Stark Law

The Federal Physician Self-Referral Act is commonly referred to as “Stark.” The Stark law, so named for its congressional proponent, Congressman Pete Stark, is a prohibition against “self-referrals” in the health care system. Specifically, Stark prohibits a physician from making referrals to an entity for certain designated health services [Page 516]if that physician or a member of the physician's immediate family has a direct or indirect financial relationship with that entity and payment for those services will be made by Medicare or Medicaid.

The Stark law was actually passed in two phases. Phase 1 pertained to only one designated health service—clinical laboratories. The law was passed following a study that found that where physicians had a financial interest in a clinical lab, there was a tendency to order more tests than in situations where there was no financial relationship. Because extra tests represent extra costs to the health care system, Stark 1 was passed in an effort to contain health care costs by prohibiting referrals to clinical labs in which the referring physician had a financial interest. In 1993, the Stark law was amended to include 10 additional designated health services. The new designated health services include

• Physical therapy services
• Occupational therapy services
• Radiology services (MRIs, CT scans, PET scans, ultrasound, and so on)
• 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
• Inpatient and outpatient hospital services

The Stark law applies only to physician referrals, only to the eleven specific health services named in the statute, and only when payment is to be made by Medicare or Medicaid. Violation of the statute occurs when such a referral is made to an entity with which there is a personal or familial financial relationship. A financial relationship includes both ownership or investment interests and a compensation arrangement. A compensation arrangement involves an arrangement between a physician and an entity whereby the entity pays remuneration to the physician.

No specific intent is required to violate the law, but the sanctions for violating Stark can be quite severe. For instance, if a physician refers Medicare patients to a laboratory for blood tests and that physician is an investor in that lab, this may constitute illegal referrals under Stark if no exception applies. The lab is not entitled to collect payment from Medicare for the tests, because of the prohibited referrals. Therefore, on discovery of the improper payments the lab would be required to report improper payments and return the payments to Medicare. In addition, the lab may be subject to civil monetary penalties of up to $15,000 per claim and possible exclusion from the Medicare program. Failure to report the improper payment in a timely manner following discovery could result in additional penalties of up to $10,000 per day and possible liability under the False Claims Act.

There are numerous exceptions to the general prohibitions under Stark. For instance, one such exception exists where there is a bona fide employment arrangement. In this example, if the physician's financial relationship was based on the fact that the physician was an employee of the lab rather than an investor in the lab, the referrals would be allowed provided that the remuneration to the physician was fair market value and not based on the volume or value of referrals.

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