May 15, 2011

Limitations on physician self-referrals were enacted into law in 1989 under the Ethics in Patient Referrals Act, commonly referred to as the “Stark law.” The Stark law, as amended, and its implementing regulations, prohibit certain physician self-referrals for designated health services (“DHS”) that may be paid for by Medicare or Medicaid.

The Stark law provides that if (1) a physician (or an immediate family member of a physician) has a “financial relationship” with an entity, the physician may not make a referral to the entity for the furnishing of designated health services (DHS) for which payment may be made under Medicare or Medicaid, and (2) the entity may not present (or cause to be presented) a claim to the federal health care program or bill to any individual or entity for DHS furnished pursuant to a prohibited referral. The purpose of the Stark law is to prevent physicians from making referrals based on personal financial gain, thus preventing over-utilization of medical care and unnecessary increases in health care costs.

A “financial relationship” under the Stark law consists of either (1) an “ownership or investment interest” in the entity or (2) a “compensation arrangement” between the physician (or immediate family member) and the entity. An “ownership or investment interest” includes “equity, debt, or other means,” as well as “an interest in an entity that holds an ownership or investment interest in any entity providing the designated health service.” A “compensation arrangement” is generally defined as an arrangement involving any remuneration between a physician (or an immediate family member of such physician) and an entity, other than certain arrangements that are specifically mentioned as being excluded from the reach of the statute. The Stark law includes a large number of exceptions that may apply to ownership interests,  compensation arrangements, or both.

Violators of the Stark law may be subject to various sanctions, including a denial of payment for relevant services and a required refund of any amount billed in violation of the statute that had been collected. In addition, civil monetary penalties and exclusion from participation in Medicaid and Medicare programs may apply. A civil penalty not to exceed $15,000, and in certain cases not to exceed $100,000, per violation may be imposed if the person who bills or presents the claim “knows or should know” that the bill or claim violates the statute.

The Stark law includes a general exception permitting physicians and group practices to order and provide certain DHS in their offices when they meet certain statutory requirements. Under this exception, the statute limits who can furnish the service, designates where the service must be performed, and limits who can bill for the service. Although this exception to the Stark law is intended to benefit the convenience of patients and to allow patients to receive certain services during their doctor visits, there still exists the risk that this exception has the potential to promote the overuse of these services. 

Section 6003 of  the Patient Protection and Affordable Care Act (PPACA), which was signed into law on March 23, 2010, addresses this concern by adding new disclosure requirements to the in-office ancillary services exception. With respect to magnetic resonance imaging (MRI), computed tomography (CT), positron emission tomography (PET), and any other designated health services determined by the Secretary, the referring physician must inform the individual in writing at the time of the referral that the individual may obtain the services from a person other than the referring physician, a physician who is a member of the same group practice as the referring physician, or an individual who is directly supervised by the physician or by another physician in the group practice. The individual must be provided with a written list of suppliers who furnish these services in the area in which the individual resides.

The provisions of other federal laws also address and affect the ability of physicians to refer their patients to services or facilities in which the physicians have financial interests.

Source: August 10, 2010 Congressional Research Service’s Health Care Fraud And Abuse Laws Affecting Medicare And Medicaid: An Overview

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