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How Physicians Accidentally Violate the Stark Law

Since taking effect in 1992, the Stark Law has been increasingly used as a tool for combatting federal government health care fraud and abuse. The Stark Law, also known as the physician self-referral law, places limitations on physician referrals involving designated health services (DHS) paid by Medicare and Medicaid. Specifically, it prohibits physicians from referring patients to any health care entity with which they have a “financial relationship,” which is broadly defined as:

  • Any direct or indirect investment, compensation, or ownership interest of the referring physician; and
  • Any financial interest held by immediate family members of the referring physician.

Although the Stark Law is not a criminal statute like the Anti-Kickback Statute, the government can still take civil legal action against providers who are subject to Stark Law violations. Often times health care professionals stumble across Stark Law requirements by accident, during routine compliance audits, without even knowing a possible violation occurred. Because the Stark Law is a strict liability statute, the government does not have to prove a physician’s specific intent to violate the law. Therefore, physicians who make prohibited referrals even accidentally or unknowingly can still be subject to civil monetary penalties - which can include $15,000 for each prohibited billed service and three times the amount of the government overpayment.

How physicians accidentally violate the Stark law can involve a number of issues, including:

  • Poorly structured deals involving health care businesses (designated health services)
  • Alternative payment models which link physician payments to volume or value of payment referrals (i.e. pay-for-performance, gainsharing, etc.)
  • Untracked compensation arrangements (monetary and non-monetary)
  • Technical violations or noncompliance, including documentation issues
  • Forgetting to sign a contact or allowing a contract to expire without renewal
  • Accidentally omitting elements of a legal exception from agreements
  • Failure to conduct business in accordance with the written agreement

Physicians who are found to have knowingly and intentionally violated the Stark Law may be subject to even greater penalties such as debarment or exclusion from participation in Medicare, Medicaid, and other federal health benefit programs.

Preventative and Responsive Legal Counsel for Stark Violations

If you are contemplating entering any transaction involving Designated Health Services, avoiding violations and penalties is best achieved through experienced legal counsel. The health law team at Hendershot, Cannon & Hisey has decades of experience advising and representing health-care professionals on regulatory compliance, transactional relationships governed by the Stark Law and Anti-Kickback Statue, and the defense against any healthcare fraud investigation.

Our law firm can help with:

  • Preventative Measures – Our firm provides pro-active counsel to health care providers and physicians to ensure their contractual relationships, transactions, investment proposals, and procedures do not violate self-referral prohibitions, and fit within legal exceptions. We also work with clients to identify possible violations through internal compliance reviews, when handling audits, or during diligence pursuant to a merger and acquisition, and can help refine agreements and establish sound billing and self-auditing practices to identify / refund overpayments and avoid liability. Comprehensive legal advice is key for physicians and employers of physicians.
  • Exceptions – When federal funds are involved, any referral for Designated Health Services to an entity with which there is a financial relationship may be made only if the relationship meets exceptions to referral prohibitions. These exceptions may involve joint ventures in rural areas, office ancillary services or compensation formulas, financial relationships with hospitals, physician employment agreements, certain personal service agreements and other types of complex exceptions. Because structuring and maintaining contracts consistent with a regulatory exception is imperative to reducing exposure, we take a comprehensive approach to address all regulatory issues (including having signed, written, and current contracts, specifying services and compensation consistent with fair market value set in advance, avoiding referral-based payment, and agreements that are commercially reasonable) to ensure they meet legal requirements. We also focus on these key elements when working to prove to the government that an arrangement fits within an exception.
  • Responsive Representation – If violations have already occurred or investigations have been initiated, immediate representation is critical to avoiding and mitigating exposure to penalties. Aside from reporting and repaying overpayments within 60 days, which also eliminates exposure to FCA violations, physicians can work with our firm to appropriately respond to audits and investigations. This may involve efforts to dismiss civil legal action when financial relationships fit within one or more exceptions, or working to negotiate a settlement with the government. Appropriate handling of these cases requires extensive knowledge of the Stark law, meticulous review and preparation, and insight into how government regulators operate.

Contact Hendershot, Cannon & Hisey, P.C today to learn more about preventative ways to protect yourself or your practice from potential Stark law violations, or the best course of action if an investigation has been initiated.

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