Stark Law: Understanding the Rule

June 9, 2013

Here's an explanation of the rationale behind the Stark Law, the government's conflict of interest statute your medical practice needs to be aware of.

This morning, I awoke to find that my cat "Peppy" had become ill on top of the papers in a notebook I keep at home covering Stark Law. Although I have left work papers open many times over the years, Stark Law is apparently the only thing which makes even my cat "throw up." Recognizing nearly every physician despises Stark Law, (and ever the "contrarian") I decided to devote this week’s column toward an explanation of the rationale behind Stark Law. According to Stephen Covey (The "7 Habits" guy), a person can more easily live with any "thing," provided he is given a "why." 

Stark Law is a "conflict of interest" statute which does not prohibit a physician from earning a "fee- for- service" (FFS) which is to be directly performed by the prescribing physician (or by someone in his office or group practice. ) When a patient simply presents for treatment, (and there is no illegality in the referral) acting alone a physician (or those within his office or group) simply cannot violate Stark Law through the in-house treatment of a patient, because there is no "outside referral" to someone else.

A Stark Law violation then, must necessarily involve a medical referral of a patient between physician and at least one other "outside" entity; such as a physician and a hospital, or two physicians not in the same group practice, where a prohibited financial, or compensation arrangement exists between them. Under Stark Law, the referral must be by a physician involving one of the enumerated Designated Health Services  (DHS) which is covered by Medicare or Medicaid. Stark Law is based almost entirely upon the AMA Code of Medical Ethics Opinion on "Conflicts of Interest" which is now Opinion 8.0321.

The concept of a financial gain from "outside referral" (and only an "outside referral") was singled out as inherently "bad" by drafters of the AMA Code of Ethics. Why then, is so much focus placed upon "outside" referrals between at least two separate entities, while internal referrals within a group are plainly not restricted at all? The answer has to do with ethical concerns over "patient trust," and the very practical need that a physician should do nothing to give the outward appearance that he or she might be interested in anything other than providing the patient the best possible care.

The accepted ethics model originally held that a patient should come to a physician by word of mouth (advertising was forbidden.) A diagnosis was reached from listening to the patient history, and observing the symptoms, and in some cases, in-house testing. All the physician need do was "listen," and the patient together with a few necessary tests, would "reveal" the diagnosis. Even though a physician would naturally earn a living wage for himself,  plus expenses of facilities and staff, (and this could be said to provide a "perverse incentive" in any patient encounter) these financial concerns were to be expected (and largely unavoidable.) Then too, it would be impossible to draw a line between necessary in-house ancillary testing, labs and diagnostics, from those which could, or should be outsourced through outside referral.

Here is the "tricky part." "Outside referrals" were forbidden for much the same reason as the prohibition against a physician paying another person a fee for a referral ("fee splitting.) In either case, it is thought to be impossible to avoid the "outward" appearance that the physician might in fact, be looking at the referral as a money-making opportunity.

While internal referrals are discreet, if not "covert," outside referrals are decidedly plainly visible and "overt." Simply put, regulation of in-house treatment decisions would require a regulator standing between the physician and patient in the examining room, a condition which was simply anathema to the old-guard AMA. Regulation of "conflicts of interest" in "outside" referrals, conversely, did not require standing between the patient and the physician in the office examining room.

To the cynic, this might imply "hypocrisy," but the rationale is far more entrenched. "Professionalism" required doctors to comport themselves with equanimity in the face of all manner of human concern, not simply financial. Just as doctors are often permitted to freely come and go by the "bad guys" into any police standoff to treat any gunshot victim, criminal or civilian; so too, uniformed military personnel wearing a red cross arm band were not expected to attack the enemy, even if the opportunity presented itself. "Trust" then, was not only for the patient’s benefit, it often meant the difference between a doctor walking out alive, or getting shot.

Thus, in passing Stark Law, Congress not only codified the AMA Code of Ethics, it adopted a higher ethical principle to save money. Stark Law does not forbid internal referrals within an office or group. Stark Law actually punishes the outward manifestation of a referral as a money-making opportunity.