Federal law governs financial arrangements between providers, medical practices, and healthcare facilities. 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 the physician has a “financial relationship.”
Designated Health Services means any of the following services: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and outpatient speech-language pathology services; (3) radiology and other imaging services; (4) radiation therapy services; (5) durable medical equipment and supplies; (6) parenteral and enteral nutrients, equipment and supplies; (7) prosthetics, orthotics, and prosthetic devices and supplies; (8) home health services; (9) outpatient prescription drugs; (10) inpatient and outpatient hospital services.
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, in an entity that furnishes designated health services.
The Stark Law is a strict liability statute, meaning proof of a physician’s specific intent to violate the law is not required. However, 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. The restrictions on patient referrals are broad, and many common arrangements require meeting an exception to the Stark law. There are multiple exceptions to the Stark Law that permit physicians, in certain limited circumstances, to make referrals to federally covered designated health services. Some of these exceptions include:
- In-office ancillary services – one exception permits a group medical practice to make referrals for in-office ancillary services such as laboratory or radiology services.
- Fair Market Compensation Exception – The fair market value exception applies where a compensation arrangement is in writing, specifies a time frame 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 – an indirect compensation arrangement between a physician and an entity if the compensation is 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 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 account the value or volume of referrals.
A physician practice would be well advised to have standards and procedures that encourage compliance with the physician self-referral law. Remuneration for referrals is illegal because it can distort medical decision-making, cause overutilization of services or supplies, increase costs to Federal health care programs, and result in unfair competition by shutting out competitors who are unwilling to pay for referrals. Remuneration for referrals can also affect the quality of patient care by encouraging physicians to order services or supplies based on profit rather than the patients’ best medical interests.
In particular, arrangements with hospitals, hospices, nursing facilities, home health agencies, durable medical equipment suppliers, pharmaceutical manufacturers and vendors are areas of potential concern. Whenever a physician practice intends to enter into a business arrangement that involves making referrals, the arrangement should be reviewed by legal counsel familiar with the physician self-referral law.
Barney Cohen has years of experience as a Stark Law Attorney, rendering advice and counsel to physician practices.