The Stark Law and you

13 Jan

Many of us blissfully go to the doctor, well usually when something is wrong, and don’t think much about the business of medicine.  With the Obama Care debate ongoing and the skyrocketing costs associated with all aspects of healthcare, I think all of us are interested in keeping the costs and therefore the money coming out of our pockets to a minimum.  I have three clients who are healthcare focused entities, in different areas, but that must complied with laws meant to protect the interests of patients.  One such law is called “The Stark Law”.  As I feel that this will be of interest to some other businesses, I thought that I would publish this (much of this is taken from the website

The physician referral law (section 1877 of the Social Security Act) prohibits a physician from referring patients to an entity for a designated health service (DHS), if the physician or a member of his or her immediate family has a financial relationship with the entity, unless an exception applies. (The exceptions are specified in 42 CFR Part 411, Subpart J.) The law also prohibits an entity from presenting a claim to Medicare or to any person or other entity for DHS provided under a prohibited referral. No Medicare payment may be made for DHS rendered as a result of a prohibited referral, and an entity must timely refund any amounts collected for DHS performed under a prohibited referral. Civil money penalties and other remedies may also apply under some circumstances.

My hospital has physician recruiting contracts that predate the Stark Phase II interim final regulations. Do these contracts need to comply with the new regulations?

Yes, all recruiting arrangements must comply with the new regulations as of July 26, 2004. Each financial relationship with a physician must be evaluated for compliance with the Stark law based on its specific facts and circumstances. However, we are mindful of the concerns raised by the question and can offer the following observations. First, the Stark law is a self-implementing statute that went into full force and effect on January 1, 1992 with respect to referrals for clinical lab services and January 1, 1995 with respect to referrals for other designated health services. Accordingly, parties have had a legal obligation to comply with the statute since those effective dates. In the absence of final regulations for a particular exception, parties must have complied with a reasonable interpretation of the statute. Second, the Phase II regulation, including the new exception at � 411.357(e)(4) for certain joint recruitment arrangements, went into full force and effect on July 26, 2004. Thus, a hospital-funded recruitment arrangement in which the recruited physician is subject to a restriction against competing with the group will not comply with the new joint recruiting exception in the Phase II regulations. Parties should document that any non-compete clause is void and will not be enforced. Third, continuing obligations (i.e., obligations for which performance is not yet required or is not yet complete) under a pre-existing recruitment arrangement must comply with the Phase II regulations as of July 26, 2004. For example, past payments under an income guarantee need not be recalculated so long as, at the time they were paid, the arrangement complied with a reasonable interpretation of the statute. Finally, in addition to the Stark law, all recruitment arrangements are also subject to the Federal anti-kickback statute located at section 1128B(b) of the Social Security Act (42 U.S.C.1320a-7b(b)), which may prohibit recruitment arrangements even if they do not violate the Stark law. Inquiries with respect to that statute should be directed to the Office of Inspector General.

There are two references in the Phase III preamble (72 FR 51033, 51045) that appear to prohibit referrals for ancillary services provided in office space and using equipment that is leased other than in a block lease arrangement. May a group practice provide and bill for ancillary services provided in shared office space using shared equipment if the supervision requirement for the particular service is satisfied by a “member” of the group and the arrangement otherwise complies with Medicare coverage and reimbursement regulations?

Yes. Services that qualify for the in-office ancillary exception in �411.355(b) must satisfy performance, location, and billing requirements. In order to satisfy �411.355(b)(1), a service must be furnished personally by: (i) the referring physician, (ii) a physician who is a member of the same group practice as the referring physician; or (iii) an individual who is supervised by the referring physician or, if the referring physician is in a group practice, by another “physician in the group practice.” A “physician in the group practice” is defined at �411.351 to include both a “member” of the group practice as well as an independent contractor during the time the independent contractor is performing services in the group practice’s facilities. Assuming that the location and billing requirements in �411.355(b) are satisfied, in-office ancillary services supervised by a member of the group practice would not be subject to the referral prohibition.

Are dialysis facilities required to limit compensation for medical director services to the amount allowed under the fair market value “safe harbor” provision in the Stark Phase II interim final regulations?

No. In an effort to address public concerns about how to determine fair market value for medical director compensation, the Stark Phase II regulations provide a “safe harbor” under the definition of “fair market value” at �411.351 for hourly payments to physicians that are calculated using one of two specified methodologies. However, use of the safe harbored methodologies is strictly voluntary. Parties may use other appropriate methodologies to determine whether compensation is fair market value. DHS entities that choose to use either of the two safe harbor methodologies will be assured that their compensation rates will be deemed fair market value for purposes of the Stark law. For more information on the safe harbor methodologies, see the Phase II preamble discussion at 69 Fed. Reg. 16092 and the definition of “fair market value” at 42 C.F.R. � 411.351.

Is physician ownership a prerequisite for meeting the definition of “physician organization” or “physician practice”? In other words, must all “physician organizations” or “physician practices” have at least one physician owner?

No. Physician ownership is not determinative as to whether an entity (regardless of its legal form, for example, limited liability company, professional corporation, etc.) is a “physician organization.” We note that 42 C.F.R. �411.352 states that, with respect to a group practice (which is a “physician organization”), the single legal entity that is the group practice may be organized by any party or parties, including, but not limited to, physicians, health care facilities, or other persons or entities. Likewise, physician ownership is not determinative as to whether an entity (regardless of its legal form, for example, limited liability company, professional corporation, etc.) is a “physician practice.”

If a hospital (or other Part A provider) directly employs or contracts with physicians to provide physician services to hospital patients, does that make the hospital (or other Part A provider) a “physician organization”?

A hospital (or other Part A provider) is not considered to be a “physician organization” simply because it has employment or contractual arrangements with physicians for the provision of patient care services.


What is the Stark ban on physician self-referral?

The Stark II ban took effect on January 1, 1995. On January 4, 2001, the Centers for Medicare and Medicaid Services (“CMS”), which oversees enforcement of the Stark ban, issued the first part of final regulations implementing the ban. The Phase I final regulations took effect on January 4, 2002 and contained many changes to the Stark II ban that directly impacted healthcare providers’ common business relationships. Phase I of the rule addressed Section 1877 of the Act, paragraphs (a) and (b), regarding the general prohibition and the exceptions related to ownership and investment interests; the statutory exceptions for certain compensation arrangements; and the reporting requirements. Additionally, Phase II creates new regulatory exceptions and addresses public comments on Phase I of the rulemaking. Phase I and Phase II of the final regulations are intended to be integrated and read together as a whole. Modifications and revisions to Phase I are indicated in the Phase II preamble and corresponding regulations. The Phase I and Phase II rules together supersede the 1995 final rule (60 Fed. Reg. 41914), which had been applicable to clinical laboratory services. On September 5, 2007, CMS issued Phase III of the final regulations. Phase III responds to comments on Phase II and, thus, addresses the entire Stark regulatory scheme. Phases I, II and III of the rulemaking are intended to read as a unified whole. CMS states that except as otherwise noted, to the extent that the preamble in Phase III uses different language to describe a concept that was addressed Phase I or Phase II, the intent is to expound on previous discussions, not to change the scope or meaning.

What are the penalties for violating the Stark ban?

Penalties for violating Stark can be severe. They include denial of payment, refund of payment, imposition of a $15,000 per service civil monetary penalty and imposition of a $100,000 civil monetary penalty for each arrangement considered to be a circumvention scheme.


© 2012 by Rhodes Holdings LLC and portions by

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Posted by on January 13, 2012 in BLOG


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