Stark Law And Hospitals: Understanding The Legal Boundaries

The Stark Law is a set of United States federal laws that prohibit physician self-referral, specifically a referral by a physician of a Medicare or Medicaid patient to an entity for designated health services if the physician has a financial relationship with that entity. The law was enacted in 1989 as the Ethics in Patient Referrals Act, named after its sponsor, Rep. Pete Stark, a Democrat from California. Stark Law applies to designated health services such as clinical laboratory services, physical therapy services, radiology and certain other imaging services, radiation therapy services and supplies, and inpatient and outpatient hospital services. The law has evolved over the years with amendments and exceptions, and it is essential for physicians and hospitals to understand its complexities to ensure compliance and avoid legal consequences.

What is the Stark Law?

The Stark Law is a set of United States federal laws that prohibit physician self-referral. In other words, it prevents physicians from referring patients to receive "designated health services" (DHS) payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship. Financial relationships include ownership/investment interests and compensation arrangements.

The term "referral" means a request for a specific service or item by a physician for Medicare Part B services and/or a care plan that includes DHS. DHS refers to the health facility or institution that will perform physical and occupational therapies, clinical laboratory testing, radiology services, medical equipment, inpatient hospital services, outpatient prescription services, or home health services.

The Stark Law was named for United States Congressman Pete Stark, a Democrat from California, who sponsored the initial bill. It was first enacted in 1992 but expanded in 1995. The original statute was quite simple, seeking to ban physician self-referral for designated services when a patient was covered by Medicare or another government payer. Over time, it has evolved into a complex set of regulations, which some argue impede efforts to transition away from a fee-for-service system.

The law contains several exceptions, including physician services, in-office ancillary services, ownership in publicly traded securities, rental of office space and equipment, and bona fide employment relationships. However, even with these exceptions, the complexity of the Stark Law has left hospital executives, Congress, and the Centers for Medicare and Medicaid Services (CMS) struggling with the boundaries of the legislation.

Penalties for violations of the Stark Law can be severe and include denial of payment for the DHS provided, refund of monies received, civil penalties, exclusion from the Medicare program and/or state healthcare programs, and additional civil penalties for attempting to circumvent the law.

What does the Stark Law prohibit?

The Stark Law prohibits physicians from referring patients to entities for designated health services (DHS) if they or their immediate family members have a financial relationship with that entity. The law was enacted to curb physician self-referral and prevent financial motivations for physicians to send patients for unnecessary testing, which could increase healthcare costs.

The term "referral" refers to a request by a physician for a specific service or item for Medicare Part B services and/or a care plan that includes designated health services. A "financial relationship" includes ownership, investment interest, and compensation arrangements.

The Stark Law applies to the following designated health services:

• 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
• Prosthetics, orthotics, and prosthetic devices and supplies
• Home health services
• Outpatient prescription drugs
• Inpatient and outpatient hospital services

The law prohibits billing Medicare or other insurance providers for health services when a provider makes an inappropriate referral. It also prohibits the entity from filing claims with Medicare or billing another individual or entity for improperly referred designated health services.

Violations of the Stark Law can result in significant penalties, including denial of payment for DHS provided, refund of monies received, civil penalties of up to $15,000 per service, exclusion from Medicare and state healthcare programs, and additional civil penalties for attempting to circumvent the law.

What are the consequences of violating the Stark Law?

The Stark Law, or the Physician Self-Referral Law, is a set of United States federal laws that prohibit physicians from referring patients to other healthcare professionals or entities in exchange for anything of value. The law applies to hospitals and seeks to protect patients from unnecessary procedures and medical bills. Violating the Stark Law can result in several consequences, including:

