Stark Law: How You Can Avoid Violating the Physician Self-Referral Law
Key takeaways:
The Stark Law, also known as the physician self-referral law, prohibits healthcare providers from referring Medicare patients for certain services to medical businesses where the provider has a financial interest.
Penalties for violation are steep — as much as $15,000 per infraction — even when the violation is deemed unintentional.
This article isn’t meant to be legal advice, so if you have legal questions, you should contact an attorney in your state.
As a healthcare provider, there is no shortage of laws and ethical practices you need to follow. One of those laws you may have heard of is the Stark Law, also known as the physician self-referral rule.
When it first came into effect in the early 1990s, the Stark Law only applied to a narrow range of physician referrals for Medicare clinical laboratory services. But the law has since been expanded a number of times. Updates to the Stark Law aim to protect patients against conflicts of interest, fraud, or abuse across a number of additional Medicare services and provider types.
What are the basics of the Stark Law?
The Stark Law was designed to protect patients by limiting self-interest when a provider makes referrals for certain Medicare services. The Stark Law is in Section 1877 of the Social Security Act (42 U.S.C. § 1395nn). It falls under Centers for Medicare & Medicaid Services (CMS) fraud and abuse statutes.
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The Stark Law consists of three main aspects:
Healthcare providers are not allowed to refer Medicare patients for designated healthcare services to a business where the provider has a financial interest. The law also applies to referrals made to places where the provider’s family has a financial interest. Most of these services fall under Medicare Part B.
The law also prohibits billing Medicare or other insurance providers for health services when a provider makes an inappropriate referral.
There are several exceptions to the other two aspects of the law. And the U.S. Health and Human Services secretary is allowed to create specific exceptions when referrals would not lead to a conflict of interest or likelihood of abuse.
Remember that the Stark Law only applies to healthcare referrals for certain services under Medicare. The federal government’s purpose with this law is to protect older adults (and people with disabilities on Medicare) who might be easy victims for receiving services they don’t need.
In addition, the law doesn’t apply to all Medicare services. The Stark Law specifically protects Medicare patients who receive a referral for designated health services.
What are designated health services under the Stark Law?
Designated health services are defined by the CMS and include:
Clinical laboratory services
Durable medical equipment and supplies
Inpatient and outpatient hospital services
Prescription medications
Outpatient speech-language pathology
Intravenous and tube-fed nutrients, equipment, and supplies
Physical therapy
Prosthetics, orthotics, and supplies
Radiation therapy and supplies
Radiology and some other imaging services
Services not listed here aren't currently covered under the Stark Law. But keep in mind that the Stark Law is updated from time to time.
Does the Stark Law apply to all healthcare referrals?
No. As mentioned above, the Stark Law only applies to referrals for Medicare patients who seek designated health services. The Stark Law does not cover referrals to healthcare services for patients with private insurance or who self-pay for care.
There are also several exceptions to the referral rule for Medicare patients, including:
A referral to an academic medical center
Necessary in-office services (such as wheelchairs and blood glucose monitors)
Physician services when the physician belongs to the same group practice
Certain clinical laboratory services, including vaccinations and preventative screenings
Physician wellness services designed to address mental health concerns
What are the penalties for violating the Stark Law?
The penalties for violating the Stark Law can be steep for any covered provider or healthcare entity. Those found at fault could be required to:
Give back all payments for improperly collected amounts
Pay a fine of up to $15,000 per unlawful referral
Be barred from all federal healthcare programs
If the provider or healthcare entity is found to have intentionally violated the self-referral law, they may be fined up to $100,000 per violation. The provider’s employer or health system will most often pay such larger fines.
But sometimes the court may decide the practitioner themselves is also liable. A provider found to have violated the Stark Law might not lose their license. But they may be barred from participating in any federal healthcare program for several years.
The Stark Law and strict liability
Keep in mind that the Stark Law is designed around what’s called strict liability. Strict liability holds whoever violated the law responsible, even if you didn’t intend to violate the law. You’re also held liable under the Stark Law even when the court can’t find a specific action or fault that resulted in the violation.
If a complainant can show proof a provider made a referral that benefited their financial interest, that’s enough to hold the provider liable. And the provider is still held liable under the Stark Law even if they weren’t aware their referral posed a financial conflict.
Strict liability may sound intimidating. But it is common in other types of law, such as handling explosives or product liability.
What can you do to avoid violating the Stark Law?
