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Understanding Stark Law And Preventing Violations

Thursday, March 5th, 2015

Healthcare organizations often stumble across Stark Law requirements by accident, and many times, their encounter is not a pleasant one. Healthcare entities discover potential violations of Stark Law during routine compliance audits without even knowing the event occurred until it is too late. Healthcare organizations should have an understanding as to what Stark Law is, when it applies, and what the exceptions are to the law. The penalties for violating Stark Law can be severe and the best way to avoid civil monetary penalties, or even prison time, is by having an experienced healthcare attorney review all business and referral arrangements.

What Is Stark Law?

The Stark Law refers to Section 1877 of the Social Security Act. This law places limitations on certain physician referrals for Medicare and Medicaid patients.

In 1988, Pete Stark proposed the Stark Law to prevent medical doctors from sending Medicare and Medicaid patients to any healthcare entity to which the doctor, or an immediate family member, has a financial interest. Congress passed the law in 1989 and it became effective in 1992. This law was then expanded in 1995 in what is referred to as Stark II.

When Does Stark Law Apply?

For Stark Law to become an issue, the arrangement must involve three components.

First, the referral must be for a Medicare or Medicaid patient by a physician or by the physician’s immediate family member. The law covers all medical physicians, dentists, optometrists, and chiropractors. Close family members include spouses, parents, children, siblings, stepchildren, stepparents, in-laws, grandparents, grandchildren, and the spouses of any of those people.

Second, the referral must be for a designated health service (DHS). The list of DHSs covered in the Act include, but are not limited to, clinical laboratory services, physical therapy, occupational therapy, radiology services, radiation therapy, durable medical equipment, prosthetics, orthotics, home health services, and outpatient prescription services.

Third, there must be a financial relationship between the referring physician (or family member) and the entity to which the referral is made. The financial relationship can be ownership, investment interest, a compensation arrangement, or remuneration.

Are There Exceptions To Stark Law?

Stark Law does provide extensive exceptions to ensure that patient healthcare is not compromised due to its provisions. There are over 30 exceptions to this law, with each exception having multiple provisions.

One of the exceptions is referring a patient to another doctor in the same physician group. Some practices have doctors who specialize in different medical fields or who have special training in certain medical procedures. Referring a patient to another physician within the same practice is allowed.

Another exception is for additional services within the physician’s office. Many physician’s offer designated health services (X-rays, for example) for the care and convenience of the patient.

Prepaid healthcare plans are another exception to the Stark Law provisions. This exception extends to organizations that are part of qualified health maintenance organizations (HMOs) or Medicaid prepaid plans. These organizations must have a current contract that meets certain provisions within the Social Security Act.

The intra-family rural referral exception helps protect patients who live in rural areas without many healthcare options. A physician is allowed to refer a patient if there is no other provider who can furnish the services needed within 25 miles of the patient’s residence or 45 minute transportation time. The 45 minute travel time exception can be dependent on distance, speed limits, and weather conditions.

What Are The Potential Penalties For Violating Stark Law?

The penalties can be quite severe. Anyone found guilty of violating Stark Law can face a $15,000 fine for each instance, as well as denial or refund of payment. If the person is found guilty of taking action to circumvent the provisions of Stark Law, a penalty of up to $100,000 can apply for each arrangement found.

What Is The Best Way To Prevent Stark Law Violations?

Seeking a qualified healthcare attorney to review all business and referral arrangements first will eliminate or drastically reduce the chances of a Stark Law violation happening.

Brown & Fortunato can assist you and your organization with avoiding potential penalties under Stark Law by reviewing your business referral relationships. Brown & Fortunato’s Healthcare Group has experience in advising and representing physicians and healthcare organizations. Give us a call at (806) 345-6320. You can send us an email on our Contact Us page. You can also read more about our practice on our website. Our office is located at 905 S. Fillmore, Suite 400 in Amarillo, Texas. We look forward to helping you with all your legal needs.

This information is subject to change. Please check for updates that are more recent than the published date of this article.