December 14, 2022
The “Stark Law” is a common title for the federal Physician Self-Referral Law found at 42 U.S.C. § 1395nn. The Stark Law prohibits certain types of referrals for health services for which payments are submitted for reimbursement under federal health care programs including Medicaid and Medicare.
In brief, the federal Stark Law prohibits a physician from making referrals for designated health services to entities in which that physician or an immediate family member of the physician has a financial interest. A financial interest in another entity can include either an ownership or investment interest of the referring physician (or family member) in the entity, or a compensation arrangement between the referring physician (or family member) in the entity. A compensation arrangement is any financial arrangement involving remuneration – whether overtly or covertly, directly or indirectly, or in cash or in kind.
How the Stark Law Developed
The Stark Law was named for the sponsor of the bill enacting the law, Congressman Pete Stark, who for years represented the 13th District of California, spanning from Central California to the Bay Area. Stark spent much of his legislative career pursuing legislation to regulate the healthcare industry, and in the late 1980’s he sponsored what came to be known as the Stark Law in order to prevent what he saw as unethical practices of self-referrals in the healthcare industry, which he believed unnecessarily increased the costs of healthcare due.
The Stark Law was enacted into law in 1990 under the first Bush Administration, and amendments to the Stark Law (referred to as “Stark II”) which included extending the scope of the law to include Medicaid in addition to Medicare coverage, were enacted in 1993. In 2001, 2004, and 2007, additional regulations were issued by the Centers for Medicare and Medicaid Services.
Although critics have long contended that the Stark Law (and subsequent laws and regulations) unnecessarily impede the practice of medicine, particularly those physicians working in managed care organizations, and Congress attempted to repeal significant provisions of the law in 1995 (which was vetoed by then-President Clinton), the primary provisions of the Stark Law remains intact.
Designated Health Services (DHS)
Designated health services for which referral thereto might trigger an investigation or enforcement action pursuant to the Stark Law include:
- Clinical laboratory services
- Physical therapy services
- Occupational therapy services
- Radiology services (including magnetic resonance imaging, computerized axial tomography scans, and ultrasound devices
- 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
Stark Law Exceptions
It is, of course, the case that much of our modern U.S. healthcare system has evolved from your classic sole proprietor doctor’s office to be built around organizations of providers that work together to provide healthcare services to patients, whether as part of health maintenance organization (HMO), managed care organization (MCO), preferred provider organization (PPO), or other business relationship. In such cases, the premise of such organizations (at least in part) is to provide more efficient and comprehensive care to patients from a collection of individual physicians, who often have some level of financial connection to one another.
Reflecting this reality, the Stark Law includes exceptions for certain types of referrals, such that those referrals would not trigger a violation of the law. These include exceptions for services provided under the direct supervision of the referring doctor, in-office ancillary services (i.e., additional medical services provided in the same building as the referring physician), prepaid medical plans, academic medical services providers, and other types of services for which there is a certain and bonafide connection between the referring physician and the referred goods or services.
Consequences of Stark Law Violations
Physicians found to violate the Stark Law can face exclusion from participating in Medicare and Medicaid, denial of payment, and civil penalties of up to $15,000 per submitted claim and $100,000 for the existence of each arrangement or scheme.
While the Stark Law is a civil rather than criminal law, note that there is a significant crossover between the types of violations that result in a Stark Law violation with those that result in a violation of the Anti-Kickback Statute and the False Claims Act. Both the Anti-Kickback Statute and the False Claims can result in criminal penalties, including up to five years imprisonment.
Focusing just on the Stark Law, however, the civil penalties imposed on physicians and entities found to have violated the law can be enormous. As set forth here, numerous Stark Law settlements have resulted in healthcare organizations paying fines in the tens of millions of dollars following investigations into potential Stark Law violations.
Contact an Experienced Healthcare Defense Attorney
Healthcare providers and professionals face unique and complex legal risks, and our attorneys have the legal experience and industry knowledge to counsel and protect clients in all aspects of the industry. It is important to respond properly to legal risks as soon as they arise. Our attorneys are here to provide counsel and representation to mitigate risk at the earliest possible moment. Contact our office to speak with an experienced healthcare defense attorney regarding your situation today.