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What is the Stark Law?

The Stark Law is a federal law found at 42 U.S.C. § 1395nn that prohibits doctors from making referrals of Medicare and Medicaid patients for certain “designated health services” to entities in which the doctor (or an immediate family member of the doctor) has a financial relationship.

The purpose of the law is to make sure doctors make referrals that serve the best interest of their patients, rather than the best interest of their own wallets. Thus, a doctor cannot refer a patient to get a CT scan or X-ray at an imaging center owned by the doctor (or the doctor’s family). A referral is defined broadly as a request by a doctor for the patient for some designated service payable by Medicare or Medicaid, or a request by a doctor for the “establishment of a plan of care” that includes any designated service.

The Stark Law only prohibits doctor referrals regarding certain “designated” services, such as the following:

  • durable medical equipment;
  • prosthetics, orthotics, and prosthetic devices and supplies;
  • home health services;
  • inpatient and outpatient hospital services;
  • clinical lab services;
  • physical therapy services; and
  • radiology and imaging services.

This list is not exhaustive. The specific services are either designated in federal regulations (42 C.F.R. § 411.351) or are published by the Centers for Medicare & Medicaid Services in an annual list of CPT and HCPCS codes.

The doctor’s financial relationship with the entity may be an “ownership” or an “investment interest,” or it may be a so-called “compensation arrangement.” These terms have highly technical definitions under Medicare regulations. An ownership or investment interest includes things like stock or ownership shares, as well as loans, bonds, or other financial instruments that are secured with the entity’s property or revenue. The ownership or investment interest may be owned directly or indirectly. An indirect ownership or investment interest may exist where there is an “unbroken chain” of persons or entities having an ownership or investment interest in the entity providing health services, provided that the entity has actual knowledge, recklessly disregards, or deliberately ignores the fact that the doctor has some indirect ownership interest.

A compensation arrangement is defined by Medicare regulations as any arrangement involving direct or indirect remuneration (i.e., any payment or benefit exchanged) between a doctor (or the doctor’s immediate family) and the entity. As with an indirect ownership or investment interest, an indirect compensation arrangement exists when there is an “unbroken chain” of compensation arrangements between the doctor and the entity. In addition, the indirect compensation arrangement must vary with or take into account the number of referrals made, and the entity must have actual knowledge, must recklessly disregard, or must deliberately ignore the fact that the doctor receives indirect compensation as a result of the referral.

Violations of the Stark Law may give rise to a claim under the False Claims Act, because no entity may submit a claim for payment by Medicare or Medicaid for services rendered pursuant to a prohibited referral. Any amount paid by Medicare or Medicaid for improperly referred services must be returned to the government. Such suits are frequently pursued by qui tam plaintiffs on the government’s behalf.

The Stark Law is complicated, however, and contains numerous exceptions. If you suspect a violation of the Stark Law, contacting the right attorney can be critical.

To view the Stark Law, click here.

Please Note: Rabin Kammerer Johnson provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice. If you know about government fraud and want advice as to how the law might apply to the specific facts and circumstances of your case, please click here to contact one of our attorneys.

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