Stark Law – An Overview
The Stark Law, also known as the Physician Self-Referral Law, is a set of federal laws originally enacted in the early 1980s and modified numerous times since. The Stark Law prohibits physicians from making referrals to entities for certain health services where the physician or an immediate family member has a financial relationship with the entity. The services covered by the law include, among others, patient services, diagnostic tests (particularly clinical lab tests), MRIs, and other imaging services. Financial relationships involve ownership and investment interests as well as compensation arrangements. The Stark Law is a strict liability statute; there need not be any intent to violate the law to be found liable for violating it. Penalties for violating the Stark Law can include monetary penalties (fines) , civil liability for claims made (meaning the government could demand for penalties to be paid back) and exclusion from participating in federal healthcare programs. The only way to avoid violating the Stark Law, if applicable, is to structure the relationship between the referring physician and the entity providing the services in accordance with one of the safe harbors provided in the law, or to fit within one of the exceptions for relationships between physicians and medical facilities.
Common examples of Stark law violations
Stark Law is a medical service law that regulates financial relationships between physicians and entities that furnish "designated health services." A violation of the Stark Law does not require an individual or entity to have knowledge of the violation, including the specific intent to commit a violation. Further, a violation of the Stark Law does not have to be intentional. Violating the Stark Law may occur either intentionally or inadvertently, and violations may even be based on benign forces.
The Stark Law prohibits physicians from making Medicare referrals to entities with which the physician, or an immediate family member of the physician, has a financial relationship, unless an exception is met. The Stark Law contains many exceptions to the referral ban.
Some of the most common types of violations of the Stark Law include: (i) improper referral agreements between physicians and entities with which they have financial relationships; (ii) physicians taking kickbacks for referrals, (iii) physicians providing illegal remuneration to potential or existing patients; (iv) and physicians inadvertently failing to comply with Stark’s technical requirements in a way that results in non-compliance.
Improper referral agreements are frequently the subject of investigations and lawsuits. For instance, a not-for-profit health system recently agreed to pay $18 million to settle allegations that it violated the Stark Law and Anti-Kickback Statute by providing remuneration to certain referring physician practices. According to the Department of Justice, a co-defendant who is a physician owned and operated four cardiology practices that were bought out by the health system. Eventually, the cardiology practices were renamed and put under control of the system. The settlement resolves allegations that the health system entered into exclusive service agreements with the physician practices despite knowing that the physician practices had been referred previously by the defendants to other entities.
Stark Law Violation Examples: 4 Case Studies
The Stark Law provides for expansive penalties, but many times enforcement is left up to the Office of Inspector General ("OIG") who has published settlement cases based on Stark Law violations. While they have largely been civil settlements (and have not resulted in criminal prosecutions), they are nonetheless instructive and provide significant insight into how the OIG interprets and enforces the law against suspected violators. There are several settlements published by the OIG which are particularly instructive.
In re OB/GYN Associates of Southern Indiana, L.L.C., and Richard Pope, M.D. – The OIG settled fraud allegations against a Evansville surgical group and its managing partner, Dr. Richard Pope, M.D. The government alleged that the OB-GYN practice provided free rent to a local hospital in exchange for referrals for overall patient admissions and referrals to a hospital-owned MRI facility paid for by the group practice. This gave a clear financial incentive to both parties since the practice could refer patients and not have to pay rent. OIG referred this to the Department of Justice ("DOJ") which ultimately had a considerable monetary impact, in excess of $450,000 for the practice. With concurrent state enforcement actions (like those brought by an Attorney General or a state human services agency) potentially also involved, the total impact of referral-based agreements can be significantly greater than a simple calculation of any one violation.
Triad Radiology Associates, P.A. – In 2005, the U.S. Attorney for the Western District of Texas reached a $2.6 million settlement with two McAllen, Texas-area cardiology groups accused of submitting false claims to Medicare for diagnostic testing, including lack of documentation of a physician’s interpretation of the study, while knowing that radiologists on salary at an affiliated radiology facility were reading the tests. The government also alleged the groups violated the Stark Law by referring patients to the radiology facility, which had an exclusive agreement with the cardiology groups for their diagnostic imaging needs. Because of the severity of the Stark Law violations (allegedly treating cardiologists directly owning physician-owned laboratories) and the amount of the alleged damages (in the hundreds of thousands of dollars), this case may well be the Grand Slam of Stark Law violations since it involved the physician self-referral prohibition under 42 U.S.C. Section 1395nn as well as the anti-kickback statute at 42 U.S.C. Section 1320a-7(b) as well as the making of false claims in violation of 31 U.S.C. Section 3729 (the False Claims Act). This is a case worth investigating if a provider has any significant Stark Wuestions.
What Happens When You Violate the Stark Law?
Stark Law violations have serious consequences – financial, legal, and reputational. Healthcare providers and entities found to be in violation have faced suspension from Medicaid and Medicare participation, liability for hefty monetary penalties, and they may also have to pay back monetary amounts earned while acting in violation of Stark Law.
Legal Penalties
Under the Stark Law, individuals and entities that are found to have personally received financial compensation, monetary payment, or other recompense through participation in an unlawful arrangement will be subject to legal penalties. Healthcare entities and professionals who fail to uphold Stark Law can be found with having committed a felony, willfully ignoring state or federal anti-kickback payments. Further legal penalties include:
Violations that result in civil fines and penalties are often referred to as Stark law penalties, and there are four categories:
Criminal penalties include a fine of $25,000 per case, up to an imprisonment term of five years.
