What is the Stark Law?

What is the Stark Law?

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

Evolution and Background

The Stark Law evolved through several key phases:

• 1972: Federal Anti-kickback Law - Created due to concerns that kickback schemes could corrupt physician judgment and lead to overutilization of services
• 1989: "Stark I" - Prohibited physicians from referring Medicare patients for clinical laboratory services to entities with which they had financial relationships
• 1993: "Stark II" - Expanded the prohibition to include Medicaid patients and a broader range of "designated health services"
• 2001: Final Rule Phase I - Provided more flexibility by interpreting prohibitions narrowly and exceptions broadly 2, 1, 3

Designated Health Services (DHS) Covered

The law applies to referrals for these specific services:

• Radiology and imaging services
• Clinical laboratory services
• Physical and 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

Financial Relationships and Referrals

The Stark Law defines key terms broadly:

• Financial relationships include both direct ownership/investment interests and compensation arrangements
• Referrals include any request by a physician for a designated health service
• Important exception: A service is not considered a "referral" when personally performed by the physician 2, 1

Consequences of Violations

Violations carry severe penalties:

• Denial of payment for services provided
• Refunds to the Medicare program
• Civil monetary penalties (up to $15,000 per service)
• Exclusion from Medicare and Medicaid programs 2, 1, 4

Key Exceptions

Several important exceptions allow physicians to make referrals despite financial relationships:

1. Physician Services Exception:

   • Permits referrals for DHS furnished by a member or physician in the same group practice as the referring physician 1, 3

2. In-Office Ancillary Services Exception:

   • Allows referrals for DHS provided in the same building where the physician or group routinely provides medical services
   • Services must be supervised by the referring physician or another physician in the same group 1, 3

3. Whole Hospital Exception:

   • Permits physicians with ownership interest in an entire hospital (not just a department) to make referrals to that hospital 4

4. Fair Market Value Exception:

   • Covers compensation arrangements at fair market value
   • Compensation must not be based on volume or value of referrals 1

5. Employment Exception:

   • Allows bona fide employment relationships with compensation at fair market value 4

Compliance Strategies

To avoid violations, physicians and healthcare organizations should:

• Consult legal counsel before establishing financial relationships
• Document all financial relationships properly
• Ensure compensation is at fair market value
• Regularly review arrangements for compliance
• Understand which exceptions apply to their situation 1

Common Pitfalls to Avoid

• Improper billing practices
• Compensation based on referral volume
• Inadequate documentation of financial relationships
• Ignoring state-specific self-referral regulations
• Failing to meet all requirements of an applicable exception 1

The Stark Law is distinct from the Anti-kickback Statute in that it is a strict liability statute - violations occur regardless of intent, making compliance particularly important for physicians and healthcare organizations 4.