Your guide to the Stark law

The Stark Law is intended to prevent fraud, abuse and waste. Here’s what physicians need to know.

By Bruce Armon | Legal Matters | Winter 2018


law justice

Preventing fraud and abuse and enforcing existing federal fraud and abuse statutes remains a priority, no matter the future of health care reform. Maintaining these efforts saves dollars in the federal treasury and helps ensure accountability and discipline by all participants in the health care delivery system.

There are five principal federal fraud abuse statutes that are most relevant to physicians irrespective of practice specialty, years of experience, or practice setting: false claims act (FCA), anti-kickback statute (AKS), exclusion authorities, civil monetary penalties law (CMP) and the focus of this article, the Stark Law.

Why is it called the Stark Law?

In 1989, then-Congressman Pete Stark (D-California) introduced the Ethics in Patient Referrals Act. The bill was signed into law and is colloquially referred to as the Stark Law because of its principal sponsor.

What was the purpose of the Stark Law?

When the statute was enacted, it applied only to physician self-referrals for clinical laboratory services. A premise for the Stark Law was that the prohibition would eliminate any financial incentive for a physician to send a patient for unnecessary lab testing, and therefore reduce health care costs. Since its initial passage, the statute has been amended and there have been multiple sets of regulations published by the Centers for Medicare and Medicaid Services (CMS).

What does the Stark Law prohibit?

The Stark Law prohibits a physician from making referrals for certain designated health services (DHS) payable by Medicare to an entity with which the physician or an immediate family member has a financial relationship (which can be ownership, investment or compensation) unless an exception applies. The Stark Law also prohibits that entity from presenting or causing to be presented claims to Medicare for those referred services.

What is a designated health service?

There are 12 DHS categories: clinical laboratory services; physical therapy services; occupational therapy services; outpatient speech-language pathology services; radiology and certain other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetic, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. Each year, the federal government publishes in the Federal Register ( a listing of certain categories of DHS by CPT code. The list is generally effective January 1 of that year.

Who is an immediate family member?

The Stark Law regulations define an immediate family member as husband, wife, birth or adoptive parent, child, sibling, stepparent, stepchild, stepbrother, stepsister, father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, grandparent or grandchild, and spouse of a grandparent or grandchild.

What is a financial relationship?

A direct or indirect ownership or investment interest in any entity that furnishes DHS, or a direct or indirect compensation arrangement with an entity that furnishes DHS.

A direct financial relationship exists if remuneration passes between the referring physician (or a member of the physician’s immediate family) and the entity furnishing the DHS without any intervening people or entities.

There is an indirect financial relationship if between the referring physician (or immediate family member) and the entity furnishing the DHS there is an unbroken chain of any number of people or entities having ownership or investment interests.

What is the purpose of the Stark Law exceptions?

The Stark Law is a strict liability statute. The intent or lack of intent of a party is not relevant for purposes of the government’s analysis to determine Stark Law compliance. For physicians and health care lawyers, making sure that an arrangement fits squarely within the exception is critical. The requirements in an exception must be satisfied at the time when the referral is made for the DHS.

What are the categories of the Stark Law exceptions?

There are exceptions for certain ownership/investment interests; compensation arrangements; and both ownership/investment and compensation arrangements. Understanding and adhering to the exceptions (when relevant) is critical to achieving Stark Law compliance.

Where can I find the Stark Law regulations, and what happens if there is a violation of the Stark Law?

The regulations have been published in multiple phases since 1995. In addition to the actual regulation, the preamble accompanying each release of updated regulations (both proposed and final) provide critical insight.

A provider that violates the Stark Law must repay all Medicare funds that were paid under the improper arrangement. A Stark Law violation could also trigger an FCA or CMP issue for the provider and the potential for exclusion from the Medicare program.

Every relationship in which a physician is engaged could require a Stark Law analysis if the physician is making a referral for any DHS payable by Medicare to an entity in which the physician or immediate family member has a financial relationship unless there is an exception in the Stark Law. As a strict liability statute, the intent of the parties is not relevant and the consequences for noncompliance can be significant.

A physician must understand the flow of Medicare dollars and the financial ties between referring parties. Compliance with Stark Law and ensuring a provider is actively engaged in preventing waste, fraud and abuse is critical.

Bruce Armon, Esquire is a partner in the law firm of Saul Ewing LLP and chair of its health law practice. He regularly assists clients with fraud and abuse analysis and regulatory, contractual and compliance issues generally.


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