Financial Penalties
Healthcare entities and professionals, including physicians, can face substantial financial repercussions for Stark Law violations, including a civil monetary penalty (CMP) which can be $15,000 per case, a penalty of three times the amount paid for reimbursement, and denial of payment.
Treasury Penalties
Although these penalties can be severe, healthcare professionals and organizations do have the opportunity to pay the government back for Stark Law violations. If a violation has taken place, healthcare professionals or entities can pay for Stark Law violations, but they cannot pay back the money by means of any amounts that were earned through that violation .
Civil Monetary Penalty
Reimbursement denials are considered a civil monetary penalty, as well, meaning that Stark Law violators are responsible for paying amount owed to the federal government. In some cases, healthcare professionals and healthcare entities that violate Stark Law will be required to pay back:
Liability for Medicare and Medicaid payments
Payments for services rendered by the Stark Law violator
Any other money or value that was exchanged in the violation
Reputational Penalties
For healthcare professionals or healthcare providers found to violate Stark Law, potential reputational consequences include loss of professional licensure and inability to practice in certain jurisdictions. For healthcare organizations, CEOs and other executives could be subject to loss of employment or exclusion from referral source lists for insurance companies, HMOs, and other third-party payers.
Office of Inspector General (OIG) Exclusion
The Office of Inspector General makes the decision as to whether or not to exclude violators from participation in federal healthcare programs when all elements of proof are present. Factors that can contribute to a decision of whether or not to exclude a Stark Law violator include:
If all evidence points to a violation of Stark Law, the OIG will exclude the violator from federal healthcare programs, until that individual can prove that they are not a danger to patient safety and healthcare program integrity. Once excluded, Stark Law violators cannot engage in business relationships with federal healthcare programs.
Tips to Help Avoid Stark Law Violations
A robust compliance program is a cornerstone to protecting against inadvertent violations of the Stark Law. Leading industry experts recognize that compliance and auditing programs can help curb unlawful self-referral activity. They may even reveal noncompliance and/or faults in corporate governance that, once detected, will guide providers on how to realign their practices to comply with the Stark Law.
Published reports recommend that healthcare providers take a "three-step approach" to managing the possibility of improper self-referrals. The first step is to define noncompliant activities and their risks. The second step is to design an action plan that eliminates or mitigates improper activities. The third step is to consider penal consequences if noncompliant activities do not cease. As such, compliance programs must strike the right balance between maintaining sufficient internal controls over financial reporting, and complying with all applicable healthcare-specific rules and regulations. A strong compliance program that is tailored to an institution’s specific needs is more effective than a generic program. Compliance program design plans should account for the organization’s scope of services, billing practices, and relationships with referral sources.
Outdated or inadequate policies and procedures, coupled with a lack of coding/billing education and training for physicians, nurses, and billing clerks, can lead to Stark violations and other problems. Conducting compliance audits serves as an effective tool and should be used to proactively detect improper self-referrals. Internal audits should be regularly conducted to determine compliance with applicable Stark Law exceptions, including billing and associated documentation requirements. Periodic proactive audits will help ensure that the compliance program is constructed properly to meet compliance objectives. Outside counsel should be included in the compliance process in order to advise upon risk areas, compliance policies and procedures, effectiveness of internal audit controls, and implementation of best practices.
In conclusion, healthcare practitioners should take special care in overseeing their internal billing and coding functions to ensure that they comply with federal and state health care laws, including the Stark Law, and with applicable billing and reimbursement requirements. This often means that providers should involve their legal counsel during their day-to-day health care business practices so that they can address legal compliance issues before they result in federal and state investigations.
The Future of the Stark Law
As healthcare law and regulations continue to evolve, it is important for health systems and providers to stay informed on how these changes may impact their compliance strategies. Although there has been some talk in Washington about codifying some of the exceptions to the Stark Law, it is unlikely that sweeping changes will occur anytime soon. Even if some substantive changes do occur, the Stark Law will continue to apply to many healthcare transactions for the foreseeable future, and we expect that Stark Law violations will continue to be a prominent area of enforcement for the Office of the Inspector General (OIG) and other regulatory agencies.
Additionally, healthcare providers and systems should expect to see increased enforcement efforts, not only against hospitals and health systems, but also against large physician practices and small and independent physicians as well. We have seen many instances in which the Department of Justice has intervened in qui tam cases (i.e., whistleblower lawsuits) on behalf of physicians and other healthcare providers against health systems and hospitals . Furthermore, we have seen increased enforcement activity outside the high-dollar areas of cardiology, orthopedics and interventional radiology; federal prosecutors are likely to continue to expand their focus into the areas of surgical services, pain management and other areas previously regarded as "off the radar."
In addition to the focus on identifying "bad apples" engaged in fraudulent activity, the regulators are taking a closer look at the delivery of care by all healthcare providers in general. For example, they are increasingly looking into the application of the Fraud Enforcement and Recovery Act (FERA), which expanded the reach of the federal FCA to the mere "making" of a claim. The United States is devoting resources to investigating mere allegations of Stark Law violations and cases are increasingly based on the idea or theory that merely approaching an arrangement that may be improper may render an innocent medical director, consulting or other agreement illegal and in violation of the Stark Law. All healthcare providers, and especially those in competitive outpatient business lines, should view these risks as a cost of doing business in a new era of increasing regulatory enforcement.