The Stark Act and its penalties are a common source of worry for physicians and hospitals, as physicians' financial relationships are subject to increasing scrutiny by federal and state enforcement agencies. Additionally, violations of the Stark Act may be used as a basis for allegations of violations of the False Claims Act, leading to increased penalties for physicians. Here are 30 things to know about The Stark Act:
Stark Act overview
1. The Stark Act is commonly referred to as the physician self-referral law. It prohibits physicians and other healthcare professionals from referring their Medicare and Medicaid patients to other entities for designated health services if they (or an immediate family member) have any financial relationship to the entity referred. Unless a predefined exception exists, healthcare providers in violation of the Stark Act are subject to severe penalties.
History of the Stark Act
2. Stark I: Former Rep. Pete Stark (D-Calif.), for whom the Stark Act was named, sponsored the initial bill in 1989. Congress included a "Stark I" provision of the Omnibus Budget Reconciliation Act of 1989 that prohibited self-referrals for clinical laboratory services under the Medicare program. The ban included a series of exceptions in order to accommodate legitimate business arrangements among physicians and outside entities. Where an exception exists, a physician can make a referral to the entity with which he or she has an ownership or compensation relationship as long as he or she meets all the terms of the definition.
3. Stark II: A 1993 amendment to Stark applied the regulations to Medicaid as well, and expanded the restriction of self-referrals to a range of additional DHS. Minor technical corrections to these provisions were included in the Social Security Amendments of 1994.
4. Initial responses to the Stark Act: Many physicians argued the law posed an unnecessary imposition on their medical practices, contending the provisions relating to compensation agreements were far too complex and hindered physicians' ability to participate in managed care networks. Despite these complaints, on Dec. 6, 1995, President Clinton vetoed the Balanced Budget Act, which would have repealed the prohibitions of compensation arrangements and reduced the list of services subject to the ban on physician self-referrals.
5. Stark II Phase II: In March 2007, CMS established 14 statutory exceptions to the Stark Act regarding ownership and investment, rural hospitals and recruitment and employment relationships.
6. Stark II Phase III: The third-phase final rule became effective in December 2007. In the new final rule, CMS responded to public comments regarding various aspects of the Phase II interim final rule. In an attempt to reduce the regulatory burden on the healthcare industry, in Stark II Phase III, CMS introduced new interpretations and modifications of previously stated exceptions to the Stark Act.
Definition of key terms
7. Self-referral definition: The term "referral" has a fairly broad interpretation under the Stark Act. It can be a request for a service, item or good payable under Part B of a Medicare plan, a referral for a consultation and all of the resulting services ordered, a prescribed course of treatment using DHS or referrals within a physician group. "Self-referral," which can incur the Stark Act penalties, is defined as a referral made to an outside entity with which the physician or an immediate family member has a financial relationship.
8. The Stark Act prohibits self-referrals to entities for a DHS payable by Medicare and Medicaid: The DHS to which the Stark Act applies include:
- Clinical laboratory services
- Physical therapy services
- Occupational therapy services
- Outpatient speech-language pathology services
- Radiology and imaging services (including MRIs, ultrasounds and CAT scans)
- 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
- Inpatient and outpatient hospital services
9. Financial relationship definition: The Stark Act prohibits the referral of a patient for DHS to an outside entity to which the referring physician has a direct or indirect financial relationship. A financial relationship is defined as a direct or indirect ownership interest, investment interest or compensation agreement with any entity that offers DHS. The definition of indirect ownership interest has been heavily discussed and is a common source of conflict for physicians.
Penalties and sanctions for violating the Stark Act
10. Refunds. A DHS entity that submitted claims to Medicare or Medicaid as the result of an illegal referral must refund any amounts billed and collected for the referred services or items within 60 days of submitting the claim.
11. Civil money penalties. A CMP may be imposed on any referring physician or DHS entity for each bill or claim that the physician or DHS entity knows or should know is for referred services in violation of Stark provisions. The OIG may impose up to $15,000 in CMPs per wrongful claim and per missed refund, up to triple the amount claimed for each service.
