Healthcare Conflicts of Interest: The Stark Law and Doctor Referrals

The Stark Law, or the Physician Self-Referral Law, is a collection of federal anti-fraud regulations prohibiting physicians from engaging in self-referrals. The Stark Law prohibits hospitals and other healthcare entities from billing Medicare or Medicaid for some services referred by doctors under certain circumstances. 

It is one of several federal laws designed to deter abuse of federal health care programs, including the Anti-Kickback Statute (AKS) and the False Claims Act (FCA). Keep reading to learn more. You can also bring your questions to a local healthcare attorney for targeted legal advice.

Stark Law: Background and History

The history of the Stark Law goes back to 1988. Peter Stark first proposed legislation to regulate physician self-referrals. Parts of that original bill addressing Medicare laboratory fraud were codified into law at 42 U.S.C. 1395nn. (Section 1877 of the Social Security Act). 

Congress expanded the Stark Law in the Omnibus Budget Reconciliation Act of 1993 to include Medicaid and designated health services other than clinical laboratories.

The Centers for Medicare & Medicaid Services (CMS) has expanded the Stark Law through final rulemaking.

Understanding the Stark Law

The Stark Law is a strict liability federal law that regulates physician self-referral. This means this law does not require specific intent to defraud the federal government. Physician self-referral occurs when the following two things occur:

• A physician steers a patient to a service or product (designated health services)
• The physician or one of their immediate family members has a financial interest in the service or product

Medical Decision-Making

Proponents of this law believe that physician self-referral harms patients by hampering medical decision-making. Healthcare professionals should make patient referrals based on patient needs, not on their financial interests.

Specifically, the Stark law prohibits referrals to other physicians or entities where the following apply:

• The referral is for designated health services
• The services are payable by Medicare or Medicaid
• The physician or their immediate family member has a financial interest (direct or indirect) in the referral
• No safe harbor exemption applies

Financial Relationships Defined

The Centers for Medicare and Medicaid Services (CMS) defines financial relationships as follows: “A financial relationship may be an investment or ownership interest in the entity or a compensation arrangement with the entity.”

Here is an example of a financial relationship:

A physician employed at a hospital receives a performance bonus based on the number of non-invasive procedures ordered at the hospital. This scenario is an example of a physician’s conflict of interest that threatens patient care by opening the door to decisions based on the physician’s financial interests.

Immediate Family Members

Physician self-referral laws also apply to their immediate family members. Immediate family members include, but are not limited to, the following:

• Spouses
• Birth/adoptive parents
• Children
• Siblings
• Step-parents/Step-children
• In-laws
• Grandparents and grandchildren

A significant reason for prohibiting this type of doctor referral is to eliminate physician conflicts of interest that threaten patient care. Instead of using a patient’s medical needs or a doctor’s expertise as a basis for care, the referring physician’s financial interest informs the decision.

Designated Health Services

The physician self-referral prohibition only applies to the following designated health services:

• Clinical laboratory services
• Outpatient prescription drugs
• Speech-language pathology services
• Physical therapy
• Radiology and imaging services
• Occupational therapy
• Radiation therapy services and supplies
• Home health services
• Prosthetics, orthotics, and prosthetic devices and supplies
• Inpatient and outpatient hospital services
• Durable medical equipment and supplies

If the physician gains financial benefits from the referral, they risk a Stark Law violation. The incentive of the physician to increase their financial gain is being placed before the needs of the patient.

Stark Law Exceptions

One exception to the doctor self-referral prohibitions in the Stark Law is when physicians order lab work or radiology for their in-office lab. In addition, the Stark Law exempts bona fide employment relationships involving the physician’s compensation under specific conditions. For example, a bona fide employment relationship exists where the compensation:

• Is commercially reasonable
• Doesn’t exceed fair market value
• Is determined in advance
• Is not determined by the volume or value of the referrals

The Stark Law applies to federal health care programs, like Medicare or Medicaid. It does not apply to private insurance.

Stark Law Violations And Enforcement

Doctor referrals under the Stark Law aren’t considered criminal acts. However, anyone who violates the Stark Law can face civil penalties. Penalties for Stark Law violations include the following:

• Denial of payment for services
• Refund of payments
• Fines of $15,000 for each claim submitted, plus two times the reimbursement claimed
• $100,000 civil monetary penalty for each arrangement considered to be a circumvention scheme
• Exclusion from Medicare and Medicaid programs

The following federal agencies enforce the Stark Law:

• U.S. Department of Health and Human Services (HHS) 
• Office of Inspector General(OIG)
• Centers for Medicare & Medicaid Services

Violations of the Stark Law are taken very seriously.

Stark Law Concerns? Get Legal Help

Healthcare providers who violate the Stark Law compromise patient care. You should speak to a healthcare lawyer if you believe you have experienced a Stark Law violation. They are experts in health care law and can give you sound legal advice. 

FindLaw’s directory of healthcare attorneys can get you started. Enter your city or ZIP code for a list of qualified legal professionals near you. Because your state’s laws are relevant, your attorney should be licensed in your state. Your search results will also show important details about prospective attorneys, like ratings and whether they offer free case evaluations.