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What is the Stark Law?

The Stark Law, named after U.S. Congressman Pete Stark, is an amendment to the Social Security Act, which governs referrals of Medicare patients to facilities where the physician has a direct or indirect financial interest. These are known as self-referrals.

Violations of Physician Self-Referral[i] (Stark) and Anti-Kickback[ii] laws may be difficult to detect, but can result in major penalties, and lead to both civil and criminal investigations and litigation. It is imperative to avoid even the appearance of impropriety. Although there are some exceptions, under Stark laws, a physician, or other health care provider such as a dentist, optometrist, or even a chiropractor may not refer patients to receive designated health care services that the provider or the immediate family member of the physician has a financial interest[iii]. A designated service may include clinical lab services, physical therapy, and home health services, but physician service is not included under this definition[iv]. Financial relationships include any ownership interest, compensation agreements, or even investment interests. Violations are evaluated under a strict liability standard, therefore lack of intent will not shelter a physician or entity from Stark liability.

Some key questions to be asked are whether the providers are being paid more if they refer business to the entity, and whether the payment arrangement with the provider is commercially reasonable or represents fair market value excluding the value of the referrals from the physician. Keeping this in mind, if the hospital pays a physician greatly over the fair market value, this may open the hospital or entity up for an audit from the Department of Justice or from Medicare. Because there had been an increase in physician acquisition by hospitals, and an increased hospital employment of providers, entities must be careful about not only violations, but also situations that could present the impression of a violation.

Entities are required to self-report within 60 days any potential violations. Violations carry severe monetary penalties including treble damages for a knowing violation, potential liability under the False Claims Act, and an exclusion from Medicare reimbursements (which may likely shut down the entity).

It is important to have a good compliance program, which should include a company officer and counsel to review policies, procedures, and contracts that apply to physician, providers, and services. Fair market values of office spaces for physician groups should be regularly documented and compiled, and compliance personnel should ensure that physicians are not receiving more compensation for services beyond which they actually perform. As always, generating and maintaining proper documentation and records is paramount to prevent or defend from any asserted charges of Stark Law violations.

If you have any questions about the Stark laws, please don't hesitate to contact Steven Clark at The Clark Firm.


[i] 42 U.S.C. 1395

[ii] 42 U.S.C. §1320a-7b(b)

[iii] 42 U.S.C. 1395

[iv] 42 U.S.C. 1395x(q).

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