Stark Law Terms Often Misunderstood by Physicians

By Adil Daudi, Esq.

Stark-GraphWith the government beginning to scrutinize a physician’s practice now more than ever, many physicians are starting to take a proactive role in understanding certain rules that have been implemented against them.

In January of 1992, Congress imposed and substantially changed the health care industry by introducing what is commonly referred to as the Stark law. Specifically, Stark law is comprised of Sections 1877 (42 U.S.C. §1395nn, applicable to Medicare) and 1903 (42 U.S.C. §1396b, applicable to Medicaid) of the Social Security Act.

Stark law governs physician self-referral for Medicare and Medicaid patients, and prohibits physicians from referring designated health services (DHS) to Medicare or Medicaid qualified patients to an entity where the physician, or an immediate family member of the physician, has a vested financial relationship.

Despite the unambiguous definitions, many physicians/hospitals have fallen prey to this law and have found themselves in substantial legal issues. For any physician, it is imperative for them to know and understand the basics of this law and what certain definitions mean; as the understanding of the simplest terms can help avoid potential litigation.

The following are the top three (3) definitions that many physicians often misunderstand: Please note, these definitions are not exclusive, and it is always strongly advised to consult with your attorney prior to any potential referrals that may fall under this rule.

1.  Financial Relationship: An ownership or investment interest (through equity, debt or other means) in an entity; or a compensation arrangement between a physician, or immediate family member of a physician, and an entity.

2. DHS: The following are the type of services that are restricted under Stark: (i) clinical laboratory services, (ii) physical therapy, occupational therapy, and speech-language pathology services, (iii) radiology and certain other imaging services, (iv) radiation therapy services and supplies, (v) durable medical equipment and supplies, (vi) parenteral and enteral nutrients, equipment and supplies, (vii) prosthetics, orthotics, and prosthetic devices and supplies, (viii) home health services, (ix) outpatient prescription drugs, and (x) inpatient and outpatient hospital services.

3. Referral:  Generally, a referral is considered a request by a physician for, or ordering of any DHS for which payment may can be made under Medicare Part B; in addition, it is a request by a physician to perform any DHS for which payment may be made under Medicare.

Despite these general terms, Stark law is a very complex rule that many physicians fail to take the interest in understanding. A physician who violates this rule is subject to the following penalties: denial of payment; required person would be required to refund amounts collected that were billed; and civil money penalty and being excluded from Medicare, Medicaid and other possible federal programs.

The above is simply an informative piece designed to help simplify certain terms under Stark law. Please consult with your own attorney to provide you with additional information that may be more specific to your situation and needs. Although the rule was implemented more than twenty-years ago, the government has recently begun to scrutinize the application of this rule.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at or (517) 381-2663.