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What is the Stark Law, and Why Does it Matter?

The Stark Law is a provision of the Social Security Act that prohibits physicians from making certain kinds of referrals for health services. Specifically, it bars a physician from referring a patient to another Medicare or Medicaid provider for “designated health services,” if the physician or a family member has a financial relationship with that provider. A classic example of a Stark Law violation would be a physician who also owns part of an X-ray center. The physician cannot refer Medicare patients to that X-ray center, if the radiology services are going to be billed to Medicare. The physician’s decision to refer the patient for additional services could be motivated in part by a desire to make more money, not the patient’s best interests.

The “financial relationship” can be either an ownership interest or a compensation arrangement, and it can be either direct or indirect. A direct ownership interest would be much like the example above, where the physician owns shares in a corporation providing radiology services. Likewise, a direct compensation arrangement would involve circumstances where, for instance, the physician (or her spouse) provides consulting services to the X-ray center in exchange for money. Indirect ownership usually involves ownership in a parent company that owns another entity providing health services; these ownership structures can be quite confusing at first blush. Likewise, indirect compensation arrangements can be quite complicated, as physicians will often go to great lengths to conceal their Stark Law violations.

Essentially, in simplest terms, the Stark Law aims to reduce conflicts of interest in referrals. Importantly, the Stark Law is what we attorneys call a “strict liability” statute, meaning that it does not require proof that the physician intended to benefit from the referral. So long as the physician makes a barred referral, he has violated the statute.

While seemingly broad in scope, the Stark Law’s coverage is not unlimited. The Stark Law’s coverage is limited to referrals for “designated health services.” This is a very specific term, and the “designated health services” can be divided into a few key categories: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including MRI, CT scans, and ultrasounds; radiation therapy; durable medical equipment; parenteral and enteral nutrients, equipment, and supplies; prosthetics and orthotics; home health services; outpatient prescription drugs; inpatient and outpatient hospital services; and outpatient speech-language pathology services. Each one of these terms, in turn, has a specific definition. For some of the categories, the Centers for Medicare & Medicaid Services publishes lists of codes for services covered by the Stark Law. Sometimes, this results in a somewhat strange pattern of what is and is not covered. For instance, EKGs and sleep studies are not covered by the Stark Law.

Likewise, the Stark Law has several exceptions. For example, a physician providing a designated health service in her own office is likely not violating the Stark Law. Likewise, where the physician is a regular employee of the entity providing designated health services, with a set salary and normal job duties, she probably qualifies for an exception to the Stark Law.

Why does all of this matter? Well, the Stark Law is useful tool in a whistleblower‘s arsenal. Many federal courts have concluded that a claim submitted to Medicare or Medicaid for “designated health services” implies a certification that the services provided were not the result of a Stark Law violation. Thus, a claim submitted in violation of the Stark Law is a “false claim” under the False Claims Act, and a whistleblower can bring a qui tam suit to recover that money on behalf of the government and collect a bounty in the process.

Of course, the Supreme Court is considering whether this “implied certification” theory is valid in a case called Universal Health Services v. United States ex rel. Escobar. Oral argument is set for April 19. Stay tuned, as this case could alter the usefulness of the Stark Law to whistleblowers.

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