Additionally, a CMP of up to $100,000 may be imposed on any referring physician or DHS entity for each arrangement that either party knows or should know would violate the Stark Act if referrals are directly made.
12. Exclusion from Medicare and Medicaid. Medicare and Medicaid may deny claims for payment to the DHS entity for services or items resulting from a self-referral. Additionally, the DHS entity may be subject to a five year exclusion from the Medicare and Medicaid programs for any provider that submits an improper bill or claim.
The Stark Act is a bright line statute; unlike the Anti-Kickback Statute, the intent of the physician or entity with which an outside entity has a financial relationship is not required for the implementation of penalties.
Important exceptions to the Stark Act
The Stark Act includes a number of exceptions. Here are 11 of the most relevant for physicians, hospitals and health systems.
13. Fair market value compensation. The Stark Act permits arrangements between an entity and a physician or group of physicians for the provisions of items or services from one to the other so long as the agreement is in writing and only covers identifiable items or services. The written arrangement must specify the compensation that will be provided under the arrangement, and that compensation must be set consistent with fair market value and not influenced by the value or volume of referrals by the physician.
14. Space and equipment leases. Physicians and DHS entities may enter into space and equipment leases as long as the lease satisfies the necessary requirements: The lease must be for at least one year and identify the premises to be occupied or equipment used, and rent must be consistent with fair market value. The lease must also be in writing and signed by both parties.
15. In-office ancillary services. This is the exception that generally allows physicians within their group practices to provide designated health services. The group practice must generally meet several tests such as location, a billing and a group structure test.
16. Splitting profits from ancillary services within a practice. The Stark Act allows for the splitting of profits from DHS within a group practice as long as the profit-splitting method is verifiable and is not related to the value or volume of referrals. CMS has also stated that all physicians can receive a productivity bonus based on the work they personally perform.
17. Professional courtesy. In 2004, CMS established an exception to the Stark Act to recognize the longstanding tradition of extending professional courtesy to physicians and their families. As long as certain conditions are met, the professional courtesy exception covers free or discount services for physicians and their immediately family members without incurring Stark penalties.
18. Bona fide employment relationships. This is the exception by which most physicians are employed by hospitals. As long as certain conditions are met, the bona fide employment relationship exception permits payments of any amount by an employer to a physician or an immediate family member for providing covered services. These conditions require that the employment is for identifiable services, they payment is consistent with fair market value and is not influenced by volume or value of referrals, and the relationship is established in a contract that is reasonable even if no referrals were made to the employer.
19. Independent contractor relationships. The Stark Act allows a physician to act as an independent contractor with a referred-to entity as long as certain conditions are satisfied. The contract must be in writing, disclose all of the services provided by the physician and have a term of at least one year. The services must be reasonable and necessary, compensation cannot be influenced by the volume or value of referrals and the services must not promote business arrangements or activities that violate federal law.
20. Rural exception. The Stark Act permits physicians to make referrals for the provision of DHS to an entity in which the physician has an ownership or investment interest only if the DHS is furnished in a rural area to patients residing in a rural area. In comments regarding the 2004 interim final rule, CMS stated that "[we] believe the Congress enacted the rural provider exception to ensure adequate access to DHS for residents in rural areas that might otherwise have difficult attracting a sufficient number of providers and suppliers."
21. Physician investment in hospitals. 2010 amendments to the Stark Act's "whole hospital" exception included in the Patient Protection and Affordable Care Act, limit physician ownership or investment in hospitals. Previously, physicians could refer patients to hospital in which they held an ownership interest. Under the new law, the whole hospital exception only applies to protect physician ownership in hospitals that are "grandfathered," or that had physician ownership and an effective Medicare provider number before Dec. 31, 2010. The amended regulations strictly limit the expansion of space or serviced of "grandfathered" services, and additionally require more transparency and disclosure of financial relationships.
