Stark Law In A Nutshell

The federal self-referral law, often referred to as the Stark Law, prohibits a physician from referring patients to receive “designated health services” (DHS) payable by Medicare or Medicaid to an entity with which the physician or an immediate family member has a financial relationship.  See 42 U.S.C. §1395nn.

Stark Law Application

The Center for Medicare & Medicaid Services (“CMS”), the agency that promulgates regulations implementing the Stark Law, often focuses on the financial relationships between the parties because even if a physician makes a referral of a Medicare or Medicaid beneficiary for DHS to an entity that furnishes DHS, the Stark Law will not be applicable unless a financial arrangement exists. Financial arrangements include both direct and indirect ownership and investment interests, such as physician ownership of stock in an independent diagnostic testing facility that serves Medicare beneficiaries. Financial arrangements also include compensation arrangements such as, for example, rental of office space, equipment or employment relationships.

Stark Law is a strict liability statute, which means that in prosecuting physicians, the government does not have to prove specific intent to demonstrate a violation of the law. Financial relationships, therefore, have to be carefully scrutinized to determine what, if any, exceptions to the Stark Law apply. Arrangements must qualify for each and every element of the exception to the Stark Law to avoid engaging in per se illegal conduct.

Designated Health Services

The Stark Law applies to designated health services, which are:

  • clinical laboratory services
  • physical therapy, occupational therapy, and outpatient speech-language pathology services
  • radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services
  • radiation therapy services and supplies
  • durable medical equipment (DME) and supplies
  • parenteral and enteral nutrients, equipment and supplies
  • prosthetics, orthotics, and prosthetic devices and supplies
  • home health services
  • outpatient prescription drugs and
  • inpatient and outpatient hospital services

It should also be noted, that CMS defines certain DHS through specific CPT and HCPCS codes published on the agency’s website. The code list gets updated to conform to the most recent publication of CPT and HCPCS codes. The updated code list is published in the Federal Register as an addendum to the annual Physician Fee Schedule final rule. This rule is usually published in November and becomes effective January 1 of the following year.

Other published rules or correction notices may also change the code list.

Stark Law Penalties

Penalties for violating the Stark Law are stiff. If a Stark prohibited referral is made, a DHS entity may not bill the patient or Medicare for referred services. A DHS entity must refund any payments collected or possibly face a civil monetary penalty. The Stark Law also imposes a civil monetary penalty for each improper bill submitted.

Similarly, the Stark Law imposes penalties if the physician or the entity providing DHS services have a “circumvention scheme” or arrangement that has the principal purpose of assuring referrals by the physician to that entity.

Lastly, any physician that violates the Stark Law may be excluded from participating in the Medicare and Medicaid programs.

If you have questions about the application of the Stark Law to physician arrangements or need legal assistance, please contact us.