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Ancillary Medical Services: Stark Law and Ethical Issues


Physicians are being presented with chances to invest in ancillary services, but they need to be aware of all the legal issues involved to avoid potential pitfalls.

There are three ways a person can pay for health services: 1.) out of pocket; 2.) private health plans; and 3.) government health plans. Physicians normally earn a living either providing professional services for the care and treatment of patients, or through investment and/or ownership of what are termed "ancillary services."

Physician-owned pharmacies, imaging centers, and diagnostic laboratories, for example, would be considered "ancillary services." Although the rules relating to ancillary services are maddeningly complex, there are certain general concepts which must be understood. First, you must never accept a "finder’s fee" for referring a patient to anyone, regardless of ownership. Patients have a right to expect the referral is based upon medical necessity and to the best provider, not the "highest bidder." That said, let’s examine rules that apply to the referral of a patient for ancillary services, where you also own some interest.

Patient out-of-pocket (where the patient is solely responsible and pays out of pocket for an ancillary service) rules are least restrictive, but they are important. Generally, the AMA Code of Medical Ethics sets the standard. Historically, the AMA took a conservative and restrictive stance on the ability of physicians to earn income from ancillary services. This view was formed in the days when physicians were paid full value for professional services. The modern reality is the government deliberately employs "cost shifting," (underpaying with the expectation the physician will make up the losses somewhere else). In cases strictly involving patient out-of-pocket payments (no government or private insurance involvement) the potential for a conflict of interest is still present where a physician refers a patient to an outside facility which the physician also owns. AMA Ethics opinion 8.032 states:

"Physicians should disclose their investment interest to their patients when making a referral, provide a list of effective alternative facilities if they are available, inform their patients that they have free choice to obtain the medical services elsewhere, and assure their patients that they will not be treated differently if they do not choose the physician-owned facility."

Private health plans (including "self-funded" health plans) have the second- least restrictive set of rules. These private-pay restrictions may mirror Stark Law or the Anti-kickback Statute, and will either be set forth in a provider agreement, or in a claims processing manual; compliance with which the physician may be asked to certify. It is therefore important to know the contents of any contracts or manual provisions with which you may be required to certify agreement or compliance. Private insurance companies possess a greater awareness of AMA Ethics provisions than the average patient. With increasing regularity, private insurance companies have demonstrated a willingness to resort to ethics complaints before state medical board in an effort to recoup what they consider to be overpayments. With private insurance, the greater concern of an adverse event comes where the physician has promised to behave in one manner, but experience shows, the provider did something differently.

Government regulations are the most restrictive. Stark Law and the Anti-kickback Statute provide very detailed "safe harbor" rules which must be followed. For example, Stark Law may require the physician to not only notify the patient of ownership, but provide the names of five different alternative ancillary service providers of a Designated Health Service from which the patient may choose. The five main government rules and regulations are Stark Law, the Anti-kickback Statute, the False Claims Act, the Civil Monetary Penalties Statute, and the Exclusionary Statutes. Stark Law and the Anti-kickback Statute are based loosely upon AMA Ethics Opinions 6.02-04 (fee splitting) and 8.032 (conflicts of interest.) The False Claims Act also contains "whistleblower" provisions which aid the government in finding out about secret relationships which may violate Stark Law or the Anti-kickback Statute.

Finally, a number of states have adopted statutes which must be considered. The Texas Illegal Remuneration Act mirrors the federal anti-kickback prohibition but expands it to cover items and services reimbursed by any insurance payer (including self-funded payers), rather than just state- and federally funded health plans.

Today, more than ever, physicians are being presented with opportunities to invest in ancillary service providers. Even a small, minority stake in one of these may disqualify you from the ability to refer patients to the facility, and subject you to massive fines and possible criminal prosecution. Even the best business lawyers know very little about Stark Law. Before signing any agreement, find a healthcare lawyer through your state bar association to help you.

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