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The Stark Law

An Overview

The Stark Law prohibits physicians from referring patients for certain designated health services paid for by Medicare to any entity in which they have a “financial relationship.” The federal government interprets the term “financial relationship” broadly to include any direct or indirect ownership or investment interest by the referring physician, as well as any financial interests held by any of the physician’s immediate family members. Unlike the federal Anti-Kickback Statute, the Stark Law is not a criminal statute. However, the Inspector General for the Department of Health and Human Services (“HHS”) can pursue a civil action against Stark Law violators under the civil monetary penalties law. Stark Law violations can result in penalties of up to $15,000 for each billed service that is based on a prohibited referral, plus three times the amount of the government overpayment.

Representative Matter: DBS attorneys defended a physician group practice against allegations by the Department of Justice, the Office of the Inspector General, and the Centers for Medicare and Medicaid Services that the practice violated the Stark Law and the Anti-kickback Statute, and negotiated a non-criminal settlement.

The Stark Law is a strict liability statute, meaning that proof of a physician’s specific intent to violate the law is not required. Therefore, physicians who make prohibited referrals even accidentally or unknowingly will still be subject to civil penalties. Physicians who are found to have knowingly and intentionally violated the Stark Law may be subject to increased penalties in the form of an imposed period of debarment or exclusion from participation in Medicare, Medicaid, and all other federal plans and programs that provide health benefits.

There are multiple exceptions to the Stark Law that permit physicians, in certain limited circumstances, to make referrals for federally-covered healthcare services. One primary exception permits a group medical practice to make referrals for in-office ancillary services such as laboratory or radiology services. Similarly, a physician is likewise permitted to refer patients to a provider that employs or contracts with the physician to provide other professional services. However, referring physicians must at all times remember that even though an arrangement may fall within one of the exceptions to the Stark Law, if the referrals are being made in exchange for any type of remuneration they may still violate the federal Anti-Kickback Statute.

Representative Matter: Prior to the sale of a hospital, DBS attorneys reviewed physician contractual arrangements to ensure compliance with Stark Law.

As is the case with most federal regulatory schemes, the federal government has been vigilant in ferretting out Stark Law violators and severely punishing them as a means of general and specific deterrence. For example, in 2014 alone a medical center and hospital agreed to pay $40.9 million and $85 million respectively to settle federal prosecutions for alleged violations of the Stark Law and Federal False Claims Act stemming from improper payment arrangements with physicians. Given the severity of these penalties, it is critical for all healthcare providers to fully understand which referrals are permitted and which are prohibited under the Stark Law and other federal statutes. Legal counsel who possesses Stark Law experience can be invaluable in preventing violations altogether by reviewing referral practices and providing training to physicians. And if violations do occur, it is essential to retain healthcare litigation counsel who have experience responding to HHS investigations and dealing with the HHS Inspector General in order to resolve the allegations as expeditiously as possible, and on financial terms that are reasonable and not excessively punitive.

Kelly McGee and Callan Stein prepared this overview.

Health Law

Health Law




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