Avoiding self-referral: Understanding the Stark laws

April 1, 2015

Physicians today must understand a myriad of laws and regulations that govern not only how they practice medicine, but also how they bill and refer their patients for services both within and outside their own practice.

Among the most significant, and often difficult to understand of these laws is the physician self-referral law, more commonly known as the “Stark Law,” named for its champion and co-sponsor, U.S. Representative Fortney H. “Pete” Stark of California.

The Ethics in Patient Referrals Act of 1989, the original name for the Stark Law, was initially designed to limit/prevent physicians from referring patients for clinical laboratory services under the Medicare Program to entities in which the physician or a relative had a financial interest.

The rationale for the law was a concern that physicians were more likely to order tests if they had a financial stake in the provision of such services.

The law and its corresponding regulations have expanded significantly in the past quarter century thanks to passage of an amendment to the law in 1993 and the promulgation of a substantial number of regulations in three phases (commonly referred to as Stark I, Stark II and Stark III) between 1992 and 2007.

Related:Referral process needs standardization, protocols

The commentaries explaining the three phases of regulations issued by the Center for Medicare & Medicaid Services (CMS) between 2001 and 2007 and the 2015 Physician Fee Schedule are thousands of pages long.

This regulatory maze has made complying with the law very difficult for even the most well-intentioned of physicians. Among other things, the expansion increased the list of services that fall under the law’s purview (known as designated health services or “DHS”) to include:

  • clinical laboratory services;

  • physical therapy services;

  • occupational therapy services;

  • radiology services;

  • radiation therapy services

  • and supplies;

  • durable medical equipment and supplies;

  • parental and enteral nutrients,

  • equipment and supplies;

  • prosthetics, orthotics and prosthetic devices and supplies;

  • home health services;

  • outpatient prescription drugs;

  • inpatient hospital services; and

  • outpatient hospital services.

 

Elements of the Stark prohibition

The basic elements of the Stark self-referral prohibition are as follows: A physician may not make a referral to an entity for the provision of DHS for which Medicare payment may be made (and the entity may not present a claim for services provided as a result of such referral) if the physician or an immediate family member has a financial relationship with the entity unless either the referral or the financial relationship is “excepted” from the Law’s coverage.

The scope of the law is broad enough to include, without limitation, referrals by a physician to a hospital with which the physician has a financial relationship as well as a referral by a physician to the physician’s own practice. Each of the key terms have specific meanings within the prohibition.

For example, a financial relationship is defined broadly to include both a direct or indirect ownership or compensation arrangement. An immediate family member is defined as a spouse or a child, sibling, parent, grandparent, step-child, step-parent, step-sibling, and the spouse of any of the aforementioned individuals. The exceptions to the law are outlined in the regulations and rules issued by CMS.

 

NEXT: State violations

 

Penalties

The Stark law is a strict liability law, which means that the intent of the offending party is not taken into account and a physician can be found guilty of violating the law without intending to do so. If a physician makes a referral under the law and none of the law’s exceptions are met, then the Stark law has been violated.

While the Stark law is not a criminal statute, the civil penalties for violating the law can be severe. Penalties can include:

  • denial of payment for the service billed,

  • a $15,000 civil penalty for each claim submitted as a result of an improper referral,

  • refunding every payment received for services that were referred in violation of the law,

  • a $100,000 civil penalty for entering into a scheme designed to circumvent the law, and

  • exclusion from federal health care programs and possible additional liability under the Federal False Claims Act.

State violations

While physicians must be aware of the federal Stark law, it is imperative that they also understand that many states have adopted their own self-referral laws that can differ significantly from the federal Stark Law.

Related:Referrals and liability: What primary care physicians need to know

The New York state law regarding healthcare practitioner referrals (commonly referred to as New York’s “State Stark Law”) provides an apt example. The list of providers subject to the state Stark law is much broader than the federal Stark law.

However, the list of DHS under the state’s law is much more limited. In addition, while the federal Stark law is limited to Medicare (and arguably Medicaid), the state Law applies to all payers.

Consult a specialist

The sheer size and scope of the Stark law makes it increasingly difficult for an inexperienced attorney, not to mention a practicing physician, to grasp the law’s nuances.

In order to protect yourself and your practice from what could potentially be crippling fines and sanctions under the Stark law, it is important to always contact a health law specialist when encountering any issues that you think could fall under the Stark law’s shadow.

Hayden S. Wool, JD is a partner/director and Dennis Barrett, JD, is an associate at Garfunkel Wild, P.C., in Great Neck, New York. Send your legal questions to medec@advanstar.com.