Stark Law

Physician Self-Referral: Stark Law

The physician self-referral law, commonly known as the Stark law, prohibits a physician from making referrals for certain designated health services (DHS) payable by Medicare or Medicaid to an entity with which the referring physician (or the physician’s immediate family member) has a financial relationship. The Stark law also prohibits an entity from presenting, or causing to be presented, claims to Medicare or Medicaid for referred services that violate the self-referral prohibition. If you are trying to determine if an arrangement will violate the Stark law, you should ask yourself if the following four basic elements of the self-referral prohibition apply:

  1. A physician makes a referral to an entity; and
  2. A financial relationship exists between the physician (or the physician’s immediate family member) and the entity; and
  3. The referral is for the provision of a designated health service (DHS); and
  4. The item or service is paid for in whole or in part by Medicare or Medicaid. If you answer yes to all four of the above elements, unless an exception applies, the arrangement will violate Stark.

There are a number of exceptions to the law. Some of the common exceptions that are applicable to office-based practices are the physician services, in-office ancillary services, the personal services arrangements, lease of space, and lease of equipment exceptions. A very common, and very dangerous, misconception about the Stark law is that a group practice exception exists, and that referrals within a practice are always exempt from the law. In reality, there is no separate and distinct group practice exception. There are however several exceptions to the law that hinge on whether or not the group meets the Stark definition of a group practice, such as the in-office ancillary services exception and the physician services exception. See Appendix A for an in-depth breakdown of the Stark definition of a group practice, as well as a breakdown of the elements for each of the six exceptions mentioned above.

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Important Terms and Key Concepts

The Stark law defines terms in a way that may be different from both common usage and usage in the practice of medicine. When reviewing an arrangement, it is critical that you understand the terms as they are defined in the law.

  • Physician – A doctor of medicine, osteopathy, dental surgery, dental medicine, podiatric medicine, or optometry. Chiropractors are also included in the law’s definition of physician.
  • Referral – A request by a physician (including the ordering of, or the certifying or recertifying of the need for) any DHS for which payment may be made under Medicare. The law’s definition of referral includes a request for a consultation with another physician and any test or procedure ordered by, to be performed by, or under the supervision of the other physician. The request or establishment of a plan of care by a physician which includes the provision of DHS constitutes a referral by a referring physician.
  • Referring Physician – A physician who makes a referral, who directs another person or entity to make a referral, or who controls referrals made by another person or entity. A referring physician and the professional corporation of which he or she is a sole owner are considered one and the same under the Stark law.
  • Financial Relationship – A financial relationship can be in the form of a direct or indirect ownership or investment interest in the entity that furnishes DHS. A financial relationship can also be a compensation arrangement between the physician and the entity. Several types of financial relationships can exist between one entity and one physician. Just because one financial relationship satisfies a Stark law exception does not mean every financial relationship between that entity and physician is legitimate. Each financial relationship that meets the four basic elements of the self-referral prohibition must fit into an exception under the Stark law in order to survive scrutiny. Ownership or Investment Interest – debt, equity, or other financial means. Includes an interest in an entity that holds an ownership or investment interest in any entity providing the DHS.
  • Compensation Arrangement – any arrangement involving any remuneration between a physician (or the physician’s immediate family member) and an entity. This includes remuneration that is direct, indirect, overt, covert, in cash and/or in-kind.
  • Immediate Family Member – The law defines immediate family member as any of the following:
    • Husband or wife
    • Children
    • Birth or adoptive parent
    • Sibling
    • Grandparent or grandchild
    • Spouse of a grandparent or grandchild
    • Stepparent, stepchild, stepsibling
    • Father-in-law, mother-in-law, son-in-law, daughter-in-law
    • Brother-in-law, sister-in-law
  • Entity – A physician’s sole practice, a practice of multiple physicians or any other person, sole proprietorship, corporation, partnership, LLC, foundation, nonprofit corporation, unincorporated association, or public or private agency or trust that furnishes DHS. An entity does not include the referring physician himself/herself, but does include his/her medical practice.
  • Designated Health Service (DHS) – The following items and services are DHS:
    • Clinical lab services
    • Durable medical equipment and supplies
    • Home health services
    • Inpatient and outpatient hospital services
    • Occupational therapy services
    • Outpatient prescription drugs
    • Outpatient speech-language pathology services
    • Parenteral and enteral nutrients, equipment, and supplies
    • Physical therapy services
    • Prosthetics, orthotics, and prosthetic devices and supplies
    • Radiation therapy services and supplies
    • Radiology and certain other imaging services

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Stark Law: Q&A

Questions and Answers

Anytime I make a referral of a Medicare or Medicaid patient the Stark law applies?
No. The Stark law applies if you are referring a Medicare or Medicaid patient for a DHS to an entity in which you or your immediate family member has a financial relationship.

