Can Physicians Self-Refer Patients to a Company in Which the Physician Has a Financial Interest?

Physician paying an attorney a small amount of money representing how legal representation can benefit in self referral & stark law.

Although There Are Exceptions, Stark Laws Prohibit Patient Self-Referral — and the Financial and Professional Penalties for Doing So Are Hefty

In general, a doctor — whether a chiropractor, dentist, pain management specialist, or uninsured/allied healthcare provider — is prohibited from making any referral to a person or entity that bills Medicare or Medicaid programs, and with which the physician has a financial interest.

This is referred to as physician self-referral, which is what the federal Stark Laws are aimed at preventing.

The penalties for violating Stark Laws are steep. They include:

  • Civil monetary penalties 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.
  • Payment of civil penalties for attempting to circumvent the Stark Law of up to $100,000 for each circumvention scheme.
  • Exclusion from the Medicare program and/or state health care programs including Medicaid, as well as placement OIG Exclusion List.
  • Payment recoupment to Medicare, Medicaid and/or commercial insurers.
  • Denial of payment for the designated health service (DHS) provided.

CMS reports in its 2019 list of self-referral disclosure protocol settlements that 17 disclosures led to more than $1 million in total settlements, with each settlement ranging as high as $280,000.

What Are the Stark Laws?

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 with which they have a financial relationship. 

The theory is, financial conflicts of interest can affect sound medical judgment and/or lead to overutilization of medical services.

Stark Law analysis asks the question: Does the arrangement involve a physician referring patients to an entity for the furnishing of designated health services for which the Medicare or Medicaid programs would otherwise pay?

Stark Laws fall under a civil statute — not criminal — and only cover physician relationships. It does not require for the government to prove that the physician intended to violate the law.

What Constitutes a ‘Financial Relationship’?

A financial relationship means either an ownership or investment interest or a compensation arrangement between the referring physician and the healthcare provider.

  • Ownership or Investment Interest: This includes any kind of equity or debt arrangement.
  • Compensation Arrangement: This means any arrangement involving any remuneration, direct or indirect, between the referring physician and the healthcare provider.

Are There Exceptions to Stark Laws?

Yes, certain exceptions can apply to Stark Laws. For example, if the physician personally provides the services, or if he/she is an employee of a medical group that provides the service, there may be no liability. This allows for multidisciplinary practices, so long as the physician meets the definition of “physician in the group practice.”

Other Stark exceptions include:

  • Rental of office space and/or equipment
  • Bona fide employment
  • Personal services arrangements
  • Physician recruitment
  • Isolated transaction
  • Group practice arrangements
  • Charitable donations
  • Nonmonetary compensation.

Is There a Way to Determine Whether Stark Laws Apply to a Particular Arrangement?

There are certain questions a physician or medical services company must answer in order to know if there may be an issue under Stark Law:

1. Is there a referral source involved (i.e., a physician or someone else conducting business with the company)?

    • If NO, the transaction is permitted.
    • If YES, proceed to next question.

2. Is there a financial relationship involved (i.e. management agreement, professional service agreement, among others)?

    • If NO, the transaction is permitted
    • If YES, proceed to next question

3. Is value more than nominal (free coffee would be considered nominal; whereas loans, office space, or all-expenses-paid trips are considered substantial)?

    • If NO, the transaction is permitted as long is not contingent on referrals
    • If YES, proceed to next question

4. Is Fair Market Value provided?

    • If NO, the transaction presents a Stark issue.
    • If YES, proceed to next question.

5. Does a Stark Exception apply?

    • If NO, the transaction presents a Stark issue.
    • If Yes, the transaction is permitted.

The National Healthcare Compliance Attorneys at Chapman Law Group Have the Experience Healthcare Providers Need in Stark Law Matters

We at Chapman Law Group have 35 years’ experience advising new health business ventures on being fully compliant and not violating any state and federal laws — including Stark Laws.

Our lawyers analyze policies and procedures, to ensure that licensed healthcare providers avoid criminal and civil liabilities for False Claims Act, Anti-Kickback and Stark Law violations — and we defend providers who face related charges.

Chapman Law Group has four offices: Detroit, Michigan; Miami and Sarasota, Florida; and Los Angeles/Southern California. Contact us today to learn more about us.

Need an Attorney? Contact us now!
or Call us at: 1 (877) 234-5911

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Juan C. Santos, LL.M.

Senior Attorney

Healthcare Compliance, Healthcare Fraud Defense

Miami Office
701 Waterford Way, Suite 340
Miami, FL 33126
Phone: (305) 712-7177

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