition on self-referrals for designated health services paid for by Medicare or Medicaid. The list of DHS is extensive and includes:
- Clinical laboratory services
- Physical and occupational therapy services
- Radiology services (including MRI, CT scans, and ultrasound)
- Durable medical equipment and supplies
- Home health services
- Outpatient prescription drugs
- Inpatient and outpatient hospital services
Medical professionals who are considered physicians bound by the Stark Law include, but are not limited to:
- Medical doctors
- Dentists
- Optometrists
- Chiropractors
- Surgeons, including dental
What are the Exceptions?
Navigating compliance requires a thorough understanding of the law's numerous exceptions. The statute provides several "safe harbors" that permit certain financial relationships that might otherwise be prohibited.
For a financial arrangement to be permissible, it must fit squarely within one of these exceptions. Key exceptions to the Stark Law include the following:
- Bona Fide Employment Relationships: Remuneration paid to a physician who is a bona fide employee is permissible if the employment is for identifiable services, the compensation is consistent with fair market value, and the volume or value of referrals does not determine the amount.
- Rental of Office Space: Payments for the lease of office space are allowed if the lease agreement is in writing, has a term of at least one year, and specifies the premises. The rental charges must be set in advance, consistent with fair market value, and not take into account the volume of referrals between the parties.
- In-Office Ancillary Services: This exception allows physicians to refer patients for certain services, such as lab work or imaging, that are provided within their own practice. Specific requirements regarding the location and billing of these services must be met for the exception to apply.
Compensation arrangements must reflect fair market value, defined as the value in arm's-length transactions, consistent with general market value. Any arrangement that appears to be a referral reward could be scrutinized as a potential violation.
Preparing for Audits and Investigations
Federal agencies, including the Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS), actively audit and investigate potential violations of the Stark Law. Data analysis, whistleblower complaints, or routine audits can trigger an investigation. Preparation is key to successfully navigating this process.
To prepare for audits and investigations, healthcare providers should take the following practical steps:
- Maintain Detailed Records: Keep comprehensive records of all ownership, investment, and compensation arrangements between physicians and DHS entities.
- Formalize All Agreements: Ensure all financial relationships are documented in clear, written agreements that outline the specific terms of the arrangement.
- Ensure Fair Market Value: All compensation must reflect fair market value and be commercially reasonable, independent of the volume or value of referrals.
- Periodic Legal Review: Have legal counsel periodically review all agreements to confirm they remain compliant with the Stark Law and fit within a recognized exception.
If an actual or potential violation is discovered internally, providers can use the Self-Referral Disclosure Protocol (SRDP). Established by the Secretary of HHS, the SRDP allows providers to voluntarily disclose breaches to CMS. While disclosure does not guarantee immunity, it may lead to reduced penalties compared to those imposed following a government-led investigation.
Penalties for Violations
Violating the Stark Law can have a lasting impact on a physician's career and a provider's operations. The penalties include:
- Denial of Payment: Claims submitted in violation of the Stark Law will be denied payment.
- Refund of Payments: Providers must refund any amounts collected for improperly referred services.
- Civil Monetary Penalties (CMPs): A penalty of up to $15,000 may be imposed for each service that a person knows or should know was provided in violation of the law.
- Penalties for Circumvention Schemes: Any physician or entity that enters into a scheme, such as a cross-referral arrangement, to circumvent the law faces a civil monetary penalty of up to $100,000.
- Exclusion from Federal Healthcare Programs: Violators may be excluded from participation in Medicare, Medicaid, and other federal healthcare programs, which can effectively end a provider's ability to operate.
Given the strict liability nature of the law and the complexity of its exceptions, proactive compliance is the only reliable defense. Physicians and healthcare executives must prioritize understanding their financial arrangements and ensuring they align with the Stark Law's requirements.
For more information, contact our federal criminal defense law firm, Eisner Gorin LLP in Los Angeles, CA.
