What is Stark Law in healthcare – Why Stark law compliance is important?

There is no doubt in saying that physicians are obligated to provide the best healthcare services to patients following the fee-for-services-based compensating structures. This simply means that the services provided already have a set of rules which providers of healthcare industries either working privately or at a hospital have to follow. Although Stark law has determined the professional ethics of providers at a healthcare facility, some physicians are still unaware of what is Stark law in healthcare.

It is a federally regulated legislation that prevents physicians from recommending or referring patients of any disease to any other physician or healthcare facility which has direct financial relationships with the physician himself. Stark Law also is known as the Physician Self-Reflect Act.

The Act was introduced in the late 1980s and initially only reflected its limitations to referrals on laboratory-based services which later expanded to every other healthcare service financially related to a physician. Later in the article today, the discussion will surround itself with the consequences of violating Stark Law and how Stark law is explained.

What is Stark Law in healthcare – Elements to consider

To understand the specificity of Stark Law, one needs to consider basic elements that make Stark Law applicable in the healthcare industry. Firstly, Stark law limits the referring ability of a physician that he may use to request a Medicare plan holding a patient for a business or entity that has a direct financial relationship with the physician. Secondly, Stark law restricts insurance providers from accepting Medicare claims made for the services provided by a referral relating to a financial benefit of a physician. Thirdly, according to Stark law, there are exceptions for the first and second elements which provide authority to the secretary of the Department of Health and Human Services to create referral exceptions for healthcare providers to smooth out the processing of referrals to avoid any conflict of interest between healthcare providers and industry.

On the other hand, when these exceptions are regulated by the secretary of Health and Human Services, they become arduous for many. However, these exceptions are only for patients having Medicare insurance which is mostly used for the treatment of elderly patients. Federally regulated Stark law has a purpose of implementing this exception, which is to protect the unnecessary tests and treatments for impaired, disabled, or elderly people. These individuals are more prone to health complications and are easy targets for physicians to refer to and gain benefits.

After such attempts, the treatment and lab services were defined for inpatient and in-house providers to narrow down services and easy to track. The federal government provided a categorized process for Medicare patients who are referred to a healthcare facility by designating healthcare facilities.

Designated services by the federal government for Stark Law

federal government Stark Law

Centers of Medicare and Medicaid Services – CMS has listed the designated healthcare services providers and businesses as the following or the combination of some services listed below;

  • Clinical laboratory services
  • Durable medical equipment supplies
  • Home health services
  • Occupational therapy services
  • Physical therapy services
  • Outpatient prescription drugs
  • Outpatient and inpatient hospital services
  • Outpatient speech-language pathology services
  • Enteral and parenteral equipment, supplies, and nutrients
  • Radiation therapy supplies and services
  • Scans, radiology, and related imaging services
  • Orthotics, prosthetics, and prosthetic devices and supplies

Services that are mentioned are the only ones that can be taken under the Stark law exception. This means that services referred to any of these areas of healthcare facilities can be taken as a violation of Stark law or physicians referring to these services will not be penalized.

Does Stark law allow healthcare referrals to any facility?

Stark Law does all the healthcare facility referrals mentioned above but that too under Medicare and Medicaid insurance. To make it simple, Stark Law does not apply to the services and patients that are not insured under Medicare or Medicaid insurance or pay out-of-pocket for healthcare services.

Furthermore, the exceptions are also there for referrals of healthcare services made to a provider who is a member of a facility like an academic medical center, in-office equipment services (such as glucose meters and wheelchairs, etc.), and clinical lab services.

Stark law possible penalties for violation

Healthcare professionals that are licensed and credentialed under Medicare and Medicaid insurance, are obligated to strictly follow the rules listed in Stark law. Registered physicians can face hefty financial and strict professional penalties for violation of the law. Providers need to keep in mind that even if they are found involved unintentionally in the violation of the law, they will be held liable. Even if the case gets to the court for violation, and they do not find the liability of a provider’s involvement, the provider will still be penalized for referrals.

Nevertheless, the definition of liability can be different as it directly depends on the setting of the allegation. Stark law defines that if a court finds a provider’s involvement in the improper referral or referral outside the licensed healthcare facility during his service, the court will then impose liability on the provider defining whether he was aware of his monetary interest. Here if the court becomes able to prove the intention of getting the financial benefit, this would be enough to hold the provider liable for the cause.

In this scenario, if a provider, healthcare facility, or private practice is proven to be at fault, as a penalty, they will be required to submit all the financial gains from improper referral billing to the court along with $15,000 for the intention of improper referrals. Not only will they be fined, but the practice or the involved hospital will be removed from every government-ruled healthcare program and facilities and future healthcare program.

Apart from these penalties, if the proofs show the intentions and the improper referrals are knowingly made, then it’s more likely that the healthcare facility or the provider himself will get civil punishments. In a civil penalty, for each violation of improper referrals, a total amount of $100,000 will be applied.

In such cases, the hospital where the provider was employed will be fined when it comes to civil penalties. This is because it is the employer who is credentialed in the CMS and federal healthcare programs. However, oftentimes, if the provider is directly involved the court extends the ruling and makes both the hospital and practitioner liable for the probable penalty. Plus, these penalties and violations do not become the cause of license termination of either a provider or hospital facility. They both can still work to provide healthcare services but they will not be reimbursed through federal programs.

Stark law penalties for real-time practitioners

Stark law penalties

Amedisys Home Health

Amedisys Home health case showed an unusual example of the Stark law violation for which $150 million were paid to dissolve the case. The facility was involved in unnatural billing for healthcare services from 2008 – 2010 to Medicare. Later on, the false claims were proved that they were made intentionally to get financial benefits by referring patients to potential businesses and healthcare facilities for services of labs and scans.

Baldwin Bone Joint case

The case proved to be false claiming healthcare services for not only Medicare but for another federally regulated healthcare program Tricare (a healthcare program for veterans and families). During the case, Baldwin claimed that the service providers were hired under the facility and the services were covered by Stark law. But they were proven to misguide the court and held liable for improper and intentionally providing services from the unlicensed individuals at the facility. To resolve the case, they paid $1.2 million and got eliminated from future federal healthcare programs.

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How you can avoid Stark law violation

Several recommendations are there that can be applied to a healthcare facility to avoid Stark law violations. Facilities should;

  • Create and follow a database of providers that made contact to other providers
  • Maintain the log for conflicts of interest between providers and patients
  • Documenting all the required payment transactions
  • Train employees for updated guidelines and the rules for Stra law to avoid present and future complications
  • Update and keep the documentation during the healthcare facility grow
  • To comply with the Stark law, take disciplinary measures, develop, and implement internal policies

Stark law safe harbor provision says a facility should make a healthcare provider contract when they are hired. The contract must;

  • Have at least one year of work duration
  • Signed and documented by the involved parties with prosecutors
  • Documented a market-competitive salary that keeps the providers to get involved in the law violation
  • Listed the series of services and list of responsibilities that a provider must follow during his service tenure
  • Not relate the wage of a provider to the volume of the patients either big or small
  • Be crafted according to the rules defined by the Stark law.

Ending note

With all the information mentioned in the article, it must be clear that any violation of the Stark law can bring serious financial implications for the hospital and the provider whether they are directly, indirectly, intentionally, or unintentionally involved in the practice. This can only be avoided with the Stark law compliance.

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