Stark Self-Referral Prohibitions

The Ethics in Patient Referrals Act of 1989, 42 U.S.C. § 1395nn, otherwise referred to as “Stark” [1] prohibits a physician from referring Medicare or Medicaid program patients for “designated health services” (DHS) to an entity with which the physician or an immediate family member has a prohibited financial relationship, unless one of the statutory or regulatory exceptions applies. If a patient referral is not for DHS or the referring physician does not have a financial relationship with the individual entity to which he or she refers a patient, then Stark does not apply. Why are Stark self-referral prohibitions necessary?  The government has had a long-standing concern that in the absence of certain safeguards, a physician might refer a patient for certain medical services and / or supplies to an entity in which the physician has a financial interest.  Such referrals may not be medically justified and could result in over-utilization and increased health care costs. The government further believes that improper self-referrals can cloud medical judgement, limit competition  and potentially result in a decrease in the quality of health care services.

I. Stark Self-Referral Prohibitions:

 The following definitions are critical to a comprehensive understanding of the Stark self-referral laws:

Designated Health Services (DHS):  Stark only applies to the following specific medical services, known as Designated health services (DHS).  DHS services currently include:

(a) Clinical laboratory services.

(b) Occupational, speech and physical therapy services.

(c) Radiology services, including MRIs, CAT scans, PET scans, nuclear medicine and ultrasounds.

(d) Radiation therapy services and supplies.

(e) Durable medical equipment and supplies.

(f) Parenteral and enteral nutrients, equipment and supplies.

(g) Prosthetics orthotics, prosthetic devices and supplies.

(h) Home health services.

(i) Outpatient prescription drugs.

(j) Inpatient and outpatient hospital services.

A medical service falling under any of these categories is considered a DHS even if it is bundled with other services or billed as something else.

Financial Relationship:  The term financial relationship includes any ownership or compensation interests that will benefit a physician financially. There are several types of relationships:

	Compensation	Investment and Ownership
Direct	Direct Compensation (A physician receives $50 for each referral he makes to a radiology lab)	Direct ownership (A physician directly owns or invests in an imaging clinic)
Indirect	Indirect Compensation (A DME company gives an unreasonable amount of test supplies to a physician’s office)	Indirect ownership (A physician owns shares of a partnership, which owns a hospital, which then owns an imaging clinic)

Compensation:  The term compensation (or remuneration) refers to any direct or indirect payment, which essentially covers anything given to the physician for a referral if he or she does not own or invest in the entity.

Ownership:  The term ownership (or investment) refers to a financial link between a physician and an entity, including equity, shares, stocks, bonds, debt, loans or any other type of financial arrangement that an entity secures with its own assets.

Entity: The term entity includes any person or business that provides and/or bills for a DHS, including any solo physician practice, group practice, sole proprietorship, trust, corporation, partnership, foundation, non-profit corporation, limited liability company, unincorporated association or any person or business that arranges to receive payments from a billing entity, with some exceptions.

Physician:  The term physician refers to a doctor capable of making referrals, including:

(a) Doctor of medicine (M.D.).

(b) Doctor of osteopathic medicine (Osteopath).

(c) Doctor of dental surgery or dental medicine (Dentist).

(d) Doctor of podiatric medicine (Podiatrist).

(e) Doctor of optometry (Optometrist).

(f) Doctor of chiropractic medicine (Chiropractor).

Stark does not apply to referrals made by non-physician practitioners, such as a physician’s assistant.

Referral: A referral is any order, request or certification for a DHS made electronically, verbally or in writing. The definition of a referral includes any services performed incident to tests and other medical services established in a plan of care. Additionally, if a physician has direct or indirect control over the referrals made by members of a group practice, then any referrals made to a prohibited entity (e.g., one with whom the controlling physician has a financial relationship) are illegal.

II.  Exceptions to the Stark:

There are a number of narrowly drawn exceptions to Stark that allow referrals where a physician and another provider have a financial relationship. These exceptions are constantly changing and evolving. Because these arrangements need to be carefully structured with appropriate agreements to satisfy an exception, a physician or provider should not, under any circumstances, attempt to address them without the assistance of qualified counsel. Exceptions to the Stark Law include, but are not limited to:

• Academic medical centers.
• EPO and other dialysis drugs furnished in connection with ESRD.
• Eyeglasses and contact lenses.
• Prepaid plans.
• Publicly traded securities.
• Mutual funds.
• Hospital ownership.
• Rural providers.
• Arrangements with hospitals unrelated to designated health services.
• Charitable donations.
• Community-wide health information services.
• Compliance training.
• Electronic health records items & services.
• Electronic prescribing items & services.
• Employment relationships.
• Equipment rental.
• Fair market value compensation.
• Obstetrical malpractice insurance.
• Office rental.
• Payments by a physician for items and services.
• Personal services arrangements.
• Physician recruitment.
• Referral services.
• Retention payments in underserved areas.
• Risk-sharing arrangements.

