What Medical Practices Should Know about the Stark Law

The Stark Law is named after California U.S. Congressman, Peter Stark. It seeks to regulate how physicians refer Medicare and Medicaid patients. The law is part of the Omnibus Budget Reconciliation Act of 1990 and the 1993 amendments to that Act. The Centers for Medicare and Medicaid Services regulates the law.

Stark medical practice law prohibits doctors from referring Medicaid or Medicare patients to businesses called designated health service (DHS) if certain conditions exist. For example, doctors and immediate family members cannot refer patients to a DHS if they have a “financial interest” in the designated heath service.

The core idea of the Stark Law is that doctors should provide the best services to their patient by referring them to the best quality health care provider. Doctors who have a conflict of interest are likely to favor their facility over other centers that might offer better services.

The Stark Law applies to federal billing programs such as Medicare and Medicaid. California physician referral laws regulate state-related services.

Attorneys who understand the Stark Law can explain which Medicare and Medicaid referrals are legitimate and which ones are not.

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Here is a quick summary of federal self-referral (“Stark law”) and anti-kickback law, and California self-referral and anti-kickback / fee-splitting rules.

Exceptions to the Stark Law

The referrals are generally prohibited unless a valid exception applies. Some of the nearly 20 exceptions include:

  • The referral services are provided as part of a prepaid health plan
  • The existence of a bona-fide employment relationship between the referrer and the person who gets the referral
  • The DHS is a publicly traded entity, a hospital, or an entity that provides rural services.
  • The DHS is merely providing office space and equipment

Two often used exceptions are:

  • Physician services. These are approved medical services performed (or supervised) by a doctor who is in the referrer’s “group practice.”
  • In-house ancillary services. Referrals may be acceptable if
    • The person who performs the services is:
      • The doctor himself (herself)
      • Someone in the referring doctor’s group practice
      • Someone supervised by a doctor in that group practice
    • Ancillary services include crutches, walkers, canes, certain types of wheelchairs, and blood glucose monitors
    • The services are done in certain approved locations

Stark Law penalties

The penalties for violating the Stark Law are quite severe. Penalties include:

  • Not paying the doctor for the services provided
  • The duty to return any money improperly paid
  • A $15,000 fine for each service the physician knew was improperly billed.
  • Up to $100,000 in civil penalties for trying to avoid the law’s requirements
  • Treble payment damages for Medicare violations
  • Not being permitted to submit future Medicare or Medicaid payments

There are other penalties your Stark Law attorney can explain.

How the Stark Law differs from the Anti-Kickback statute

The Anti-Kickback statute prohibits referring health care business in return for exchanging or offering anything of value. The key differences between the two laws are:

  • Which medical providers are covered. The Anti-Kickback statute covers many types of healthcare providers including nurses. The Stark Law just applies to those who have advanced education such as doctors, chiropractors, and dentists.
  • Which programs are covered. The Stark Law applies to Medicare and Medicaid. The Anti-Kickback statute applies to other billing programs.
  • Knowledge. The Anti-Kickback statute requires that the doctor intend to violate the law. The Stark Law applies if the medical provider knew or should have known they were violating the law.
  • How exceptions work. Stark Law exempts referrals if specific exceptions apply. The Anti-Kickback statute doesn’t have specific exceptions. It uses the phrase “safe harbor” to cover many types of referral actions that are protected. Essentially, the Anti-Kickback law gives prosecutors the discretion to decide if they will bring charges.

Stark Law is a civil law. The Anti-Kickback statute is a criminal law. Medical practices can be civilly charged for violating both laws.

Defining some key legal words and phrases in the Stark Law

Interpreting the Stark Law requires an understanding of what key words or phrases mean. The wrong interpretation can mean losing funds, being terminated from Medicare and Medicaid, and substantial civil penalties. The right interpretation means profitably run your California medical practice. Some key definitions are:

Referral. Referrals include:

  • Any request for a medical service or item or good payable under Medicare Part B
  • Consultation requests
  • Any services authorized due to the consult request
  • A treatment course the DHS provides

Designated Health Service (DHS). The following medical practices may qualify as a DHS:

  • A practice used to provide laboratory tests, outpatient prescription drugs, imaging tests, and physical therapy or work-related therapy.
  • A practice that provides medical equipment
  • A home health service or hospital service

The Centers for Medicare and Medicaid Services has a complete list of services that meet the DHS definition.

Financial Relationship. An ownership interest based on compensation. Any equity interest in a business. Other relationships that give the referrer something of value may also be a financial relationship.

Fair market value. The price a willing buyer and seller, who do not have any working relationship, would pay for services.

Group practice. Some of the exceptions to the Stark Law require that the DHS be a “group practice.” For example, the physician services and in-house ancillary services (listed in the exceptions section) require an understanding of what a “group practice” really is. Group practice criteria includes the following conditions:

  • Multiple doctors. A “group practice” requires that there be two or more doctors who have a valid legal relationship. Examples of legal relationships are professional corporations, nonprofits, partnerships, and foundation. Doctors with sole practices are not group practices.
  • Sharing.  Doctors who work in a group practice are required to share their offices, equipment, personnel and facilities. The more it looks like a doctor is not working for the group, the more likely he/she is not involved in a group practice
  • Central decision-making.  Decisions about finances, billing, and accounting should be made for all the doctors as a group.
  • Sharing among doctors. Doctors can share profits and productivity bonuses provided they don’t improperly refer patients to each other.
    • Profit sharing. Profit sharing is allowed if there are five or more doctors. The doctors must be united is some logical way – such as by office location, seniority, or medical specialty. The profits can’t be based on the value or the volume of the referrals. Profits are OK if:
      • The profits are divided equally among the doctors
      • The DHS revenue is less than five percent of the total income. No doctor can get more than five percent of his/her income from the DHS
      • Other profit-sharing plans may also be valid.
  • Productivity payments. To get productivity payments, doctors and approved staff members must do the medical tasks. The services can’t be referred out to people wo don’t work for the group.

These definitions are very precise and very confusing. As with most every law, there are exceptions.

To understand if your medical practice is in compliance with Stark Law, you should speak with an experienced lawyer who understands Stark Law and medical practices.

Please contact our healthcare law and Stark law attorneys for legal advice on medical practices and referral fees. We are experienced Stark Law and Anti-Kickback Statute lawyers

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