State and Federal Restrictions on Physician Referral to Self or Other Health Care Entities (the Stark Law)

State and Federal Restrictions on Physician Referral to Self or Other Health Care Entities (Stark Law)

Federal restrictions on physician self-referral prevent doctors from prescribing “designated health services” (DHS) that are payable by Medicare or Medicaid to an entity with which the physician has a financial relationship. Each state also has a variation of these regulations, which may or may not emulate federal law.

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Federal restrictions on physician self-referral prevent doctors from prescribing “designated health services” (DHS) that are payable by Medicare or Medicaid to an entity with which the physician has a financial relationship. These regulations are generally known as the Stark law. The Centers for Medicare and Medicaid Services develop, publish, and enforce regulations relating to the Stark law. Each state also has a variation of these regulations, which may or may not emulate federal law. 

For example, if a physician owned a physical rehabilitation facility, that physician would not be permitted to refer patients to that facility unless an exception applied. The physical rehabilitation facility would not be permitted to bill for any patients referred by the connected physician. 

What does the Stark law cover?

The Stark law covers physicians, which include doctors of medicine or osteopathy, doctors of dental surgery or dental medicine, and doctors of podiatric medicine, optometry, and chiropractic medicine. It has three main elements:

  1. The law prohibits a physician or immediate family member from referring DHS to an entity in which the doctor has a financial relationship. This relationship can be an investment, ownership, or arranged compensation, and the prohibition is applicable to services that are paid for by Medicare and Medicaid.
  2. The law prohibits a health care professional or business from filing claims with Medicare or Medicaid for services designated as DHS.
  3. The law establishes a list of specific exceptions and gives authority to the Secretary to create additional exceptions that do not create a risk of patient abuse. 

Exceptions to the Stark law are determined by a strict set of criteria. They include in-office ancillary services, group practice, hospital-wide services, and many others. The Group Practice exception is by far one of the most applicable exceptions of the stark, because it allows physicians to self-refer if they meet certain restrictions in their practice. You can review the Group Practice exception of the federal Stark law here

What services are included in the DHS designation?

The Office of Inspector General (OIG) has provided the following list of designated health services:

  • 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; and
  • inpatient and outpatient hospital services.

Do states have laws similar to the federal Stark law?

Yes.  Many states have their own version of Stark law and are drafted to prohibit physician-self referral.  While each state may call it something different (, in general they state laws prohibit self referral by physicians to entities in which the physician or his close relatives have some financial relationship.  

In some states, the states' laws tend to be drafted broader than the federal Stark Law, meaning they prohibit self referrals for all types of services, not only to DHS.  It is therefore important to consult with a Stark lawyer with experience in the state regulations to make sure that any referral that may be allowed under federal laws, do not violate state regulations.      

What are the penalties for violating Stark law?

Penalties for violating the federal Stark statutes can be steep. 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.

Federal civil penalties are separate and distinct from any state civil penalties.  Accordingly, each state may impose their own civil monetary penalties for violation of the state self-referral laws.  For example, Virginia imposes civil monetary penalties of no more than $20,000 per referral, bill or claim.

Is violating the Stark law criminal?

No. The Stark law is a strict liability statute, which means proof of specific intent to violate the law is not required.  Accordingly, violating the Stark law can lead to civil penalties only:

As discussed above, civil penalties for violating the Stark law can be severe and include:

  • Overpayment/refund obligation (i.e., providers must refund any Medicare/Medicaid reimbursement for illegally referred services)
  • False Claims Act liability
  • Civil monetary penalties: up to $15,000 for each referred service (when someone knowingly violates the law) 
  • Civil assessment: up to three times the amount claimed 
  • Exclusion from Medicare and Medicaid program participation

What can Perla do for my health care business?

As a strict liability statute, violations of the Stark law can be difficult to overcome and result in large fines or expulsions from federal healthcare programs. Any healthcare business should obtain proper legal counsel to comply with federal and state physician self referral statutes.  And, if there is violation, it is important to seek the counsel of a seasoned attorney experienced in managing federal and state self-referral law violations.   

Additionally, violation of federal and state self referral laws can lead to exclusion from federal payers and loss of medical license.  Therefore, it is important that your healthcare legal counsel fully understands the ramifications of settling or litigating self referral claims. 

Perla can provide you instantaneous access to attorneys experienced in litigating healthcare matters such as Stark violations. Do not wait to contact an attorney if the government has brought a claim of violations against you.  It is important to have the right attorney on your team to fight for your rights and obtain the best possible results for you.  

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