Walking You Through The Stark Law: Summary, Violations, & Exceptions

walking you through stark law: what is the stark law, violations of stark law, stark exceptions

What is the Stark Law? It’s a question that plagues any honest physician, surgeon, and medical staff throughout the country. To put bluntly, it’s a complex legal law that applies to physicians that refer Medicare and Medicaid patients for services in which they receive financial compensation or a family member does.  It is a very broadly defined law that is not easy to understand.  Violations of the statute can result in $15,000 fine per statute. Hospitals in several states have been heavily fined over the last few years for violations, and that’s not something that will stop soon.

The law relates largely to referrals, particularly Medicaid and Medicare ones. It was designed to keep physicians from using financial compensation agreements as an incentive to refer patients to specific practices for medical care. Stark law states that when a doctor receives financial compensation or money for a referral, this is a violation of the Stark Law. Financial compensation can come in a number of ways, and whether it’s sending patients to a company that your own shares or have a vested interest in or simply receiving money or gifts from an organization as “thanks” for patient referrals, both are a violation of Stark law.

The fact is that referring anyone to a doctor or medical service that you receive money for may be a violation of this law. This includes laboratories for testing, radiology labs, pharmacies, or any services not part of your medical group. It doesn’t apply to patient referrals within a hospital from one service to another (i.e. a pediatric patient being sent to the same hospital’s radiology department for an x-ray), but rather is in the context of referrals from one healthcare organization to another healthcare organization in exchange for reward.

When you’re a physician entering into any medical business deal, it is advisable to consult with a lawyer if you question that what you are doing violates the Stark law. This applies to medical practices, hospitals and small offices. When money is exchanged it is wise to have a contract specifying the arrangement.

Any physician that refers Medicare and Medicaid patients should ask themselves if they or any member of their family are benefiting financially from the referral.  What health service is this referral for and is there a financial relationship between myself and the facility in question? Is money exchanged or do I own part of the business? Finally, is it legal or illegal?  If the answer is yes to one or more of these questions, it is wise to not make the referral.

Exceptions To The Stark Rule

The Stark law has exceptions when physicians refer a Medicare or Medicaid person to a business that is part of a group.  It is acceptable for in-office services offered for the practice, and with prepaid health plans. It is acceptable if the physician is affiliated with a hospital or group through work and does not receive money for the referral. If money is received for referrals there must be a contract between the physician and the employer. This is another exception in some cases.

The physician must allow the patient to choose another doctor or facility if they prefer to.  Referrals must not be based on volume and dominating the market for profit alone.  Often those in a group can share profits made from referrals. When referring patients for additional services, the other healthcare facility should be part of the group.  Often they will be offered in the same building or nearby.

Other exceptions have to do with a physician renting office space and equipment, then referring patients to that office. In many cases this is not a violation. When there is an employment relationship or the doctor is on staff at the hospital or multiple hospitals, this is another exception.  There are also exceptions for personal service arrangements and physician recruitment.

Stark Law Violations

Violations of the Stark law for medical companies and physicians involve illegal activities. For example, marketing g a drug or treatment not approved by the FDA and receiving payment for it. Submitting false claims to Medicare and Medicaid for services never performed. Paying physicians or doctor’s kickbacks to continually refer or use a certain company or medical facility. Admitting patients and using services for treatments that do not need to be performed or paying physicians far more than the market value.

One hospital found guilty of breaking the Stark law paid money to nursing homes and outside services to receive government contracts or be rewarded contacts that were open for bids. This violates fair competition among different medical groups. Some physicians have been paid by the pharmaceutical industry to prescribe a medication or group of medications to hundreds of Medicare and Medicaid patients. This is a violation of the Stark law.

Kickbacks and illegal compensation for services is the backbone of the Stark law. This often involves money paid by companies to physicians to prescribe only their drugs, to recommend treatments not needed, payments, billing Medicare and Medicaid for services not performed, and the like. Since the Stark laws are complex and do involve contracts and legal arrangements, physicians should contact a lawyer to learn more about Stark laws and how it applies to them and their circumstances.

It is crucial for hospitals, medical practices and any type of physician that refers other services to know Stark law and review it with a lawyer when in doubt concerning Medicare and Medicaid. Stark violations carry a high price in terms of money, fines, and loss of business.  The Stark Law definition is confusing and my need clarificationin your medical practice, doctor’s office, laboratory, nursing home,  or hospital. 

Written by: Joan Russell