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How not complying with Stark laws can put your practice at risk


Most physician compensation structures must comply with Stark laws. The danger is that practices may be in violation without realizing it, putting themselves at risk of fines and exclusion from Medicare and Medicaid.

lawsuit, legal risk, designated health service, physician compensation, stark

Many physicians are familiar with what is known as the Physician Self-Referral Law [42 U.S.C. § 1395nn] or the Stark laws, but they often assume they do not apply to them or that they are in compliance based on a rudimentary understanding of the laws. The truth is that Stark laws are a complicated statute supported by thousands of pages of regulations, guidance, case law and other interpretations that can make the laws challenging - even for a seasoned lawyer - to fully understand.

Stark generally prohibits a physician from referring a Medicare and/or Medicaid patient for a designated health service (DHS) to an entity with which the physician, or an immediate family member, has a financial relationship, such as through ownership or compensation. Although I always recommend that physician practices work with experienced health law counsel, I understand this is not always something in which a practice is willing to invest. However, if certain facts are present, it is unreasonable for a physician practice to not seek proper legal guidance:

  • The practice bills Medicare or Medicaid AND

  • The practice offers DHS covered by Stark. DHS includes the general categories of items such as home health, DME, diagnostic services and physical therapy and many others. (A complete list of CMS’s covered services by CPT code is updated annually and can be viewed here.) AND

  • Physicians refer within the practice or physicians refer to another entity with which they, or their family member, maintain an ownership interest or compensation arrangement. An example might be referring patients to an MRI facility, DME company or home health agency owned by the referring physician’s spouse. It could also include or referring patients to another physician practice for DHS when that company leases space to/from the practice.

There are various solutions the practice can employ when Stark is implicated. For referrals made by physicians within the practice, the most common approach is to make sure the practice is properly structured as a group practice, which is specifically defined under Stark, and meets certain supervision, location and billing rules. Among other requirements, the group practice definition requires that physician compensation be structured in a specific way that generally does not allow physicians in the practice to be directly compensated based on the volume or value of their referrals for DHS. For example, a practice that offers X-rays cannot track the X-rays ordered by each physician and credit the referring physician with the technical component paid for that service. I have come across many practices that are simply unaware of this requirement and may have compensated their physicians in such manner for many years.

In a recent Qui Tam lawsuit and federal investigation published by the Department of Justice U.S. Attorneys’ Office for the Southern District of Alabama on Aug. 15, 2019, an orthopedic physician practice was investigated for, among other issues, violation of Stark. The government alleged that the practice had a compensation arrangement among the shareholder-physicians where the compensation was paid directly or indirectly related to the volume of each shareholder-physician’s referrals for DHS, such as physical therapy, X-rays and MRIs.  

It is unclear whether this is an area that the government intends any heightened scrutiny in the future, but practices currently noncompliant with Stark laws should pay attention to this case and seek advice accordingly.

Stark laws are a strict liability statute and compliance is mandatory. It does not matter whether physicians are aware of the laws or not, or whether they intended to violate the law. Among other negative outcomes, sanctions for violation of Stark laws can include civil monetary penalties and exclusion from participating in the Medicare and Medicaid programs. Additionally, violation of Stark laws can trigger violation of other laws as well, such as the False Claims Act.

Stark is a complex set of laws and regulations that are often difficult to interpret and understand. Given the potential consequences of a Stark violation, it is important for practices to see the value in engaging experienced healthcare counsel early on to avoid future legal and financial complications.

Ericka L. Adler, JD, LLM has practiced in the area of regulatory and transactional healthcare law for more than 20 years. She represents physicians and other healthcare providers across the country in their day-to-day legal needs, including contract negotiations, sale transactions, and complex joint ventures. She also works with providers on a wide variety of compliance issues such as Stark Law, Anti-Kickback Statute, and HIPAA. Ericka has been writing for Physicians Practice since 2011.

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