• Denial of Payment for Designated Health Services (DHS): If a violation of the Stark Law occurs, the entity may be denied payment for the DHS provided.
• Refund of Monies Received: Physicians and facilities may be required to refund any monies received for amounts collected under improper arrangements. This can total tens of millions of dollars.
• Civil Penalties: Those who violate the Stark Law may be subject to civil penalties of up to $15,000 for each service that the person "knows or should know" was provided in violation of the law. Additionally, they may have to pay up to three times the amount of the improper payment received from the Medicare program.
• Exclusion from Medicare and State Healthcare Programs: Violators may face exclusion from the Medicare program and/or state healthcare programs, including Medicaid.
• Attempting to Circumvent the Law: Penalties of up to $100,000 may be imposed for attempts to circumvent the Stark Law.
• False Claims Act Liability: If claims are submitted to government payers through an arrangement that violates the Stark Law, they are considered false or fraudulent, creating liability under the False Claims Act. This can result in fines of up to three times the programs' loss plus $11,000 per claim filed.
• Criminal Penalties: In certain cases, criminal penalties may be imposed, including imprisonment and criminal fines.
• Loss of Medical License: Violating the Stark Law may result in the loss of a medical license from the State medical board.
• Reputational Damage: Entities found to be in violation of the Stark Law may suffer damage to their reputation, impacting their ability to attract patients and conduct business.

The complexity of the Stark Law and its numerous exceptions can make compliance challenging for hospitals and healthcare providers. However, failure to adhere to the law can result in significant financial, legal, and reputational consequences.

What are the exceptions to the Stark Law?

The Stark Law, named after United States Congressman Pete Stark, is a set of United States federal laws that prohibit physician self-referral. In other words, it bans physicians from referring patients covered by Medicare or Medicaid for designated health services to hospitals or other entities from which they or their immediate family members benefit financially. While the law is strictly enforced, there are several exceptions.

Firstly, in-office ancillary services are often exempt. This is when doctors' offices provide additional services such as blood or imaging tests for patient convenience. Other examples include prescription medications, lab services, and radiology.

Secondly, contractor physicians are exempt from the prohibition on referrals to another doctor in the same group practice.

Thirdly, a bona fide employment exception applies to compensation arrangements between a medical facility and a physician employee, as long as the compensation is reasonable and unrelated to the number of referrals made.

Fourthly, indirect compensation between a doctor and a healthcare facility is allowed, provided the compensation is reasonable and does not consider the number of referrals made.

Fifthly, non-monetary compensation of up to $300 per year is permitted, as long as it does not take into account the number of referrals provided.

Sixthly, doctors in rural areas can refer patients to a practice in which they have a financial stake if no other provider is within 25 miles.

Seventhly, physicians can share office space and equipment leases with other practitioners, as long as certain additional requirements are met.

Eighthly, doctors can refer patients to an academic medical centre if they are bona fide employees, have a valid state license, are members of the faculty, provide clinical teaching services, and are paid for those services.

Other exceptions include physician incentive plans, charitable contributions, compliance training, risk-sharing arrangements, professional courtesy, electronic health records, timeshare arrangements, and assistance to compensate non-physician practitioners.

To summarise, while Stark Law prohibits physician self-referrals in most cases, there are numerous exceptions that prioritise patient care and ensure fair competition in the healthcare industry.

How does the Stark Law affect hospitals?

The Stark Law is a set of United States federal laws that prohibit physician self-referral. In other words, it prevents physicians from referring patients to hospitals or other medical facilities if they or their immediate family members benefit financially from that entity. This law was enacted to curb the practice of physicians sending patients for unnecessary and costly testing.

The law applies to designated health services (DHS), which include:

• Clinical laboratory services
• Physical therapy services
• Occupational therapy services
• Radiology and certain other imaging services
• Radiation therapy services and supplies
• Durable medical equipment and supplies
• Parenteral and enteral nutrients, equipment, and supplies
• Prosthetics, orthotics, and prosthetic devices and supplies
• Home health services
• Outpatient prescription drugs
• Inpatient and outpatient hospital services
• Outpatient speech-language pathology services

The financial relationship between a physician and a healthcare entity is defined by ownership or investment interest in the entity, or a compensation arrangement. The Stark Law considers a referral to be a request by a physician for an item or service for Medicare Part B services or the establishment of a plan of care that includes designated health services.

The law contains several exceptions, including physician services, in-office ancillary services, ownership in publicly traded securities and mutual funds, rental of office space and equipment, and bona fide employment relationships.

Violations of the Stark Law can result in significant penalties, including denial of payment for DHS provided, refunds of monies received, civil penalties, exclusion from Medicare and Medicaid programs, and liability under the False Claims Act.

The complexity of the Stark Law has led to concerns among hospital executives, legislators, and healthcare leaders about its impact on the transition to value-based care and pay-for-performance initiatives. The law's strict liability nature means that even inadvertent referrals that violate the law can result in culpability for physicians.

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