Understanding the Stark Law and Its Application to Physician Referrals
The Stark Law prohibits physicians from referring Medicare or Medicaid patients for designated health services to entities with which they or their immediate family members have a financial relationship, unless a specific exception applies. 1
Historical Development of the Stark Law
The Stark Law evolved through several key phases:
Federal Anti-kickback Law (1972): The original legislation aimed to prevent kickback schemes that could corrupt physician judgment and lead to overutilization of services 1
Stark I (1989): Prohibited physicians from referring Medicare patients to clinical laboratory services if the physician or immediate family member had a financial relationship with that entity 1, 2
Stark II (1993): Expanded the prohibition to include Medicaid patients and broadened the list of "designated health services" 1, 3
Final Rule Phase I (2001): Provided more flexibility by interpreting prohibitions narrowly and exceptions broadly 4, 5
Key Concepts of the Stark Law
Designated Health Services (DHS)
Services covered under Stark include:
- Radiology and imaging services (CT, MRI, ultrasound)
- Clinical laboratory services
- Physical therapy
- Occupational therapy
- Radiation therapy
- Durable medical equipment
- Parenteral and enteral nutrients
- Prosthetics and orthotics
- Home health services
- Outpatient prescription drugs
- Inpatient and outpatient hospital services 1, 4
Definition of "Referral"
- Broadly defined as any request by a physician for an item or service
- A physician does not make a "referral" when personally performing a service
- A service is not personally performed if provided by employees, contractors, or group practice members 1
Financial Relationships
Financial relationships can be:
- Direct: Ownership, investment interest, or compensation arrangement
- Indirect: Through intermediary entities (e.g., physician has ownership in an imaging center that contracts with a hospital) 1
Penalties for Stark Law Violations
Violations carry severe consequences:
- Denial of payment for services provided
- Refunds to the Medicare program
- Civil monetary penalties (up to $100,000 for each attempt to circumvent)
- Exclusion from Medicare and Medicaid programs 1, 6
Key Exceptions to the Stark Law
1. Physician Services Exception
- Permits referrals for DHS furnished by a member or physician in the same group practice as the referring physician 4
2. In-Office Ancillary Services Exception
- Allows referrals for DHS provided in the same building where the physician or group routinely provides medical services
- Must meet requirements for supervision, location, and billing 1
3. Personal Services Exception
- Covers arrangements like medical directorships when compensation is at fair market value 6
4. Fair Market Value Exception
- Covers services provided at fair market value not based on volume or value of referrals 7
5. Whole Hospital Exception
- Allows physicians to have ownership interest in an entire hospital 6
Common Examples of Stark Law Applications
Example 1: Imaging Services in a Group Practice
A gastroenterology group wants to add CT colonography services:
- Compliant approach: The group can refer patients for CT colonography within their practice if:
- The service is performed in the same building as their medical practice
- A qualified physician provides appropriate supervision
- The group meets the definition of "group practice" under Stark
- Billing is done properly 1
Example 2: Split Interpretation Arrangements
A gastroenterologist wants to interpret colonic images while a radiologist interprets extracolonic findings:
- Compliant approach: The gastroenterologist's compensation must:
- Meet the Personal Services or Fair Market Value exceptions
- Not be based on volume or value of referrals
- Be documented in a written agreement 1
Example 3: Telestroke Networks
A hub hospital provides telestroke services to community hospitals:
- Compliant approach: The arrangement must:
- Not involve the hub hospital providing equipment at below fair market value
- Have compensation arrangements that meet applicable exceptions
- Be reviewed by legal counsel to ensure compliance 1
Common Pitfalls to Avoid
Improper billing: Only physicians who personally perform the complete interpretation can bill for the service 7
Compensation based on referral volume: Compensation cannot be based on the volume or value of referrals 1, 7
Inadequate documentation: All financial relationships must be properly documented with written agreements 7
Ignoring state-specific regulations: Some states have their own self-referral prohibitions 7
Failing to meet exception requirements: Each exception has specific technical requirements that must be satisfied 1
Practical Guidance for Compliance
Consult legal counsel: Have all financial relationships reviewed by healthcare attorneys familiar with Stark Law 1
Document properly: Ensure all financial arrangements are in writing with clear terms 7
Verify fair market value: Use independent valuations for compensation arrangements 1
Regularly review arrangements: Periodically audit existing arrangements for continued compliance 7
Understand applicable exceptions: Know which exceptions apply to your specific situation 6
The Stark Law remains a complex area of healthcare regulation that requires careful attention to detail and proper legal guidance to navigate successfully.