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The Stark Truth About the Stark Law

The “Stark Law” is one of many federal laws the federal government uses to combat health care fraud and abuse. Also known as the physician self-referral law, it specifically relates to physician referrals involving designated health services (DHS) paid for by Medicare and Medicaid. Due to its complexity and the fact that it is one of many anti-fraud and abuse laws in a confusing regulatory landscape, health care providers and physicians often find it difficult to understand what is and is not prohibited under the law, the penalties they face for violations, and the steps they can take to ensure regulatory compliance.

As a firm that has cultivated a national reputation for our health and medical law practice, and work representing a range of physicians and providers throughout Texas and the U.S., our team at Hendershot, Cannon & Hisey, P.C. knows the importance of ensuring clients understand the Stark Law. Below, we discuss the stark truth about this important federal statute.

What does the Stark Law Prohibit?

The Stark Law explicitly prohibits DHS referrals to any entity with which a provider has a “financial relationship.” The statute’s definition of what constitutes a “financial relationship” is broad, which means providers should carefully evaluate any and all relationships they have with other providers and health care entities to ensure they do not constitute a prohibited arrangement, or to ensure they meet any of the nearly two dozen detailed and complex “exceptions” provided for in the statute.

Who is subject to the Stark Law?

As a federal statute, the Stark Law applies only to medical providers who treat and refer Medicaid and Medicare patients for specific services deemed designated health services (DHS). These DHS, like the prohibited “financial relationships” are broad in scope, can include a range of specific services, from clinical lab services, physical therapy, and radiation to radiology services, medical devices, and outpatient prescription drugs. When conducting evaluations as to whether or not the Stark Law applies to any particular arrangement, it is important to ask three essential questions:

  • Does the arrangement involve Medicare or Medicaid patient referrals by a physician, Federal funds, or any of the physician’s immediate family members?
  • Is the referral for a service deemed a designated health service (DHS)?
  • Is there any type of financial relationship between the referring doctor (or their immediate family member) and the entity involved?

What are the exceptions?

The Stark Law allows for close to 20 distinct “exceptions,” or safe harbors. Even with these exceptions, there remains many questions about what those safeguards ultimately consist of, and what is and what is not allowed when it comes to referring Medicare and Medicaid patients.

In general, Stark Law exceptions can apply to many different types of physician referrals, including referrals:

  • Made to other physicians in a medical group;
  • For in-office ancillary services
  • Within pre-paid health plans
  • To entities in which the physician is invested (i.e. publicly traded entities, rural providers, and a hospital itself)

Statutory exceptions may also apply to financial relationships that involve:

  • Office space and equipment rental
  • Bona-fide employment
  • Arrangements for personal services
  • Recruitment of doctors

What are some important terms used in the statute?

Determining whether the Stark Law applies to any referral, and determining if arrangements meet statutory exceptions, requires a solid understanding of the terms used in the statute. Some of these important terms include:

  • Referral – As defined by the law, a referral is any request made by a physician for an item, good, or service, a consultation and the resulting ordered serves, and a prescription for a treatment course using designated health services. Referrals within a physical group are also subject to the statute.
  • Designated health services – As the Stark Law applies only to DHS, it is important to understand what services implicate the statute. These can include many ancillary services provided by physicians, including radiology services (x-rays, MRI, etc.), outpatient drugs, occupational or physical therapy, and clinical lab services. DHS may also include, among others, inpatient or outpatient hospital services, radiation, orthotics, home health services, medical equipment and supplies, and more.
  • Fair market value – Many exceptions under the Stark Law require financial relationships to reflect “fair market value.” FMV is established by referring to other prices for similar services within the community, and must also be consistent with general market value, or the value of a particular asset derived through competitive bargaining. FMV compensation must also be established in writing for specified services or items, set in advance, signed by both parties,, and commercially reasonable, among other requirements.
  • Volume or value of referrals – A number of Stark exceptions also require any remuneration or compensation in a financial relationship to not take volume or value of referrals into account. This typically means ensuring contracts explicitly state the purpose of compensation and address all relevant matters for compliance.

What constitutes a group practice?

The term “group practice” as it relates to the Stark law is an important term, as a practice must meet the statutory definition of a “group practice” in order to qualify for a number of exceptions, including those involving referrals to other group physicians, and in-office ancillary services. Per the statute, there are few important criteria for being considered a group practice:

  • The practice involves at least 2 or more physicians legally organization in a partnership, foundation, non-profit, professional corporation, or a similar association.
  • Each physician member (including employees, partners, and shareholders but not physicians who are independent contractors, must substantially deliver their typical range of services in the group practice and through the shared (joint) use of shared personnel, equipment, facilities, and office space.
  • The group practice must function as a “unified business”
  • Physician members must provide a substantial amount of services through the group and billed under a billing number assigned to it. Any amount received should also be treated as part of the group’s receipts.
  • Overhead expenses and income must be distributed through pre-establish means before payment is received.
  • For all physician group members, with the exception of independent contractors, an average 75% of their work must be dedicated to the group.

How does the Stark Law relate to the Anti-Kickback Statute and other laws?

The Stark Law is just one statute used by the federal government to police health care fraud and abuse.
Others, including the Anti-Kickback Statute and False Claims Act, are also important tools for enforcement. While they are commonly misunderstood to be one single law, the fact is that these are separate laws distinct from one another. For example:

  • Stark applies only to physician referrals. The AKS is much broader, and can apply to anyone who engages in business with federally operated health care entities.
  • Unlike the AKS, there is no intent requirement when determining whether a financial relationship violates the Stark Law, even if it is done accidentally or with good intentions.
  • Exceptions under the Stark Law define what is permissible, and compliance can only be ensured when all requirements of an exception are met. Safe harbors under the AKS, on the other hand, define transactions that may induce referrals but don’t necessarily constitute a violation. These safe harbors clearly state transaction that don’t fit within the scope of a safe harbor don’t necessarily violate the law.
  • Penalties for a violation are much different. Whereas the Stark Law imposes civil monetary fines, the AKS can be punishable by substantial civil fines, provider exclusion, and even criminal penalties.
  • It is important to note that whenever the Stark Law applies, so will the AKS.

What are the penalties for a Stark violation?

Violating the Stark Law subjects providers to considerable penalties, regardless of intent. Even if services were medically necessary and no harm was intended, a physicians can still be held legally and financially liable for Stark Law violations, as well as subject to penalties such as:

  • Denial of payment
  • Refund for certain claims
  • $15,000 civil monetary penalty for each violation
  • $100,000 civil monetary penalty for circumvention schemes (i.e. cross-referral arrangement)

Ensuring Compliance, Taking Action Following Violations

If there is any unvarnished truth to sum up the Stark Law, it is that it compounds issues of complex regulations and a fast-paced health care environment – making it critical that physicians carefully evaluate any and all of their arrangements and ensure compliance based on their individual situations. Given the penalties that accompany violations, it also becomes critical to take immediate and decisive action to reach resolutions as swiftly and successfully as possible.

At Hendershot, Cannon & Hisey, P.C., we put over 130 years of collective legal experience to work for our clients, and can provide the proactive counsel and responsive representation to deal with all issues involving the Stark Law and other health care regulations. To discuss your needs and learn more about our legal services, please call (713) 909-7323 or contact us online. We proudly serve all types of providers throughout Texas and beyond.

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