Failure to qualify under one of the exceptions to Stark makes a physician referral for DHS to an entity in which the physician has either a financial relationship or compensation arrangement a prohibited referral. Stark is not an intent-based statute.  Sanctions for presenting a claim for a prohibited referral can include penalties and can implicate other Federal statutes used to combat health care fraud (e.g. False Claims Act) if the circumvention scheme or arrangement is shown to involve a physician entity that “knows or should know” that the arrangement or scheme’s principal purpose is to assure referrals by a physician to a particular entity.

III. State Prohibitions Against Self-Referrals:

Many states have laws that are similar to the Federal Stark laws. As a result, a comprehensive Stark self-referral and risk analysis of any arrangement involving a physician who has a financial relationship with a health care entity must also take into account applicable state laws. Even though an arrangement may not implicate or violate the Federal Stark self-referral laws, it could potentially run afoul of state physician self-referral laws.

IV.  Civil Monetary Penalties and Stark Self-Referral Laws:

Stark is a strict liability statute, which means that the government is not required to prove that a provider intended to violate the law before assessing CMPs. Generally, a Stark violation could result in: (a) denial of payment; (b) an obligation to refund any amounts improperly paid; (c) civil monetary penalties; or (d) exclusion from participation in Federal or state health care programs.

(a) Denial of Payment.

The Stark self-referral laws provide that no payment will be made by Medicare or Medicaid for an item or service provided as the result of a prohibited referral. There is an exception to the denial of payment rule, which applies when the entity did not know or have reason to know the identity of the referring physician.  However, this exception is rarely met as it is narrowly interpreted and subject to the claim otherwise meeting all applicable laws and regulations.

(b) Civil Monetary Penalties

For “knowing” violations, Stark imposes CMPs. Any person who presents (or causes to be presented) a claim for service that the person knows or should know resulted from a prohibited referral could be subject to a CMP. Additionally, a knowing violation could result in liability under the False Claims Act.  There are several types of Stark violations that could result in the assessment of CMPs:

• Presentment of a claim (or causing a claim to be submitted) involving an improper referral. This could result in a CMP of up to $15,000 for each service;

• Failure to refund amounts received from a prohibited This could result in a CMP of up to $15,000 for each service; and

• Participation in a “circumvention scheme.” This could result in a CMP of up to $100,000 for each such arrangement or

Additionally, the imposition of CMPs under Stark is subject to the same rules and procedures involved in the assessment of CMPs for other improper conduct. Therefore, those sanctioned under Stark could also be liable for the amount of losses incurred by the government as a result of the prohibited referral or up to three times that much (i.e., treble damages).

(c) Exclusion from Participation in Federal Health Care Programs.

In serious cases of Stark liability, OIG could seek to exclude a provider from participation in federal health benefits program under its permissive exclusion authorities.

V. Stark Self-Referral Violations and the False Claims Act:

A Stark violation could give rise to False Claims Act liability under the following theory: Medicare providers certify in all billing forms, cost reports, enrollment applications and elsewhere that their claims are submitted in conformity with various laws and regulations, including Stark.

Additionally, providers certify such compliance with those laws merely by participating in the Medicare program. If the providers submit claims to Medicare and receive payment for services furnished pursuant to a prohibited referral under Stark, then the claims are considered false for the purposes of the False Claims Act. If the provider knowingly presents a false claim, then he or she may be liable under the False Claims Act for up to three times the amount claimed, as well as significant penalties for each false claim.  For additional information regarding the False Claims Act, please see this link.

VI.  Stark Recommendations:

Compliance Officers are not expected to single-handedly resolve potential Stark violations. Deciding whether or not an arrangement is appropriate under Stark often requires a complex and highly technical legal analysis that may also require high levels of financial understanding and there can also be very serious penalties for Stark violations. As such, most matters implicating the Stark Laws should be addressed with the assistance of qualified counsel. Nonetheless, Compliance Officers are expected to identify and make preliminary evaluations of potential Stark problems and they should be wary of any new arrangements that could put your organization or physician at risk for liability.

After reviewing the practices of your organization, following is a simple test that has been published by the OIG that can be useful in assessing whether a potential Stark violation exists with respect to an existing or a possibly new relationship:

1. Are there referrals from a physician for a “designated health service”? If yes, go to the next question. If no, there is likely no Stark liability.

