Stark Law Exceptions Explained

A physician examining a patient

The Stark Law, or physician self-referral law, prohibits physician referrals involving designated health services (DHS) paid by Medicare and Medicaid to another healthcare entity with which they or any of their immediate relatives have a “financial relationship,” defined broadly as any compensation arrangement, or ownership / investment interest.

Referrals that violate this prohibition, even if they are accidental violations, can result in significant penalties, including up to $15,000 in fines per billed service from a prohibited referral, and three times the amount of overpayment. Violations investigators deem intentional could result in further penalties, including provider exclusion.

Given the substantial penalties of Stark violations, it is important for health care professionals involved in any DHS referral to ensure regulatory compliance before entering into transactions and relationships. This means evaluating contracts, services, and billing practices to ensure they do not violate the Stark Law, or that they fit within certain exceptions.

General Conditions for Stark Law Exceptions

Although it is designed to combat fraud, waste, and abuse in the federal health care system, the Stark Law does provide a number of exceptions to ensure patient care is not compromised. While there are specific conditions inherent to each exception, there are also some general conditions required of many exceptions, including:

  • Meeting all requirements. In total, there are over 30 Stark exceptions, with each exception containing multiple provisions. In order to avoid liability, providers must ensure that any referral and relationship meet all requirements of an exception as defined by the law. Exceptions also vary depending on whether relationships are compensation arrangements (involving remuneration of anything of value) or an investment / ownership interest.
  • Written agreements. Stark exceptions almost uniformly require written agreements between referring physicians and providers. This includes some of the most commonly used exceptions, such as office space or equipment leases, group practice arrangements, fair market value compensation, personal service arrangement, and physician recruitment. Even if all conditions of an exception are met, not having a written agreement will constitute a violation, except in the single case of bona fide employment.
  • Value or volume of referrals. Many physicians and medical practices find themselves under investigation for Stark violations when compensation is based on volume or value of a physician’s referrals. This is explicitly prohibited by the Stark Law, and is a hallmark requirement in many exceptions that apply to compensation arrangements.
  • Commercially reasonable. Many Stark exceptions require payment to be “commercially reasonable” even when referrals are made between physician and healthcare entity. Under Stark, payment and services must both be commercially reasonable. Examples of situations that wouldn’t be considered commercially reasonable include renting equipment full-time when it is used only once a month, having two medical directors over a department that only requires one, and paying physicians for questionable consulting services. For real estate to be commercially reasonable, it should generate a reasonable rate of return.
  • Group practice. To qualify for several Stark exceptions, including physician and in-office ancillary services, a medical practice must meet all elements of the statutory definition of group practice. This includes requirements regarding the structure of a group (partnership, corporation, foundation, etc.), DHS, and other services provided through joint use of shared space, equipment, personnel, and more.

Common Stark Law Exceptions

The unique facts and circumstances of compensation, services, and relationships will ultimately determine which of the many exceptions may apply in a given situation. However, there are a number of commonly used exceptions used by physicians and providers to ensure they are not subject to violations. Some of these include:

  • In-Office Ancillary Services. Physicians and medical practices frequently rely on the in-office ancillary services exception to allow for certain DHS referrals within their own practice. The exception generally allows medical practices to provide outpatient prescription drugs, clinical laboratory services, radiology, and other DHS without violating the law. For the exception to apply, the practice must qualify as a bona fide “group practice” and satisfy performance, location, and billing requirements.
  • Physician Services. This exception applies to physician-to-physician referrals for services provided personally by or under the supervision of a physician “in the same group practice.” The physician does not have to be a member, and contractor physicians may qualify under certain circumstances. Compensation paid under the personal service arrangement is not prohibited if it meets all requirements, including written and signed agreements covering all services, for a term of at least one year, among others.
  • Bona Fide Employment. The bona fide employment exception applies to compensation arrangements, such as compensation and benefits a hospital provides to a physician employee. Requirements include employment for identifiable services, compensation that is consistent with fair market value, reasonable, not based on referral volume or value, and provided according to an agreement that would be commercially reasonable even if a physician made no referrals to the employer. Bonuses for productivity are permitted if they are based on services personally performed by the physician.
  • Fair Market Value. This Stark Law allows for fair market value compensation when an arrangement is made in writing, specifies the time frame and the remuneration provided, involves a transaction that is commercially reasonable, and meets “safe harbor” requirements under the Anti-Kickback Statute.
  • Indirect Compensation. Indirect compensation arrangements between a doctor and health care entity are permitted under the indirect compensation exception if remuneration is of fair market value, does not take referral volume or value into account, and is established in writing and signed by the parties.
  • Non-Monetary Compensation. Non-monetary compensation to a physician is permitted if it does not exceed $300 annually, does not take referral volume or value into account, and is not solicited by the physician.
  • Space or Equipment Leases. Physicians who wish to share space or equipment, personnel, items, supplies, or services with colleagues can use the leases for space or equipment exception, provided they satisfy nine specific requirements
  • Intra-Family Rural Referral. This exception is intended to protect patients living in rural areas with few health care options. Physicians are allowed to refer patients if there is no other provider who can furnish needed services within 25 miles or 45 minutes (dependent on distance and factors such as weather and speed limits) of the patient’s home.

These are only a few of the many Stark exceptions. Our legal team can help you better understand which exceptions are most applicable to your situation, and help you implement needed changes to ensure compliance.

Questions About Stark Law Exceptions? Contact Hendershot Cowart P.C.

Due to the scope and complexity of the Stark Law, as well as issues involving other federal healthcare laws like the Anti-Kickback Statute, ensuring regulatory compliance demands the help of proven and experienced attorneys who take a comprehensive approach to help you structure relationships and arrangements within the law. As healthcare and business lawyers with over 150 years of combined experience, our legal team at Hendershot Cowart, P.C. has the depth of knowledge to help providers throughout Texas and the nation proactively navigate Stark exceptions to avoid liability, and provide the immediate representation needed if providers already face investigations or violations.

To learn more about our services, call (713) 909-7323 or contact us online.

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