Stark Law: Applicability To Non-Medicare Patients Explained

The Stark Law is a set of United States federal laws that prohibit physician self-referral, specifically referring a Medicare or Medicaid patient to an entity for designated health services (DHS) if the physician has a financial relationship with that entity. The term referral means a request for a service by a physician for Medicare Part B services and/or a care plan that includes DHS. A financial relationship includes ownership, investment interest, and compensation arrangements. The Stark Law was enacted to prevent conflicts of interest and overutilisation of services, but critics argue that it impedes efficient healthcare delivery and entrenches bureaucracy. While the law primarily focuses on Medicare and Medicaid patients, it's important to note that it may still apply to non-Medicare patients in certain situations, particularly when it comes to anti-kickback regulations and state-specific kickback laws.

The Stark Law and the anti-kickback statute

The Anti-Kickback Statute (AKS) is a criminal law that prohibits the exchange or offer to exchange anything of value to induce or reward the referral of business reimbursable by federal healthcare programs. This includes Medicare and Medicaid patients. Examples of prohibited kickbacks include financial incentives for referrals, free or low rent for office space, and excessive compensation for medical directorships. Violating the AKS can result in criminal penalties such as fines of up to $25,000, up to five years in jail, and exclusion from Medicare and Medicaid care programs.

The Stark Law, or the Physician Self-Referral Law, is a set of civil laws that prohibit physicians from referring Medicare or Medicaid patients to entities providing designated health services (DHS) if the physician or their immediate family member has a financial relationship with that entity. Financial relationships include ownership, investment interests, and compensation arrangements. Penalties for violating the Stark Law include civil penalties such as fines, denial of payment for DHS, and exclusion from Medicare and state healthcare programs, including Medicaid.

One key difference between the two laws is that the Stark Law is more specific and only applies to physicians, while the AKS applies to anyone offering or receiving kickbacks. Additionally, the Stark Law does not require proof of intent, whereas the AKS requires proof of improper intent. The Stark Law also prohibits entities from submitting claims to Medicare and Medicaid for services based on prohibited referrals.

Both laws are enforced by the Department of Justice, the Department of Health and Human Services, and the Centers for Medicare and Medicaid Services (CMS). Understanding these laws is crucial for physicians and healthcare providers to ensure compliance and avoid legal consequences.

Physician self-referral

The Stark Law is designed to prevent conflicts of interest and overutilisation of services, which can drive up healthcare costs. It establishes a number of specific exceptions and grants the Secretary of the Department of Health and Human Services (HHS) the authority to create regulatory exceptions for financial relationships that do not pose a risk of program or patient abuse. Some of the exceptions include 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.

The law applies specifically to designated health services, which include clinical laboratory services, physical therapy services, occupational therapy services, radiology and imaging services, radiation therapy services and supplies, durable medical equipment and supplies, parenteral and enteral nutrients, equipment, and supplies, prosthetics and prosthetic devices and supplies, home health services, outpatient prescription drugs, and inpatient and outpatient hospital 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 the Medicare and state healthcare programs, and additional civil penalties for attempting to circumvent the law.

To comply with the Stark Law, contracts between physicians and hospitals must fit within seven safe harbors: the contract must have a duration of at least one year, be in writing and signed by both parties, specify aggregate payment set in advance, include payment that is reasonable and fair market value, ensure payment is not related to the volume or value of business, outline the exact services to be performed, and be commercially reasonable.

Designated health services (DHS)

• 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 Stark Law, or the Physician Self-Referral Law, prohibits physicians from referring patients for DHS to entities with which they have a financial relationship, unless an exception applies. A financial relationship may include ownership or investment interest in the entity, or a compensation arrangement with the entity.

The law aims to prevent conflicts of interest that could influence healthcare decision-making and ensure that all referrals are based on the best interests of patients, rather than any financial incentive on the part of the physician. It promotes transparency and fair healthcare practices.

The Centers for Medicare and Medicaid Services (CMS) annually publishes a list of codes for healthcare services that are considered DHS under the Stark Law. This list is essential for Medicare providers to ensure their financial relationships with physicians remain compliant with the law.

It is worth noting that specific regulations and exceptions apply to each category under the law, and providers should carefully review and analyse the services they furnish to ensure compliance.

Financial relationships

The Stark Law, or the Federal physician self-referral prohibition, is a set of regulations that limit the financial and business relationships that physicians may enter. The law was enacted in 1992 and initially applied to physician referrals for clinical laboratory services, but it has since been expanded to include other "designated health services" (DHS). These services include clinical laboratory testing, radiology services, medical equipment, inpatient hospital services, outpatient prescription services, and home-health services.

