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The Stark Law and Doctor Referrals

The Stark Law, or the Physician Self-Referral Law, is federal anti-fraud legislation that prohibits physicians from engaging in self-referrals. The law prohibits hospitals and other health care entities from billing Medicare or Medicaid for some services referred by doctors under certain circumstances. Specifically, the 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; and
  • No exception to the Startk Law applies.

Designated Health Services

The doctor referral prohibition only applies to "designated health services," which include:

  • Clinical laboratory services;
  • Physical therapy;
  • Occupational therapy;
  • Radiology and imaging services;
  • Radiation therapy services and supplies;
  • DME and supplies;
  • Prosthetics, orthotics, and prosthetic devices and supplies;
  • Home health services; and
  • In-patient and outpatient hospital services.

Financial Interests

Within the context of this law, the financial interest can be an ownership interest, investment, or other compensation arrangement.

For instance, a physician employed at a hospital receives a performance bonus based on the number of non-invasive procedures ordered at the hospital. This applies not only to the physician, but also to members of their immediate family; the "immediate family" is defined broadly and includes: spouses, birth/adoptive parents, child or siblings, stepparents, stepchildren, in-laws, grandparents, and grandchildren.

A significant reason for forbidding this type of doctor referral is to eliminate physician conflicts of interest which threaten patient care. Instead of using a patient's medical needs or a doctor's expertise as a basis for care, the decision is based on the physician's financial interests.

If the physician benefits financially from the referral, then it's likely that the services would be used disproportionately and could lead to an increase in rising medical costs. Because the doctors would push the entities where they can personally gain, rather than other facilities, a patient's choices become more limited.

The Stark Law and Doctor Referrals: Exceptions

One exception to the doctor referral prohibitions in the Stark Law is when physicians make orders for lab work or radiology to be performed in their office. Additionally, other exceptions involve bona fide employment relationships involving the physician's compensation, if certain conditions are met. For example, a bona fide employment relationship exists where the compensation:

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

Strict Liability

The Stark Law is a strict liability statute, which means that a physician's intent isn't taken in consideration when assessing doctor referrals. Therefore, a physician can run afoul of the law without intending to do so and can still be subject to punishment.

Penalties for Stark Law Violations

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 2x the reimbursement claimed;
  • $100,000 civil monetary penalty for each arrangement considered to be a circumvention scheme; and
  • Exclusion from Medicare and Medicaid programs.

The False Claims Act

Although a Stark Law violation can result in severe penalties, the statute doesn't provide for a private cause of action. This means that private individuals, (patients) can't initiate a lawsuit against a health care provider based on the provider's Stark Law violations. However, Stark Law violations often are violations under the False Claims Act as well.

Stark Law violations can be used to file a lawsuit under the False Claims Act (FCA), a federal law that prohibits business entities from defrauding the government by submitting fraudulent claims. For example, a claim may be filed if a doctor performs medically unnecessary procedures and bills Medicare for the procedures when the patient's condition could be legitimately treated with medication instead.

Need Help Identifying Stark Law Violations? Get Help from an Attorney

When a provider violates the Stark Law by engaging in prohibited doctor referrals, a patient's care can be compromised. If you believe that you've been adversely affected by this, then you will want to consult with an experienced attorney who can help you navigate through this complex area of law to explore your options. Contact a health care attorney located near you right away to learn more.

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