Stark Laws (Physician Self-Referral)

The Stark Amendment to Omnibus Budget Reconciliation Act of 1989 and its various amendments and administrative rules/regulations is the federal government’s system to prevent physicians from referring patients to entities in which they have a financial interest. The Stark Amendment had a three phase implementation – Stark I, II and III.

Stark I originally only applied to physicians and their family members and prohibited self-referrals to clinical laboratories in which the physician had a financial interest. Stark II amended the act in 1993 and greatly expanded covered entities beyond physicians and clinical laboratories. Generally, a physician is prohibited from making any referral to a person or entity in which the physician has a financial interest. This is generally referred to as physician self-referral. The proponents of Stark argue such arrangements may encourage over-utilization of services, in turn driving up health care costs. In addition, they believe it would create a captive referral system, which limits competition by other providers. Those in favor of relaxing Stark requirements argue that physicians who own, invest in or operate medical facilities are responding to a need for medical services which would otherwise not be met, particularly in medically under-served areas. In addition, it is often the case that physician-owned entities present a lower-cost alternative to the facilities which are located at hospitals. This is due mostly to higher overhead costs that hospitals must pass down to their services.

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(CMS) Center For Medicare & Medicaid Services

The Center for Medicare and Medicaid Services (CMS) is responsible for implementing the vast array of Stark regulations and statutes. In response, they continue to extend Stark’s reach by implementing regulations which greatly expand the definition of “financial interest.” Currently, a financial interest involves just about anything that results in a financial benefit to the referring physician. This could include ownership, investment, gifts, freebies, financial incentives, reduced rent, reduced fees, structured compensation arrangements, unfair compensation schemes, etc.

Stark Law Exceptions

There are certain exceptions to Stark. For example, if the physician personally provides the services or is an employee of a medical group that provides the service, there may be no liability. This allows for multidisciplinary practices as long as the physician meets the definition of “physician in the group practice.” There are also exceptions for in-office ancillary services; however, if the arrangement is not structured as a block lease, it may not qualify for the space and equipment lease exception. Additionally, there are Safe Harbor Regulations that make exceptions for investments in large publicly traded entities, rural physician practices, etc. There are also a host of other exceptions which allow for rental of office space, employment and service arrangements with hospitals and certain other service arrangements. These arrangements must be at arms-length and at fair market value. The determination of whether or not your particular situations falls into one of these exceptions is a very complicated analysis and requires complete operational and financial disclosure. The risks of making an incorrect determination can be devastating.

Penalties for Stark Violations

Penalties include:

    • Denial of payment for the designated health service (DHS) provided
    • Refund of monies received by physicians and facilities for amounts collected
    • Payment of civil penalties of up to $15,000 for each service that a person “knows or should know” was provided in violation of the Stark law and three times the amount of improper payment the entity received from the Medicare program
    • Exclusion from the Medicare program and/or state health care programs including Medicaid
    • Payment of civil penalties for attempting to circumvent the Stark law of up to $100,000 for each circumvention scheme

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