BLOG: Health care regulatory 101: What is the Stark Law, and why is it the worst?
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Key takeaways:
- A medical practice may discover an unknown Stark Law violation during a merger or acquisition.
- Medical practices must resolve past or ongoing violations with CMS and ensure compliance going forward.
The federal Physician Self-Referral Law — aka the Stark Law — is a federal statute designed to curb unnecessary utilization of certain health care services.
The law restricts the circumstances under which a physician is allowed to refer or order these health care services, called designated health services or DHS, and benefit financially from those referrals.
Under this complex law, if a physician (or a member of the physician’s immediate family) has a financial relationship with a facility or provider (eg, a physician practice) that provides or submits claims to Medicare for DHS, the physician is prohibited from making a referral to that facility or provider for DHS, and the recipient of the referral is prohibited from receiving payment for the referred service, unless every requirement of an applicable exception is satisfied.
To whom does the Stark Law apply?
The Stark Law applies only to referrals made by physicians. Under the law, “physicians” are defined to include doctors of medicine, doctors of osteopathy, dentists (including both DDS and DMD), podiatrists, optometrists and chiropractors. However, the CMS has made clear that referrals by advanced practice providers (eg, PAs and NPs) can trigger the law if a physician controls their referrals. In other words, a PA or NP cannot be used by a physician to circumvent the prohibition.
What is DHS?
The Stark Law is limited to referrals of designated health services (DHS). Designated health services include:
- clinical laboratory services;
- physical therapy, occupational therapy and outpatient speech-language pathology services;
- radiology and certain other imaging services;
- radiation therapy services and supplies;
- durable medical equipment and supplies;
- parenteral and enteral nutrients, equipment and supplies;
- prosthetics, orthotics, and prosthetic devices and supplies;
- home health services;
- outpatient prescription drugs; and
- inpatient and outpatient hospital services.
What is considered a financial relationship?
A financial relationship can be an investment or ownership interest or a compensation relationship. A financial relationship may be direct or indirect. Examples of common relationships that implicate the Stark Law include:
- physician ownership of a group practice or a facility, such as a hospital, independent diagnostic testing facility or clinical laboratory;
- physician employment arrangements;
- independent contractor arrangements with physicians who may order or furnish DHS;
- rental of office space or equipment when the office space or equipment is owned by a physician or an entity furnishing DHS;
- free meals, in-service education, or free or discounted parking for hospital medical staff;
- meals, holiday gifts or other perks provided to physicians or entities furnishing DHS; and
- physician recruitment payments.
The Stark Law allows exceptions for most of these arrangements, provided that all requirements of the applicable exception are met.
What is a referral?
Importantly, the Stark Law impacts only referrals of DHS. Any item or service that is personally performed or provided by the referring physician himself or herself does not constitute a “referral.” For example, an obstetrician might choose to personally perform an ultrasound rather than ordering the test for a tech to perform. That ultrasound would not be considered a referral. Physicians in many practices also will personally perform the professional component of many services — reading and interpreting imaging studies, for example, or administering an injectable drug. However, physicians in nearly all practices will sometimes make referrals within the physician’s own practice for a portion of certain DHS (such as when the ultrasound tech performs an ultrasound to later be read and interpreted by the obstetrician), thereby implicating the Stark Law’s prohibition. A diagnostic test performed by someone other than the physician is not considered personally performed by the physician even though the physician performs the professional component and the practice bills globally for the service.
Why is the Stark Law the worst?
Unlike many other fraud and abuse laws, the Stark Law is a “strict liability” statute. That means that any violation can result in an overpayment to Medicare and, potentially, could serve as the foundation for civil monetary penalties or liability under the False Claims Act, even if the violation is immaterial or accidental. In addition, the law is complex and often difficult to understand and apply to real-world circumstances without assistance from experienced legal counsel. As a result, it is not at all unusual for a medical practice to discover an unknown Stark Law violation as part of the diligence process during a potential merger or acquisition, and seasoned buyers are accustomed to seeing Stark Law violations. It is important for medical practices to resolve past or ongoing Stark Law violations with CMS appropriately and to ensure compliance going forward.
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