22. Non-monetary compensation. Physicians may receive non-monetary compensations of up to $300 a year (i.e., meals, parking, training, etc.) from a DHS entity. However, non-monetary compensation cannot be influenced by the amount of business induced by the physician or the volume or value of any referrals. The non-monetary compensation also must not violate the Anti-Kickback Statute or have been solicited by the physician.
23. Donated and subsidized EHRs. Hospitals can continue to donate or subsidize EHRs to physician practices and other healthcare organizations without fear of violating provisions of the Stark Act through 2021, due to a recent extension of a Stark Act safe harbor.
The Stark Act liability
24. The Stark Act and the False Claims Act. Healthcare providers in violation of the Stark Act are often in violation of the False Claims Act as well, as a claim submitted to a government insurance program following an improper referral is fraudulent. The qui tam, or whistle-blower, provision of the FCA commonly serves as a vehicle for reporting allegations of Stark violations. This change was initiated as a part of the PPACA signed by President Obama in 2010. The PPACA adds a definition of "obligation" or an established duty to report and return any overpayment in violation of the FCA and the Stark Act within 60 days. The PPACA defines "overpayment" as any funds received or retained under Medicare or Medicaid to which the provider, supplier, or plan is not entitled.
25. Voluntary self-referral disclosure protocol. Section 6409 of the PPACA provides a voluntary self-referral disclosure protocol in an effort to facilitate the disclosure of actual or prospective violations of the Stark Act by physicians and suppliers. After showing compliance with the SRDP, the Secretary of HHS may reduce the amount of fines due for violations. Factors that affect the Secretary's decision include the nature of the illegal referral, the promptness of the disclosure, the physician or supplier's willingness to cooperate, the litigation risk of the issue divulged, the disclosing party's financial status and the secretary's discretion.
Biggest Stark settlements of 2014
The following settlements are listed in order from largest to smallest.
26. In April 2014, a whistle-blower lawsuit was filed against Amedisys, alleging in part the Baton Rouge, La.-based health services provider provided care coordination services to a private Georgia oncology practice at below-market rates. In total, Amedisys and its affiliates agreed to pay the government a total of $150 million to resolve all the allegations. This is the largest settlement involving Stark violations in U.S. history.
27. In March 2014, Daytona, Fla.-based Halifax Hospital Medical Center and Halifax Staffing agreed to pay $85 million to resolve allegations they violated the FCA by submitting claims to Medicare that resulted from an improper referral under the Stark Act. According to the Department of Justice, Halifax allegedly executed contracts with medical oncologists that provided an incentive bonus that included the value of prescription drugs and tests that the oncologists ordered and Halifax billed to Medicare.
28. In May 2014, King's Daughters Medical Center in Ashland, Ky., agreed to pay the U.S. government $40.9 million to resolve a variety of complaints, including allegations KDMC paid some cardiologists unreasonably high salaries that were in excess of fair market value, and these cardiologists had been referring their patients to KDMC for various health services.
29. In January 2014, London, Ky.-based Saint Joseph Health System agreed to pay $16.5 million to resolve allegations it violated the False Claims Act, the Stark Act and the Anti-Kickback Statute by submitting false claims to Medicare and Medicaid for a variety of medically unnecessary cardiac procedures. According to the DOJ, Saint Joseph Hospital allegedly violated the Stark Act and the Anti-Kickback Statute by entering into an improper sham management arrangement with two physicians at London, Ky-based Cumberland Clinic, a physician group that provides cardiology services to the hospital's patients.
30. In a recent August 2014 settlement, an Albany, N.Y. group practice of cardiologists called New York Heart Center agreed to pay the U.S. government $1.34 million plus interest to resolve allegations it violated the False Claims Act and the Stark Act. NYHC cardiologists had allegedly determined a partner-physician compensation formula by taking into account the volume of referrals the physician was directing to the practice for nuclear and CT scans. The government's investigation of these allegations revealed that NYHC implemented this formula with the knowledge that it could violate the Stark Act.