The Stark Law was enacted to ensure that physicians make medical decisions based upon what is best for the patient, not what is best for the physician’s bank account.

The conflicts created by certain financial arrangements between healthcare providers can not only compromise patient care, but can also drive up costs by encouraging over utilization of medical services that are billed to Medicare and Medicaid.

To protect patients and the federal healthcare programs, Congress passed a series of laws referred to as the physician self-referral or Stark laws.

As they exist today, the Stark Law prohibits physicians from receiving a financial benefit for ordering, referring, or performing certain types of Designated Health Services (“DHS”). Designated Health Services include:

  • Clinical laboratory services.
  • Physical, occupational and speech therapy services.
  • Radiology and radiation services.
  • Durable medical equipment and supplies.
  • Home health services.
  • Outpatient prescription drugs.
  • Inpatient and outpatient hospital services.

Entities that provide these services are prohibited from receiving referrals from physicians with whom they have a financial relationship. The financial relationship may be an investment interest or compensation arrangement; it can be direct or through a series of connected entities. Regardless, the financial relationship prohibits the physician from making referrals to the DHS provider. Similarly, the DHS provider is also prohibited from submitting claims to Medicare or Medicaid that are a result of a prohibited DHS referral.

A “referral” may mean ordering a test or sending the patient to another physician. A referral can also include the technical or facility fee billed by a hospital, imaging, or outpatient facility to Medicare or Medicaid.

As if this wasn’t complicated enough, there is a long list of exceptions that allow certain financial relationships that would otherwise be illegal under Stark. A comprehensive discussion of these exceptions is beyond the scope of this article, but a few general rules can help distinguish a legal arrangement from an illegal one.

  • Any compensation to the physician or the physician’s medical group should not be based on or take into account the value or volume of referrals or other business generated by the physician. Again, the physician should not have a financial incentive to refer a patient or order certain medical procedures.
  • Compensation arrangements, except for bona fide employment relationships, must be in writing, have the terms set in advance, and must be for more than 1 year. Payments to physicians that are “off the books” or outside of a written compensation plan often run afoul of Stark.
  • The arrangement should be fair-market value. This means that the physician should not receive more through an arrangement with a DHS provider than would be agreed to by parties in an arms-length transaction where patient referrals are not a factor.

The Role of Whistleblowers

Because the financial arrangements between physicians and other healthcare providers are often confidential or opaque, whistleblowers play a central role in stopping violations of the Stark Law. An arrangement that violates Stark will also cause Medicare and Medicaid fraud if claims generated by the arrangement are submitted to those programs.

The False Claims Act allows a whistleblower to file a claim on behalf of the government for Medicare or Medicaid fraud and receive a percentage of the government’s recovery as a reward for bringing the violations to light. False Claims Act cases filed by whistleblowers for violations of the Stark Laws have resulted in hundreds of millions of dollars in recoveries and tens of millions in qui tam awards to whistleblowers under the False Claims Act.

Examples of Stark Law Whistleblower Cases

Infirmary Health System (2014)

In July 2014, the government announced that Alabama-based Infirmary Health System agreed to pay $24.5 million to resolve claims that it violated the False Claims Act by paying a group of physicians a percentage of the Medicare payments Infirmary received for tests and procedures referred by the physicians. The whistleblower was awarded $4.4 million under the whistleblower or “qui tam” provisions of the False Claims Act.

Halifax Hospital Medical Center (2014)

On March 11, 2014, the Department of Justice announced that Halifax Hospital agreed to pay $85 million to settle claims that the hospital entered into contracts with six medical oncologists that provided an incentive bonus that improperly included the value of prescription drugs and tests that the oncologists ordered and Halifax billed to Medicare. The settlement also included claims that that Halifax paid three neurosurgeons more than the fair market value of their work. The whistleblower, a former compliance employee of the hospital, was awarded $20.8 million under the whistleblower or “qui tam” provisions of the False Claims Act.

Tuomey Healthcare System (2013)

In October 2013, a court ordered the South Carolina Hospital to pay $237.5 million based on claims that Tuomey provided improper compensation to physicians in violation of the Stark Laws. The whistleblower’s award has not been determined yet pending appeal, but it is likely to equal between 15 and 25 percent of amount the government receives from the hospital system.

Other Potential Stark Issues

Laboratory kickback schemes. It has been reported that some clinical laboratories have paid clinical trial or registry fees to physicians that order testing and enroll patients in a study or registry. Similarly, some laboratories may pay specimen collection, processing, or lab report interpretation fees to physicians or healthcare groups. These payments likely violate the Stark law if the testing claims are covered by Medicare or Medicaid and the payments are based on or take into account the number of services ordered by the physicians.

Academic Medical Centers

Although there is a broad exemption in the Stark Law for certain payments between entities in the academic (medical school) setting, these payments can still run afoul of the Stark Law or Anti-Kickback Statute if the payments exceed fair-market value or are a pretext for incentivizing referrals or other services that are covered by Medicare or Medicaid.

Hospital-physician arrangements and joint ventures

Due to the high reimbursement rates that hospitals receive for certain specialty procedures—e.g., cardiology, neurosurgery, orthopedic procedures, ambulatory surgical center, and imaging services—there is an incentive for hospitals to encourage physicians to refer patients and perform more procedures. Any arrangement that results in a physician receiving substantially more compensation than the amount of professional fees the physician personally generates could violate the Stark law.

Accountable Care Organizations (“ACOs”)

The Medicare Shared Savings Program allows the formation of ACOs, which are groups of healthcare providers that agree to provide quality reporting and share in the risk and rewards of any savings the ACO generates for the Medicare Program. The Department of Health has issued several waivers of the Stark Laws and Anti-Kickback Statute for ACO arrangements. However, any ACO arrangement that seeks protection under the ACO waiver must be publicly disclosed within 60 days and reasonably related to the goals of the Medicare Shared Savings Program. ACO arrangements that violate Stark and do not qualify for the ACO waivers may result in significant damages under the False Claims Act.

If you have knowledge and proof of Stark Law Violations, then give us a call today for a free consultation and case review with an experienced whistleblower attorney.

This information is for educational purposes. It is not offered as and does not constitute legal advice or legal opinions. You should not act or rely upon this information without seeking the advice of an attorney.

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