How Healthcare Organizations Can Stay Compliant with Stark Law and Similar Regulations

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A simple Google search can reveal recent news headlines of violations of Stark Law. While enacted in 1989, the law has expanded and been highlighted adjacent to the Anti-Kickback Statute and False Claims Act. In short, medical providers need to be mindful of any referral practices or behaviors that may broach financial relationships in favor of a physician. Learn more about Stark Law and how your healthcare organization can remain in compliance, avoiding costly lawsuits.

What is Stark Law?

Also known as “The Physician Self-Referral Law,” (Section 1877 of the Social Security Act (the Act) (42 U.S.C. 1395nn)), Stark Law (named after California Rep. Pete Stark, who sponsored the initial bill) prohibits physicians from referring patients to receive “designated health services” (DHS) payable by Medicare or Medicaid from entities with which they, or an immediate family member, have a financial relationship. Of course, exceptions apply, but these relationships generally include any form of compensation, financial incentive, and ownership/investment interests. Overall, the law seeks to eliminate physician decision-making with financial motives, ie. fraud and abuse, that could raise overall healthcare costs.  

Stark Law identifies “designated health services” as most services conducted by a specialist typically requiring a referral, including but not limited to clinical lab services, therapies, prosthetics, home health services, outpatient hospital services, and radiology. While it has “physician” in the name, the law also applies to physician assistants (PAs) and nurse practitioners (NPs) who also make referrals.

Some financial relationships governed by Stark Law are obvious, like a physician’s employment agreement, volume- or productivity-based compensation, or referring patients to a physical therapy practice co-owned by a close family relative. Perhaps lesser-known potential Stark Law violations include rental agreements where space is provided in return for referrals, cross-referrals between physician offices, and certain employment perks. As noted above, there are exceptions to the law, with a new exception introduced in 2023 as part of the Consolidated Appropriations Act that allows physician wellness programs like mental and behavioral health services. It’s important for healthcare organizations to understand Stark Law and possible violations, ensuring physicians are aware of its far-reaching nature.

Other Fraud and Abuse Regulations for the Healthcare Industry

In addition to Stark Law, medical providers are governed by other legal statutes to help prevent fraud and abuse. Common ones include:

  • Anti-Kickback Statute (AKS) – beyond medical referrals, the AKS prohibits the knowing and willful payment of “remuneration” to induce or reward the generation of business for any item or service payable by any federal healthcare programs, not just Medicare/Medicaid. AKS governs relationships like those with pharmaceutical companies, medical supply and device manufacturers, and other healthcare services, with remuneration broadly covering compensation, including anything of value, such as exorbitant hotel stays and meals, entertainment, and excessive compensation for medical consulting. SAFE HARBOR REGULATIONS identify nearly 20 allowable relationships and exclusions. Additionally, PENNSYLVANIA’S AKS WAS AMENDED IN 2023 to allow for a more integrated approach to healthcare delivery for Medical Assistance program providers.
  • False Claims Act – with both civil and criminal penalties, the False Claims Act outlaws the knowing, ignorant, and reckless submission of Medicare or Medicaid payment claims that are false or fraudulent – the intent is not relevant. Doing so may result in fines of up to three times the programs’ loss plus $11,000 per claim filed, with each instance of an item or a service billed to Medicare or Medicaid counting as a claim, i.e., fines can be very costly. Whistleblowers, be they current or ex-business partners, medical facility staff, patients, or even competitors, may file a civil lawsuit on behalf of the United States, entitling them to a percentage of any recoveries. Criminal penalties for False Claims Act violations include imprisonment and criminal fines.
  • Health Care Quality Improvement Act – healthcare providers must hold physicians to quality care standards and provide professional peer review processes and standards to help eliminate incompetent physician care, restrict deficient or poorly performing physicians from moving practices (especially between states) without disclosure or discovery of past issues through documenting adverse actions in a national practitioner database, and to provide hospitals and physicians immunity in lawsuits, with protections for both the facilities and physicians who participate in the review process in good faith.
  • Patient Protection and Affordable Care Act (PPACA)/HIPAA – individuals’ health information is of the utmost importance, and medical providers must be sure to protect medical records, payment information and treatment records while making pertinent information accessible when necessary for further treatment, public health purposes, or to appropriate entities. Patients must be provided privacy rights to understand and control how their health information is used. Civil and criminal penalties apply for violations for knowingly disclosing or obtaining protected data.

Compliance Measures

The healthcare industry faces an ever-changing regulatory climate that impacts the licensure and operations of medical facilities and care providers. Failure to comply with regulations can result in heavy fines, loss of licensure, loss of ability to participate in federal health programs, and even imprisonment.

In an effort to remain compliant with Stark Law and other fraud and abuse statutes noted above, healthcare organizations should consider:

  • Proper governance – under the guidance of a chief compliance officer (CCO), experienced clinical professionals, and an interdisciplinary committee, medical providers can make compliance part of their culture and ensure it’s part of all integral operations, with a regular review and audit process.
  • Policies and procedures – employee handbooks and code of conduct can reinforce the importance of compliance and cast a shared vision.
  • Training – robust onboarding and ongoing educational programs can help ensure staff, especially those in high-risk areas, have a deep understanding of federal statutes and legal updates.
  • Performance programs – measure and communicate compliance efforts and key metrics to help staff understand opportunities for improvement; consider creating performance incentives.

Legal guidance for Stark Law compliance

Close-up Of Stethoscope And Gavel Over Wooden Desk

Physicians commit to doing no harm, and medical providers must also commit to compliance with their referrals, billing, coding, and more. Medical providers are positioning themselves for compliance success by following the abovementioned measures. However, medical professionals are human, and mistakes happen. Additionally, with the increasing number of healthcare mergers and acquisitions, facilities need to pay due diligence to uncover and resolve any possible Stark Law or other regulatory violations with a possible acquisition and ensure compliance going forward.

If your medical facility suspects compliance issues or is facing a possible claim, FLB’s Healthcare attorneys are well-versed in Stark Law and Anti-Kickback Statute, HIPAA, medical staff and physician relationships, patient safety, accreditation standards, Medicare and Medicaid, ready to counsel our clients on a wide range of matters to improve patient safety and satisfaction and meet regulatory requirement, while avoiding costly litigation. Contact us today to discuss your unique challenge

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