Preventing fraud and abuse and enforcing existing federal fraud and abuse statutes remains a priority, no matter the future of health care reform. Maintaining these efforts saves dollars in the federal treasury and helps ensure accountability and discipline by all participants in the health care delivery system.

There are five principal federal fraud abuse statutes that are most relevant to physicians irrespective of practice specialty, years of experience, or practice setting: false claims act (FCA), anti-kickback statute (AKS), exclusion authorities, civil monetary penalties law (CMP) and the focus of this article, the Stark Law.

To help physician recruiters better understand what physicians must face regarding the Stark Law, we've answered the most common questions below.

What is the Stark Law?

The Stark Law is one of the most challenging and complex federal health care statutes for providers and for health care lawyers. In this article we will explain the basic Stark Law principles and provide practical advice to help providers comply with the statute and its regulations.

Why is it called the Stark Law?

In 1989, then-Congressman Pete Stark (D-California) introduced the Ethics in Patient Referrals Act. The bill was signed into law and is colloquially referred to as the Stark Law because of its principal sponsor.

What was the purpose of the Stark Law?

When the statute was enacted, it applied only to physician self-referrals for clinical laboratory services. A premise for the Stark Law was that the prohibition would eliminate any financial incentive for a physician to send a patient for unnecessary lab testing, and therefore reduce health care costs. Since its initial passage, the statute has been amended and there have been multiple sets of regulations published by the Centers for Medicare and Medicaid Services (CMS). 

What does the Stark Law prohibit?

The Stark Law prohibits a physician from making referrals for certain designated health services (DHS) payable by Medicare to an entity with which the physician or an immediate family member has a financial relationship (which can be ownership, investment or compensation) unless an exception applies. The Stark Law also prohibits that entity from presenting or causing to be presented claims to Medicare for those referred services.

What is a designated health service?

There are 12 DHS categories: clinical laboratory services; physical therapy services; occupational therapy services; outpatient speech-language pathology services; radiology and certain other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetic, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services.

How do I know if something is a DHS?

Each year, the federal government publishes in the Federal Register, a listing of certain categories of DHS by CPT code. The list is generally effective January 1 of that year.

Who is an immediate family member? 

The Stark Law regulations define an immediate family member as husband, wife, birth or adoptive parent, child, sibling, stepparent, stepchild, stepbrother, stepsister, father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, grandparent or grandchild, and spouse of a grandparent or grandchild.

What is a financial relationship?

A direct or indirect ownership or investment interest in any entity that furnishes DHS, or a direct or indirect compensation arrangement with an entity that furnishes DHS.

A direct financial relationship exists if remuneration passes between the referring physician (or a member of the physician’s immediate family) and the entity furnishing the DHS without any intervening people or entities.

There is an indirect financial relationship if between the referring physician (or immediate family member) and the entity furnishing the DHS there is an unbroken chain of any number of people or entities having ownership or investment interests.

What is the purpose of the Stark Law exceptions? 

The Stark Law is a strict liability statute. The intent or lack of intent of a party is not relevant for purposes of the government’s analysis to determine Stark Law compliance. For physicians and health care lawyers, making sure that an arrangement fits squarely within the exception is critical. The requirements in an exception must be satisfied at the time when the referral is made for the DHS. 

What are the categories of the Stark Law exceptions?

There are exceptions for certain ownership/investment interests; compensation arrangements; and both ownership/investment and compensation arrangements.

By ensuring a proposed arrangement fits within an exception, it will not be considered a “financial relationship” that implicates the Stark Law’s self-referral ban. Several of the most commonly used exceptions are highlighted below.

There are several exceptions related to both ownership/investment and compensation, including the exception for physician services and in-office ancillary services.

These exceptions may become relevant for a physician who owns or has equity in a medical practice and therefore receives compensation from that medical practice. For instance, physician services that are:

• Furnished personally by the referring physician, by another physician in the physician’s group practice (a defined term in the Stark Law) or by an individual who is directly supervised (a defined term in the Stark Law) by the referring physician or another physician in the referring physician’s group practice
• Are furnished in one of the specific locations identified in the Stark Law
• And billed by the physician performing or supervising the service or the physician’s group practice, are covered under a Stark Law exception. There is a very fact-specific process required to fit within this exception.

There are several exceptions to the referral prohibition related to compensation arrangements: rental of office space, rental of equipment, so called “bona fide” employment relationships, physician recruitment, and medical staff incidental benefits. There are very specific provisions that must be adhered to for each of these exceptions. For instance, the compensation for the rental of office equipment cannot be based upon the percentage of revenue raised through the use of the equipment or on a per-unit or per-click basis.

Understanding and adhering to the exceptions (when relevant) is critical to achieving Stark Law compliance. 

Where can I find the Stark Law regulations, and what happens if there is a violation of the Stark Law?

The regulations have been published in multiple phases since 1995. In addition to the actual regulation, the preamble accompanying each release of updated regulations (both proposed and final) provide critical insight for the government’s analysis and thought process with respect to the regulations.

There is a Medicare self-referral disclosure protocol (SRDP) that describes the process to providers and suppliers to self-disclose actual or potential violations of the Stark Law. The SRDP requires very detailed submission of information to the government, and the provider is required to agree to forego all appeal rights for claims settled under the SRDP.

A provider that violates the Stark Law must repay all Medicare funds that were paid under the improper arrangement. A Stark Law violation could also trigger an FCA or CMP issue for the provider and the potential for exclusion from the Medicare program.

Every relationship in which a physician is engaged could require a Stark Law analysis if the physician is making a referral for any DHS payable by Medicare to an entity in which the physician or immediate family member has a financial relationship unless there is an exception in the Stark Law. As a strict liability statute, the intent of the parties is not relevant and the consequences for noncompliance can be significant.

A physician must understand the flow of Medicare dollars and the financial ties between referring parties. Regardless of whether any iteration of federal health care reform is enacted, compliance with Stark Law and ensuring a provider is actively engaged in preventing waste, fraud and abuse is critical.

Bruce Armon, Esquire is a partner in the law firm of Saul Ewing Arnstein & Lehr LLP and chair of its health law practice. He regularly assists clients with fraud and abuse analysis and regulatory, contractual and compliance issues generally. This article first appeared in the Winter 2018 issue of PracticeLink Magazine.