Understanding the Stark Law: Examples and FAQ for Facilities

Every healthcare organization that receives business from physician referrals is affected by the Stark Law, a federal law that prohibits certain referrals involving financial or familial relationships. As your facility sets up processes for referrals — or reexamines contracts that are already in place — it’s critical to examine how these referrals might put your organization at risk. The civil penalties for these violations can be serious, and may affect a facility’s standing with CMS and reputation with patients.

We’ll give a clear overview of what this law is and how it’s applied, and answer your most frequently asked questions about why the law was enacted, what its elements are, and how violations can impact the physicians and facilities involved.

What Is the Stark Law in Healthcare?

In the 1980s, lawmakers became concerned that if a physician (or their immediate family members) stood to profit financially from a referral, they might be tempted to overprescribe services for their own benefit. These extra referrals — for tests and services that aren’t medically necessary — would increase healthcare costs overall. Thus, legislation was enacted to prevent physicians from “self-referring” services to Medicare and Medicaid beneficiaries.

Section 1877 of the Social Security Act, also known as the Stark or Physician Self-Referral Law, prohibits a physician from making referrals for certain designated health services (DHS) payable by Medicare or Medicaid to an entity with which the physician, or one of their immediate family members, has a financial relationship (unless an exception applies). Under the law, the entity to which the referral was made isn’t allowed to file a claim with Medicare or bill for the DHS performed.

Items or services defined as DHS under the law include:

• Clinical laboratory services.
• Physical therapy services.
• Occupational therapy services.
• Outpatient speech-language pathology services.
• Radiology and certain imaging services.
• Radiation therapy services/supplies.
• Durable medical equipment/supplies.
• Parenteral and enteral nutrients, equipment, and supplies.
• Prosthetics, orthotics, and prosthetic devices/supplies.
• Home health services.
• Outpatient prescription drugs.
• Inpatient and outpatient hospital services.

What Are the Five Elements in the Stark Law Definition?

As a strict liability statute, the law governing physician self-referrals doesn’t require establishing intent. That’s why it’s crucial to be familiar with, and avoid, fact patterns that could implicate your organization. This important anti-fraud law is defined by the following five core elements which must be present in order to face liability under the law:

What Are Stark Law Violation Examples?

To give an example, let’s say a physician invests in a freestanding lab diagnostics center and refers their patients, with Medicare, to that lab center for bloodwork. Regardless of whether they intended to benefit from the referrals, the physician would appear to violate the law. Under the Physician Self-Referral Law, the lab isn’t allowed to bill or process a Medicare claim for the referred services either.

Additional Examples of Stark LawViolations:

• The U.S. was awarded a $237 million judgment against a facility that created contracts with physicians requiring them to make referrals to its new surgery center. In exchange, physicians received large compensation packages that included money received from Medicare.
• The U.S. reached a $2.83 million settlement with 33 Texas doctors who were alleged to have received thousands of dollars from 9 management services organizations in exchange for the doctors ordering laboratory tests from specific facilities.

What Are the Penalties for Stark Law Violations?

Physician penalties are significant and can result in fines and exclusion from participation in federal healthcare programs, including Medicare and Medicaid. Claims for DHS that are submitted in violation of the Stark Law will be denied payment. Any amount received must be refunded.

Civil monetary penalties may be imposed in the amount of $15,000 per service violation. In addition, a physician or entity that purposefully participated in a scheme to get around the self-referral prohibitions can face monetary penalties of up to $100,000 for each scheme. The failure to make a required report of a potential violation can result in a penalty of up to $10,000 for each day for which reporting is required.

What Are Stark Law Exceptions?

Although there are more than 30 exceptions in the law, some are more common than others. For example, a physician may be allowed to:

• Refer to a physician within the same practice.
• Refer for in-office ancillary services, like labs and radiological tests, if performed within the same location.
• Refer a patient to a family member for DHS in rural areas (as designated by CMS).
• Refer to pre-paid organizational health services such as health maintenance organizations (HMOs).
• Refer to academic medical centers (certain stipulations apply to the relationship between provider and academic center).

In the case of extenuating circumstances, broader exceptions may be issued to avert healthcare access delays during times of emergency. An example of this was the COVID-19 blanket waivers, which were in effect from March of 2020 through May of 2023.

What’s the Difference Between Anti-Kickback and Stark?

These laws are closely related and often pursued together in legal cases. The Anti-Kickback Statute (AKS) makes it a crime to pay for referrals from any provider for any item or service within any federal healthcare program. Forms of payment include cash, expensive gifts like lavish meals and lodging, and exorbitant consultant fees. In addition, you don’t have to be a physician to violate AKS.

AKS Violation Examples:

• A pharmaceutical company gives a physician $10,000 in exchange for increasing the number of prescriptions for a drug to Medicare beneficiaries.
• The purchasing manager at a healthcare facility accepts a cruise trip vacation from a vendor in exchange for signing a contract to purchase their IV pumps.

One key difference between anti-kickback and Stark law requirements is that the AKS violations require “willful knowledge” of the intent to violate the statute, whereas violations of Stark don’t require proof of intent to benefit from a self-referral to be held liable.

Another key difference is that Stark penalties are civil, while AKS penalties can be criminal and civil. In other words, AKS penalties are much more harsh and can even include prison time. Also, AKS applies to all federal healthcare programs while the Physician Self-Referral Law only applies to Medicare and Medicaid.

Looking for More Legal and Regulatory Compliance Tips?

Having a clear understanding of legal standards, such as compliance with the Stark Law, is crucial to the success of your facility. Stay up to date on the legal and regulatory compliance issues that affect your organization with our expert-written healthcare management insights and resources.

Legal Disclaimer: This article contains general legal information, but it is not intended to constitute professional legal advice for any particular situation and should not be relied on as professional legal advice. Any references to the law may not be current as laws regularly change through updates in legislation, regulation, and case law at the federal and state level. Nothing in this article should be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed to practice in your jurisdiction.