Stark Law 101

Stark Law 101

Welcome to the complex world of healthcare compliance! If you’re new to the industry, navigating the laws and regulations can be daunting if for no other reason than there are just so many to choose from, so we are going to pick our poison of the Physician Self-Referral Law, commonly referred to as the Stark Law. This law is integral to maintaining ethical standards and legal compliance in healthcare transactions, particularly those involving physician referrals. Let’s break down the Stark Law and understand its impact on various healthcare transactions.

The Stark Law has six elements that must be met for the law itself to apply:

  1. A Physician (or advanced practice provider like a Nurse Practitioner)
  2. Makes a referral
  3. for designated health services (described in the law and implementing regulations)
  4. Payable by Medicare
  5. to another entity
  6. With which the physician (or an immediate family member) or the physician organization (i.e, his/her practice) in whose shoes the physician stands has a financial relationship (which could be a direct or indirect ownership or investment interest in the entity or a compensation arrangement with the entity).

If any one of these six elements is not met, the transaction or referral is not covered by the Stark Law. That does not, however, mean that the transaction is okay to pursue because there are several other laws that may be impacted. (More to come on that matter).

It looks easy on the face of this description to avoid problems. But the law is a static item, and the real world of the business of medicine is not as straightforward. Some transactions that don’t look like a referral could still be caught up in this law. Here are some examples of transactions that should be analyzed under Stark Law:

  1. Referral Arrangements and Compensation:
    • Any agreement where a physician refers patients to a particular service provider or facility must be scrutinized under the Stark Law.
    • Compensation structures for physicians, such as bonuses or revenue-sharing, must not be tied to the volume or value of referrals.
  2. Ownership Interests:
    • Physicians who have an ownership interest in an entity that provides designated health services cannot refer patients to such entities unless a specific exception is met.
    • This extends to immediate family members, which means that the law also covers indirect financial relationships.
  3. Rental Agreements:
    • Lease agreements for space or equipment between physicians and entities to which they refer patients must be at fair market value and cannot be based on the volume or value of any referrals.
  4. Investment Interests:
    • Physicians must be cautious about investment interests in companies that provide health services. Even passive investments can trigger Stark Law concerns if referrals are involved.
  5. Managed Care Arrangements:
    • While managed care contracts often have exceptions, they must be structured to comply with the Stark Law, particularly regarding any incentive plans for patient referrals. In theory, Medicare Advantage plans should not have these kinds of incentives in place, but stranger things have happened.

Note that these transactions don’t necessarily involve ownership. Many providers I have spoken to mistakenly believe that the financial relationship with the referred-to entity is one of either direct or indirect ownership. But any financial relationship, such as a landlord-tenant relationship that has discounts or some other consideration based on actual or expected referrals could be implicated and should be reviewed. So for example, a neurologist rents office space in a building owned by an ear, nose, and throat practice. If the neurologist receives a discount from the fair market value of the rent because the ENT practice believes it will receive referrals from the neurologist for Medicare patients, then the arrangement is suspect under the Stark Law. The neurologist does not own the building or any part of the ENT practice, but the expectation of referrals in exchange for below-market rent is suspect.

So how can providers and their practices avoid Stark Law issues? An effective, documented, and adhered-to compliance plan is key. Some of the elements to consider:

  1. Develop a Compliance Plan:
    • Establish a robust compliance program that includes training on the Stark Law and regular audits of referral practices and financial arrangements.
  2. Seek Legal Counsel:
    • Before entering into any new financial relationship or transaction, seek advice from legal counsel experienced in healthcare law. (Yeah, I know it is self-serving as a lawyer, but hey, this is a lawyer blog)
  3. Document Transactions:
    • Keep detailed records of all financial relationships and transactions to demonstrate compliance with the Stark Law. This would include communications. The final transaction documents might not be explicit about the referrals.
  4. Regular Training:
    • Provide ongoing training to all staff and physicians on the requirements of the Stark Law and the importance of compliance.
  5. Monitor and Update Compliance Practices:
    • The healthcare industry is constantly evolving, and so are the laws that regulate it. Regularly review and update your compliance practices to ensure they reflect current laws and regulations.

The IMPORTANT Takeaway
The Stark Law is a strict-liability statute, which means proof of intent to violate the law is not required. Penalties for physicians and entities who violate the Stark Law include fines as well as
exclusion from participation in the Federal health care programs. As a reminder, most private insurance companies will also drop their contracts with any provider who ends up on the Exclusion List.

If you want to discuss your compliance plan or review a transaction that may be impacted by the Stark Law, schedule a consultation.