2.  Does the physician or an immediate family member, have a “financial relationship” with the entity providing the health service at issue?  If yes, go to the next question. If no, there is likely no Stark liability (though you need to scrutinize each relationship very carefully).

3.  Does the financial relationship fit in an exception?   If no, there could very likely be a Stark violation. If yes, there likely is not a Stark violation. In any event, you should contact qualified counsel to ensure that there is no question regarding these issues.

VII.  Stark Self-Disclosure Protocol:

The Stark Law provides that any payments received from services resulting from an improper referral must be refunded and that all such refunds must be made within 60 days of the date the prohibited payments were collected. However, in light of the strict liability provisions of the statute and the fact the government had very little leeway to waive or reduce sanctions and penalties for Stark violations, reporting and repaying Stark violations was problematic.

The Affordable Care Act sought to address this problem by directing the Secretary of HHS to create a self-referral disclosure protocol that would encourage providers to self-report Stark violations and comply with their refund obligation. Responding to this mandate, CMS created a Stark Self Disclosure Protocol that includes a reporting mechanism which provides some benefit (in terms of reduced liability) to providers that participate and self-disclose violations. The steps for participating in the self-disclosure protocol are set out below and a provider must submit the following information relevant to the disclosed matter:

• Provider information (name, address, identification number(s), etc.);
• A description of the nature of the matter being disclosed;
• A statement as to why the disclosing party believes a Stark violation occurred, including a legal analysis of the applicable law(s) and regulation(s);
• The circumstances under which the disclosed matter was discovered;
• Any steps taken to prevent the disclosed matter from occurring in the future;
• A statement as to whether the disclosing party has a past history of such violations;
• A description of any preexisting compliance program maintained by the disclosing party;
• A description of notices provided to other applicable government agencies, such as the Securities and Exchange Commission; and
• A statement as to whether the disclosing party has knowledge that the matter is under inquiry by a government
• The provider must conduct and submit a detailed financial analysis regarding the alleged violation;
• The provider must certify that all information disclosed is true and correct and submitted in a good faith effort to resolve any liability exposure under the Stark Law; and
• The provider must submit electronic copies and hard copies of all information to the Centers for Medicare and Medicaid Services (CMS).

When an entity makes a disclosure under the protocol, CMS must now consider several factors in possibly reducing the amount due for violations, including:

• The nature and extent of the improper or illegal practice;
• The timeliness of self-disclosure;
• The cooperation in providing additional information related to the disclosure;
• The litigation risk associated with the matter disclosed;
• The financial position of the disclosing party; and
• Other factors as the Secretary considers

The self-disclosure protocol may be helpful in reducing potential fines and penalties and in resolving Stark self-referral violations. It can also be useful if the provider is close to the 60-day deadline for identifying and returning an overpayment since obligations involving the 60-day rule are suspended as long as a provider remains in the program. On the other hand, providers that enter the program are in the dark as to whether their disclosure will actually result in decreased liability as there is no governmental recipe or standard procedure that is used in determining reductions. Indeed, as stated on page 6 of CMS’ Voluntary Self-Referral Disclosure Protocol, “CMS has no obligation to reduce any amounts due and owing” (emphasis added).

Providers who enter the program should also be aware that there are potential downsides to such an action. For example, a self-disclosure might serve as a roadmap to investigators should they seek to locate additional problematic conduct and Medicare contractors may become more interested in your organization rather than the other way around. Moreover, if you agree to settle claims through the self-disclosure protocol, you waive all appeal rights to those claims.

Providers are also cautioned that they may have other, perhaps better, options than entering the Stark Self-Disclosure Program as a means towards resolving potential Stark self-referral violations. There are a number of questions that should be addressed before a provider decides how to resolve violations and it is strongly recommended that they contact legal counsel for additional guidance on this matter.

VIII.  Conclusion:

As previously discussed, Stark is civil in nature. As with the False Claims Act itself, it is not necessary to show specific intent.  The government only need show that by a “preponderance of the evidence” a violation of the Stark statute has occurred.  As a result, it is considerably easier to allege that a Stark violation may give rise to a violation of the False Claims Act.  Additionally, under Stark fitting within an applicable exception is mandatory. As such, a provider will encounter financial exposure if full compliance with an exception is not initially achieved or is not maintained.  Failure to properly meet the requirements for a Stark exception will arguably mean that the statute has been violated, possibly leading to a violation of the False Claims Act.

Stark really highlights why it is so important to have a qualified health lawyer examine your compensation and business arrangements prior to execution.  Does your practice need assistance?  For a free initial consultation, call: 1 (800) 475-1906.

 [1]  The statute is named after its legislative sponsor, Congressman Fortney H. "Pete" Stark.