Entities looking to stay on the right side of the law should:
Create a database of all healthcare employment contracts and ensure they meet the safe harbor provisions listed below.
Keep a log of all possible conflicts of interest.
Document all payments between parties.
Train or update employees on Stark Law compliance each year.
Develop internal policies on compliance, including discipline for a reported infraction.
Continue to update documentation as healthcare relationships grow or change.
There are additional safe harbor provisions you can take to help protect yourself. These are outlined as part of the Anti-Kickback Statute (42 U.S.C. § 1320a-7b[b]), another law that falls under CMS fraud and abuse protections. Safe harbor provisions, when followed, can reduce or eliminate your liability.
Check with a qualified lawyer in your state to better understand how following safe harbor provisions can reduce your liability under the Stark Law.
Notable Stark Law cases
Let’s review some examples of the Stark Law in practice.
Amedisys Home Health pays $150 million
This home health services provider agreed to pay $150 million to settle a lawsuit. The suit alleged Amedisys Home Health intentionally violated the False Claims Act and the Stark Law by submitting unlawful and unnecessary claims to Medicare from 2008 to 2010.
The claims were filed for a variety of services. But ultimately the claims were considered unlawful and were supported by allegations of potential financial relationships among the referring physicians.
Baldwin Bone and Joint fined $1.2 million
In this case, it was alleged that Baldwin Bone and Joint improperly and intentionally filed inappropriate claims to both Tricare (the healthcare program for veterans and their families) and Medicare.
The company claimed that its orthopedic surgeons and physical therapists were performing physical therapy services. But in reality the company had unlicensed (or improperly licensed) individuals perform the services. These were considered improper claims, and the company was required to pay $1.2 million to resolve the matter.
Halifax Hospital Medical Center pays $85 million
Halifax Hospital Medical Center was accused of intentionally violating the False Claims Act and the Stark Law by entering into illegal contracts with medical providers. These contracts included financial incentives and referral bonuses connected to the number of prescription medications and tests that were billed to Medicare.
In addition, the center overpaid certain neurosurgeons for admitting patients who did not truly need to be admitted, allegedly just to increase Medicare billings. The center ended up paying over $85 million to resolve these issues. And the contracts between the health center and the neurosurgeons were found to be outside of safe harbor contracting provisions.
The bottom line
The Stark Law prohibits practitioners from making improper referrals when there is a conflicting financial interest. The law aims to protect Medicare patients from receiving unnecessary medical services. Penalties for violating this law are severe, even when the practitioner did so unknowingly or unintentionally.
HCPs can reduce and even eliminate their chances of violating this law by taking steps to implement effective compliance controls and drafting contracts that abide by all the components of the safe harbor provisions.
Keep in mind, this article is not intended to provide legal advice. Check with a qualified attorney in your state to better understand your liability under the Stark Law and other CMS anti-fraud laws.
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References
Centers for Medicare & Medicaid Services. (2023). List of CPT/HCPCS codes.
Centers for Medicare & Medicaid Services. (2023). Physician self referral.
Centers for Medicare & Medicaid Services. (2023). Spotlight.
College of American Pathologists. (n.d.). Stark exceptions.
Huttinger, R., et al. (2022). Stark Law. StatPearls.
Legal Information Institute. (n.d.). 42 CFR § 411.351 - definitions. Cornell Law School.
Legal Information Institute. (n.d.). 42 U.S. code § 1395nn - limitation on certain physician referrals. Cornell Law School.
Legal Information Institute. (n.d.). Products liability. Cornell Law School.
Legal Information Institute. (n.d.). Strict liability. Cornell Law School.
U.S. Attorney’s Office, Southern District of Alabama. (2019). Qui tam lawsuit and federal investigation results in settlement and $1.2 million payment by Baldwin Bone & Joint, P.C.
U.S. Department of Health and Human Services, Office of Inspector General. (n.d.). Fraud & abuse laws.
U.S. Department of Health and Human Services, Office of Inspector General. (n.d.). Safe harbor regulations.
U.S. Department of Justice Civil Division. (2023). The False Claims Act.
U.S. Department of Justice, Office of Public Affairs. (2014). Amedisys Home Health companies agree to pay $150 million to resolve false claims act allegations.
U.S. Department of Justice, Office of Public Affairs. (2014). Florida hospital system agrees to pay the government $85 million to settle allegations of improper financial relationships with referring physicians.