A "financial relationship" under the Stark Law is defined as:

• An ownership or investment interest in the entity furnishing DHS; or
• A compensation arrangement with the entity furnishing DHS.

An ownership or investment interest can be through equity, debt, or other means, and includes an interest in an entity that holds an ownership or investment interest in any entity providing DHS. This can include stock, stock options, partnership shares, loans, bonds, or other financial instruments secured with the entity's property or revenue.

A compensation arrangement is any arrangement involving remuneration, direct or indirect, between a physician (or a member of their immediate family) and an entity furnishing DHS. This can include cash payments, in-kind transfers such as office space or equipment, or other benefits.

The Stark Law prohibits a physician from making referrals for DHS payable by Medicare to an entity with which they or an immediate family member have a financial relationship, unless an applicable exception is met. These exceptions are outlined by the Secretary of the Department of Health and Human Services (HHS) and include situations that do not pose a risk of program or patient abuse.

The law also prohibits the entity from filing claims with Medicare or billing another individual for any improperly referred DHS. This means that if a physician refers a patient to an entity with which they have a financial relationship, and the referral does not meet one of the specified exceptions, the entity cannot seek reimbursement from Medicare or bill the patient directly.

It is important to note that the Stark Law only applies to referrals for DHS that are payable by Medicare. However, there are other healthcare fraud and abuse laws, such as the anti-kickback statute and the false claims act, that address referrals and claims involving other federal healthcare programs such as Medicaid.

Exceptions to the Stark Law

The Stark Law, or the Federal physician self-referral prohibition, is a set of regulations that limit the financial and business relationships that physicians may enter. The law prevents a physician from referring patients to a healthcare entity if there is a financial relationship between the physician and the healthcare entity, their immediate family member, and the healthcare entity. While the inclusion criteria seem relatively open and expansive, there are several notable exceptions to this set of laws.

Some of the commonly encountered exceptions include:

• Referral to another physician of the same practice as the referring provider
• Referral for in-office ancillary services, including laboratory testing and radiological tests, performed within the same location as the provider
• Referral to a family member for designated health services in rural areas as designated by the Centers for Medicare and Medicaid Services (CMS)
• Referral to prepaid organisational health services such as health maintenance organisations (HMOs)
• Referral to academic medical centres, with certain stipulations applying to the relationship between the provider and academic centre
• Referral for preventative services, including screening exams/tests and vaccines
• Equity in publicly-traded security as issued by a corporation

In addition to the exceptions listed above, there are several other exceptions to the Stark Law. These include:

• Nonmonetary compensation: The Stark regulations allow nonmonetary compensation to physicians from a referred entity as long as it does not exceed an aggregate value of $300 per year and meets other specific criteria.
• Preventive screening tests, immunizations, and vaccines: These are exempted from the Stark regulations as long as they meet certain conditions, such as relevant frequency limits mandated by the CMS and reimbursement by Medicare based on the fee schedule.
• Fair market value: This exception pertains to any compensation resulting from an arrangement between an entity and a physician (or an immediate family member) for the provision of items or services, as long as the arrangement meets specific criteria, including being set forth in a written agreement and specifying the time frame and compensation.
• Hospital incidental benefits: The Stark regulations explicitly permit hospitals to provide their medical staff with incidental benefits in the form of items or services (not including cash or cash equivalents) under certain circumstances, such as when the item or service is used on the hospital's campus.
• Hospital compliance training: This exception allows hospitals to provide compliance training to physicians or their family members who practice in the community as long as the training is held in the local community.
• Risk-sharing arrangements: This exception allows withholds, bonuses, and risk pools as long as the compensation involved pertains to services provided to enrollees of a health plan and meets other specific criteria.
• Lease arrangements: To meet the lease exception, an arrangement must meet specific requirements, including a written lease specifying the premises covered and ensuring that the space rented does not exceed what is reasonable and necessary for the legitimate purposes of the lease.
• Bona fide employment relationship: This exception allows payments of any amount by an employer to a physician or an immediate family member for providing covered services, as long as the employment is for identifiable services and meets other specific criteria.
• Personal services arrangements: This exception allows a physician to be engaged as an independent contractor to the referred entity, as long as the arrangement meets specific requirements, such as being in writing, signed by the parties, and specifying the services covered.
• Physician incentive plans: The Stark statute allows physician incentive plans as long as no compensation is exchanged that may directly or indirectly reduce or limit medically necessary services to enrollees.

Frequently asked questions