Section 1877 of the Social Security Act (“the Act”) (42 U.S.C. 1395nn) is also known as the physician self-referral law and is commonly referred to as the “Stark Law.”
The Stark Law was enacted in 1989 with the simple purpose of curbing physician self-referral. It was originally titled the Ethics in Patient Referrals Act, which was dubbed Stark I after Rep. Pete Stark, a Democrat from California, who sponsored the initial bill.
The original statute sought to ban physician self-referral for designated services when a patient was covered by Medicare or another government payer. Self-referral occurs when physicians refer patients for designated health services to hospitals, labs, and other entities from which they or an immediate family member benefit financially, including from owning part of such hospital, lab, or other entity.
Stark I was originally intended to eliminate any financial motivation for physicians to send patients for unnecessary testing that could raise overall healthcare costs. Stark I was expanded in January 1995, when Stark II went into effect.
Over the next decade, CMS published a series of regulations implementing Stark I and Stark II. Today, there is a widespread group of regulations and statutes collectively named Stark Law.
Stark Law Basics
In essence, the Stark Law does the following:
- It prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship (ownership, investment, or compensation), unless an exception applies.
- It prohibits the entity described above from presenting or causing to be presented claims to Medicare (or billing another individual, entity, or third party payer) for those referred services.
- It establishes a number of specific exceptions for financial relationships between a physician and an entity that do not pose a risk of program or patient abuse.
Stark Law Designated Health Services
The following items or services are considered designated health services under the Stark Law:
- Clinical laboratory services
- Physical therapy services
- Occupational therapy services
- Outpatient speech-language pathology services
- Radiology and certain other imaging services
- 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
Stark Law Exceptions
The Stark Law has numerous exceptions, each of which has detailed requirements. Many of the exceptions require that any compensation paid to a physician not take into account the value or volume of a physician’s referrals or other business generated between the parties to a gainsharing agreement. Many exceptions also require the arrangement to be commercially reasonable and compensation to be at fair market value.
Stark Law Violation
Any provider or organization that violates Stark must repay all Medicare funds paid under the improper arrangement, and the organization could face Medicare exclusion and False Claims Act liability as well.
In addition, if claims are submitted to government payers as a result of a self-referral arrangement that violates the Stark Law, those claims are considered false claims, and the parties to the arrangement may be liable under the False Claims Act.
Stark Law whistleblowers who pursue such actions would be entitled to up to 30 percent of the government’s recovery. The penalties that can be levied under the False Claims Act range from $10,781 to $21,563 per claim.
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