Stark Law

The Stark Act is a strict liability statute.  The Stark Act, 42 U.S.C. § 1395nn, prohibits a physician from making patient referrals to a health care provider for certain health services that are reimbursable by Medicare if that physician has a “financial relationship” with the health care provider.

Physician self referral is the practice of a physician referring a patient to a medical facility in which he has a financial interest.  This would lead to encouraging over-utilization of services and in turn driving up health care costs.  Physician self referral will also create a captive referral system, which limits competition by other providers.

Stark I barred physicians from self-referrals for clinical laboratory services under the Medicare program.  The law included various exceptions to the general rule to accommodate legitimate business.  A second legislation named Stark II restricted a range of additional health services and applied it to both Medicare and Medicaid.  This Act also contained clarifications and modifications to the exceptions in the original law.

The Stark Act includes many exceptions.  These exceptions include, in-office ancillary services, rental of office space and equipment, bona fide employment relationships, personal service arrangements, physician recruitment and non-monetary compensation up to $300.  Each exception has multiple elements that must be fulfilled completely to take advantage of the exception.  The most prominent among the exceptions to the Stark Act is the one that allows referrals to labs that are part of the same group practice.  This exception allows Medicare to be billed for services that are furnished personally by the referring physician or a member of the same group practice.  Another exception is for personal service arrangements that cover market-rate, and pay-for-service arrangements.  If a physician’s only financial interest in the clinic is receipt of the agreed-upon compensation fixed at or below fair market value for reasonable and necessary services, then the physician can make referrals to the clinic without violating the law.  To the extent that referrals are limited to nuclear medicine or other excluded radiology or imaging services furnished in a freestanding facility or a physician’s office, the referrals would not implicate the Stark Law.

The health services covered by the Stark Law include clinical laboratory services; physical therapy; occupational therapy; radiology and imaging services; radiation therapy and supplies; durable medical equipment and supplies; prosthetics, orthotics, and prosthetic devices; home health care and supplies; outpatient prescription drugs; and inpatient and outpatient hospital care.


Inside Stark Law