What are the exceptions to the Stark law?
There are numerous exceptions to the law. The exceptions commonly utilized by office-based practices are contained in Appendix A. You must meet all of the elements of an exception in order for it to apply and provide protection for an arrangement that would ordinarily violate the self-referral prohibition. You should consult your practice’s compliance officer and/or legal counsel to determine if the exception applies.

If I work in a group practice can I refer a patient to a member of the practice without violating the law?
Maybe. The Stark law contains several exceptions applicable to group practices. The in-office ancillary services exception allows a physician to make a referral within the practice if certain criteria are met. Group practice is specifically defined in the Stark law, and to qualify for the exception your practice must meet the Stark law definition of a group practice. See Appendix A for a breakdown of the elements of the in-office ancillary services exception.

Can I refer a patient to a hospital that my group has an agreement to provide obstetrical services?
Maybe. The personal services exception to the Stark law generally allows a physician to contract with a hospital to provide services if the agreement between the physician and the hospital meets certain criteria. See Appendix A for a breakdown of the elements of the personal services exception.

Once I am protected by an exception to Stark concerning an arrangement with an entity, are all of my business arrangements with that entity exempt?
No. In order for an arrangement to be exempt from Stark, it must meet all of the elements of an applicable Stark exception. Just because a physician has one arrangement with an entity that is protected by an exception does not mean that all prior or subsequent arrangements with that entity are exempt from the law.

Am I protected from liability under the Stark law so long as my business arrangements are conducted at arms-length and are for fair market value?
No. While many exceptions to the law contain provisions that the transactions be conducted at arms-length and for fair market value, these are typically not the only elements of an exception. The arrangement must meet all elements of an applicable exception in order for the exception to provide protection from Stark law liability.

Isn’t the Stark law the same as the Anti-Kickback Statute?
No. Stark and Anti-Kickback are often mistaken as one and the same. The Anti-Kickback Statute is a law in its own right, separate and distinct from the Stark law. While both laws deal with physician referrals, the Anti-Kickback statute has a much broader scope than Stark. However, it is important to note that for every arrangement where the Stark law applies, the Anti-Kickback Statute will also apply. When conducting an analysis of your business arrangements, you should check for compliance with both laws. If you survive the Stark law analysis, you should test whether the arrangement will violate the Anti-Kickback Statute.

What if I accidentally violate the Stark law? Will I still be penalized?
Yes. The Stark law is a strict liability law, which means that even those arrangements that were established with good intentions are still punishable under the law.

What are the penalties for violating the law?
The government can impose various penalties for violating Stark. All amounts that were billed to Medicare and Medicaid in violation of the law will have to be returned. In addition to repayment, civil monetary penalties up to $15,000 for each DHS, civil monetary penalties of up to $100,000 for each arrangement developed with the purpose of circumventing the law, and potential exclusion from the Medicare program are penalties for violating the law. Because Stark prohibits an entity from presenting, or causing to be presented, claims to Medicare or Medicaid for those referred services that violate the law, Stark violations can also be the basis for violation of the federal Civil False Claims Act. Violation of the federal Civil False Claims Act carries its own set of penalties, including damages of up to three times the amount of the claims presented that violate the law.

Where can I find more information about the Stark law?
The CMS Website contains a wealth of information concerning the Stark law. CMS’s educational materials on Stark can be accessed via the following link: Another great resource is the U.S. Department of Health and Human Services Office of the Inspector General. The OIG’s Compliance 101 education and training materials were developed in coordination with the U.S. Department of Justice’s Health Care Fraud and Enforcement Action Team (HEAT). The materials can be accessed via the following link:

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Disclaimer: The information presented above was current at the time it was published on the website. Medicare, Medicaid, and CHIP legislation and enforcement policies change frequently. It is always a good idea to check with your compliance department and/or legal counsel on legislation that impacts your medical practice.