When engaging in business relationships in the health care industry, providers must comply with laws targeting fraud and abuse, such as the federal Stark law, and similar state self-referral laws. Benkoff Health Law advises clients as to the applicability of Stark and state self-referral laws and provides practical solutions to the complications posed by these laws.
What is the Stark Law?
The Stark Law (“Stark”) is a federal self-referral law that bans physicians from referring certain services that are reimbursable by Medicare or Medicaid, referred to as designated health services (“DHS”), to entities that the physicians or their immediate family members have a financial relationship with. Three main concepts of Stark’s ban on physician self-referral include: (1) physician referral; (2) DHS; and (3) financial interest. All three concepts must be implicated in order for Stark to apply to a given situation.
Stark is what is known as a strict liability law, which means that the parties’ intent to violate the law is not considered when the government determines whether a violation has occurred. As a result, understanding whether Stark is implicated in an arrangement involving a physician is essential.
Stark is a very technical law and it applies differently to different fact patterns. If Stark is implicated by a certain fact pattern, then that arrangement must be structured to comply with an exception to Stark. At Benkoff Health Law, we have extensive experience analyzing arrangements under Stark and interpreting Stark’s regulatory guidance. We focus on providing clients with creative and compliant business solutions in response to impediments caused under Stark.
What are Physician Referrals under Stark?
Stark applies to certain referrals made by physicians. For purposes of Stark, the term “physicians” includes: doctors of medicine (MD), doctors of osteopathy (DO), doctors of dental surgery (DDS), doctors of dental medicine (DMD), doctors of podiatric medicine (DPM), doctors of optometry (OD), and chiropractors (DC).
In order for Stark to apply, a physician must make a referral. In general, Stark broadly defines the term “referral” to include a request by a physician for a DHS payable under Medicare or Medicaid. The definition of referral includes the request by a physician for consultation with another physician and any test or procedure ordered or performed by the consulting physician payable under Medicare Part B. In addition, a referral under Stark includes a request by a physician for the establishment of a plan of care that includes the provision of a DHS. Referrals can be in written, oral, electronic or any other form.
Notably, there are some exceptions to the definition of a referral under Stark. One exception is that a physician is not considered to have made a referral for a DHS if that physician personally performs all aspects of the referred DHS. There are also exceptions to Stark’s definition of referral for certain DHS ordered by pathologists, radiologists and radiation oncologists.
Determining whether a referral exists is an essential part of any Stark analysis, because if there is no referral under Stark, the law does not apply.
What are Designated Health Services (DHS)?
Stark only applies to physician referrals for designated health services (“DHS”) that are reimbursable under Medicare and Medicaid. DHS include:
- Clinical laboratory services;
- Physical therapy, occupational therapy, and 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; and
- Inpatient and outpatient hospital services.
Notably, DHS do not include services that are reimbursed as part of a composite rate, except for services listed above that are themselves payable through composite rates (e.g., home health services, inpatient hospital services, and outpatient hospital services).
Each of the above categories of DHS are further defined under Stark. Determining whether the services being referred by physicians are DHS is a threshold matter to understanding whether Stark applies to a given arrangement.
Does a Financial Relationship under Stark Exist?
For purposes of Stark, a financial relationship includes:
- Direct and indirect ownership and investment interests in an entity that furnishes DHS through equity, debt or other means; and
- Direct and indirect compensation arrangements involving any remuneration between a physician and an entity that furnishes DHS. Remuneration includes all types of remuneration, direct or indirect, overt or covert, in cash or in kind.
There are certain circumstances in which Stark will treat a physician as “standing in the shoes” of an entity that the physician owns, invests in, and/or has a compensation relationship with. Also, if an immediate family member of a physician who refers DHS has a direct or indirect ownership, investment or compensation relationship with the entity furnishing DHS, the physician will be treated as having that same financial relationship for purposes of Stark. Immediate family members include: husbands and wives, birth or adoptive parents, children and siblings; stepparents, stepchildren, step siblings; father-in-laws, mother-in-laws, son-in-laws, daughter-in-laws, brother-in-laws, and sister-in-laws; and grandparents, grandchildren and their spouses.
In addition, the financial relationship must be between the physician (directly or indirectly) and an entity that furnishes DHS. Whether an entity “furnishes” DHS is a question that must be answered in the course of a Stark analysis pertaining to a specific fact pattern.
It is important to understand whether a physician has a financial relationship with an entity that furnishes DHS for purposes of Stark because, absent a financial relationship, Stark will not apply to the arrangement.
What to do if Stark Applies – Meeting an Exception
In the event that an arrangement with a physician implicates Stark, it must be structured to comply with an exception to Stark. Stark includes exceptions that are specific to ownership and investment relationships and compensation relationships. Because Stark is technical and the parties’ intent to comply is of no significance, all elements of an applicable Stark exception must be complied with.
Commonly used Stark exceptions include:
- In-office ancillary services exception;
- Physician services exception;
- Rental of office space exception;
- Rental of equipment exception;
- Bona fide employment relationships exception;
- Personal service arrangements exception;
- Physician recruitment exception;
- Isolated transactions exception;
- Fair market value compensation exception; and
- Timeshare arrangements exception.
Determining which exception to use in the event that Stark applies is a critical part of the structure of any arrangement that implicates Stark. Oftentimes multiple exceptions are available for use in a given fact pattern. Further, the complexities of an arrangement may require that more than one Stark exception be used in order for the arrangement, as a whole, to comply with Stark. Further, in the event that Stark compliance under an applicable exception is unclear, the parties to the arrangement can avail themselves of the CMS advisory opinion process.
Benkoff Health Law is highly experienced in guiding clients with respect to which Stark exception(s) should be used in a given situation to meet our clients’ business and legal needs.
What Happens if Stark has been Violated?
Stark prohibits physicians from making referrals that violate Stark and it also prohibits the entity that receives any prohibited referrals of DHS from presenting claims to Medicare or Medicaid for those services.Penalties for violating Stark can be severe and include denial of payment, refund of payment, imposition of a $15,000 per service civil monetary penalty and imposition of a $100,000 civil monetary penalty for each arrangement considered to be a circumvention scheme.
In the event that a party involved in an arrangement suspects that the arrangement does not comply with Stark, it is imperative that the parties seek legal advice to determine whether a Stark violation has occurred. Benkoff Health Law performs in-depth retrospective analyses into existing relationships to determine whether Stark has been complied with. If a legal analysis reveals that Stark has been violated, the parties have 60 days to either return the overpayment to Medicare and Medicaid or submit a self-disclosure to CMS pursuant to the self-referral disclosure protocol. We are experienced in assisting clients with the self-disclosure process.
State Self-Referral Law Overview
States often have self-referral laws pertaining to health care professionals that prohibit those professionals from making referrals under certain circumstances. Some state laws are similar to Stark, some explicitly refer to Stark, and others differ from Stark. State laws vary and can be more or less restrictive than Stark.
In addition, state self-referral laws may apply to a broader array of health care professionals than only the “physicians” that Stark applies to. State self-referral laws often cast a wider net than Stark and apply to a broader range services than Stark’s DHS and the laws often apply to services reimbursable by Medicaid, commercial payors, and private (cash) payors.
The penalties for violating state self-referral laws also vary and may include fines and penalties, jailtime, and loss of professional licensure. We recommend that a state self-referral analysis be conducted for any arrangement that involves health care professional referrals.
For more information about Stark, please see the Center for Medicare and Medicaid Services Physician Self-Referral page.