Stark Law Q&A

These Stark Law Questions & Answers are intended to be used by the reader for general informational purposes only. Due to the highly complex nature of the Stark Law, they should not be used as a substitute for professional legal advice. For specific questions on Stark Law as they relate to individual cases, please contact the Compliance Department. 

1. What is Stark Law?
   A: Stark Law, which is located in Section 1877 of the Social Security Act, prohibits a physician from referring Medicare or Medicaid program patients for certain "designated health services" to an entity with which the physician or an immediate family member has a "financial relationship." The law also prohibits an entity from presenting a claim to Medicare or to any person or other entity for DHS provided under a prohibited referral. Finally, Stark Law provides that no Medicare payment may be made for DHS rendered as a result of a prohibited referral, and an entity must timely refund any amounts collected for DHS performed under a prohibited referral.
    
2. What are the "Designated Health Services" subject to the Stark Prohibition?
   A: The Designated Health Services (DHS) covered by Stark include the following categories:
   • clinical laboratory services;
   • physical therapy services;
   • occupational therapy and speech-language pathology services;
   • radiology services, including nuclear medicine, MRI, CAT scans, and ultrasound 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 hospitalization services
3. Who qualifies as a "physician" subject to the Stark prohibition?
   A: The term "physician" is defined as a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a chiropractor.
    
4. Who qulifies as an "immediate family member" subject to the Sark prohibition?
   A: The term "immediate family member" is defined broadly to mean a husband or wife; birth or adoptive parent, child or sibling; stepparent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; and spouse of a grandparent or grandchild.
    
5. What is considered a "referral" under the Stark Law?
   A: Stark broadly defines "referral" to include a request by a physician for an item or service payable under Medicare or Medicaid (including the request by a physician for consultation with another physician and any test or procedure ordered or performed by such other physician), or a request by a physician for the establishment of a plan of care that includes the provision of a DHS.
    
6. What is a "financial relationship"?
   A: A "financial relationship" is defined to include either a direct or indirect ownership or investment interest in an entity through equity, debt or other means, or a direct or indirect compensation arrangement with an entity. Specific examples of financial relationships covered by Stark Law include, but are not limited to, the following: 
   • All physician employment and independent contractor arrangements.
   • All group practice compensation arrangements, including all arrangements for the provision of ancillary services and all employment and independent contractor arrangements entered into by group practices with physicians.
   • All administrative service contracts entered into by physicians, such as medical director agreements.
   • All space and equipment leases.
   • Office sharing agreements and time-share arrangements.
   • All economic relationships between physicians and the hospitals to which they make designated health service referrals, including loan agreements, hospital guaranties of physician obligations, charitable contributions made by physicians to the hospital, physician recruitment arrangements, independent contractor arrangements and employment agreements.
   • Practice acquisitions.
7. What are the Stark Law exceptions?
   A: Stark Law contains several exceptions that describe acceptable financial relationships that allow a physician to refer to an entity for the provision of DHS. The exceptions to the Stark Law ban fall into three categories based on the type of financial relationship the physician has with the entity to which he or she refers patients for DHS:
   • Exceptions applicable to both compensation and ownership/investment arrangements. Examples of exceptions in this category include the exception for in-office ancillary services, which is perhaps the most important exception to the Stark ban, and the exception for physician services.
   • Exceptions applicable only to ownership or investment arrangements. Examples of exceptions in this category include exceptions for publicly traded securities and mutual funds, services furnished by a rural provider, and ownership in a whole hospital.
   • Exceptions applicable only to compensation arrangements. Examples of exceptions in this category include exceptions for bona fide employment relationships, personal services arrangements, physician recruitment and rental of office space and equipment.

     Additional information on Stark Law exceptions may be found by referring to the Code of Federal Regulations at 42 CFR §411.355 through 42 CFR §411.357.

8. If one exception to the Stark Law is satisfied, is an entire arrangement between a physician and an entity protected?
   A: Not necessarily. A Stark exception has to be satisfied for each financial relationship between a physician and an entity that will receive referrals for DHS. If there are a number of financial relationships between a physician and an entity, each relationship must meet a Stark exception in order for the physician to appropriately refer patients to that facility for DHS.
    
9. Can a physician who has a financial relationship with an entity avoid implicating the Stark Law if the entity only accepts Medical patients, and does not bill Medicare?
   A: No. The Stark Law applies to referrals for "designated health services" reimbursable by either the Medicare or Medicaid (Medical) programs. CMS will not reimburse for the federal share of Medical to any entity that provides a designated health service prohibited by Stark Law, unless a Stark exception is fully satisfied.
    
10. What is "fair market value"?
    A: Stark Law defines "fair market value" as "the value in arm's length transactions, consistent with the general market value." In other words, fair market value pertains to the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to an agreement who are not otherwise in a position to generate business for the other party at the time of the agreement.
     
11. How is fair market value determined?
    A: According to CMS, “Nothing precludes parties from calculating fair market value using any commercially reasonable methodology that is appropriate under the circumstances and otherwise fits the definition.” CMS also observed that, “Reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value. Ultimately the appropriate method for determining fair market value for purposes of the physician self-referral law will depend on the nature of the transaction, its location, and other factors. …”
     
12. What are the penalties for violating the Stark Law?
    A: Violation of the Stark Law is subject not only to substantial monetary penalties, but also to exclusion from participation in Medicare, Medical, and other government healthcare programs. Regulators may impose a broad range of penalties for violations of the Stark Law. Civil penalties include:
    • repayment of all amounts billed to the Medicare and Medical programs that violate the Stark Law;
    • civil monetary penalties up to $100,000 if an arrangement is found to have as its principal purpose the intent to ensure physician referrals; or
    • exclusion from the Medicare and Medical programs.

      In addition, the U.S. Department of Justice has asserted that filing a Medicare or Medical claim in violation of the Stark Law constitutes a "false claim," which could trigger liability under the federal False Claims Act.

13. If a physician and/or entity commits an error or violates Stark Law without intending to do so, would the physician and/or entity be exempted from the penalty?
    A: No. Stark is a strict liability law and may be violated regardless of good intentions to benefit patient care or improve patient access to health care resources. Penalties for violations of the Stark Law may be greatly increased if the intent of the arrangement is to secure patient referrals in violation of the federal Anti-kickback Statute or the federal False Claims Act