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The Stark Law

An Overview: Stark Law Basics

1. What is the Stark Law?

The Stark Law is a healthcare fraud and abuse law that prohibits physicians from referring patients for certain designated health services paid for by Medicare to any entity in which they have a “financial relationship.” The federal government interprets the term “financial relationship” broadly to include any direct or indirect ownership or investment interest by the referring physician, as well as any financial interests held by any of the physician’s immediate family members. Unlike the federal Anti-Kickback Statute, the Stark Law is not a criminal statute. However, the Office of the Inspector General (OIG) for the Department of Health and Human Services (“HHS”) can pursue a civil action against Stark Law violators under the civil monetary penalties law. Stark Law violations can result in penalties of up to $15,000 for each billed service that is based on a prohibited referral, plus three times the amount of the government overpayment.

Representative Matter: DBS attorneys defended a physician group practice against allegations by the Department of Justice, the Office of the Inspector General, and the Centers for Medicare and Medicaid Services that the practice violated the Stark Law and the Anti-Kickback Statute, and negotiated a non-criminal settlement.

2. Strict Liability for the Stark Law

The Stark Law is a strict liability statute, meaning that proof of a physician’s specific intent to violate the law is not required. Therefore, physicians who make prohibited referrals for designated health services even accidentally or unknowingly will still be subject to civil penalties. Physicians who are found to have knowingly and intentionally violated the Stark Law may be subject to increased penalties in the form of an imposed period of debarment or exclusion from participation in Medicare, Medicaid, and all other federal plans and programs that provide health benefits.

3. Exceptions to the Stark Law

There are multiple exceptions to the Stark Law that permit physicians, in certain limited circumstances, to make referrals for federally-covered designated health services. Some of these exceptions include:

  • In-Office Ancillary Services Exception – One primary exception permits a group medical practice to make referrals for in-office ancillary services such as laboratory or radiology services.
  • Fair Market Compensation Exception – A second useful exception to the Stark Law allows for fair market value compensation. The fair market value exception applies where a compensation arrangement is in writing, specifies a timeframe and the compensation that will be provided, involves a commercially reasonable transaction, and meets the “safe harbors” under the Anti-Kickback Statute.
  • Indirect Compensation Exception – Another exception to the Stark Law permits indirect compensation arrangements between a physician and an entity if the compensation received by the referring physician is of fair market value, does not take into account the value or volume of referrals, and is set out in writing and signed by the parties.
  • Non-Monetary Exception – This exception to the Stark Law applies to the payment of non-monetary compensation to a physician of up to $300 per year, if the physician did not solicit the compensation and it does not take into the account the volume or value of referrals.

However, irrespective of the application of one or more of these, or other, exceptions, referring physicians must at all times remember that even though an arrangement may fall within one of the exceptions to the Stark Law, if the referrals are being made in exchange for any type of remuneration they may still violate the federal Anti-Kickback Statute.

Representative Matter: Prior to the sale of a hospital, DBS attorneys reviewed physician contractual arrangements to ensure compliance with Stark Law.

4. Stark Law Enforcement

As is the case with most federal regulatory schemes, the federal government has been vigilant in ferreting out Stark Law violators and severely punishing them as a means of general and specific deterrence. For example, one medical center and hospital agreed to pay $40.9 million and $85 million respectively to settle federal prosecutions for alleged violations of the Stark Law and federal False Claims Act stemming from improper payment arrangements with physicians. Given the severity of these penalties, it is critical for all healthcare providers to fully understand which referrals are permitted and which are prohibited under the Stark Law and other federal statutes. Legal counsel who possesses Stark Law experience can be invaluable in preventing violations altogether by reviewing referral practices and providing training to physicians. And if violations do occur, it is essential to retain healthcare litigation counsel who have experience responding to HHS investigations and dealing with the HHS Inspector General in order to resolve the allegations as expeditiously as possible, and on financial terms that are reasonable and not excessively punitive.

5. The Stark Law vs. The Anti-Kickback Statute

The Stark Law is one of the two main federal statutes that deals with remuneration related to improper referrals, with the other being the Anti-Kickback Statute. Although these two laws are similar, there are several important distinctions between the Stark Law versus The Anti-Kickback Statute.

  • First, as noted above, unlike the Anti-Kickback Statute which includes civil and criminal penalties, the Stark Law is exclusively a civil enforcement statute.
  • Second, the Stark Law is narrower. Whereas the Anti-Kickback Statute applies to Medicare and any federal healthcare program, the Stark Law is limited only to Designated Health Services (DHS) paid for by Medicare.
  • Third, as noted above, the Stark Law is a strict liability statute. This means that while intent is a required element for a violation of the Anti-Kickback Statute, it is not required for a violation of the Stark Law.
  • Fourth, a violation of the Stark Law must involve a referral relationship between a physician and an entity. The Anti-Kickback Statute, on the other hand, applies to any referral source, i.e. not just physicians.
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