FEDERAL STARK LAW A/K/A ETHICS IN PATIENT REFERRALS ACT

If the Anti-kickback statute is the mother of all anti-rebate statutes, then the Stark Law is the Gordian Knot of such laws. Referred to by the name of its Congressional sponsor, Representative Pete Stark of California, the official name of the statute is the Ethics in Patient Referrals Act. Originally enacted in 1989 ("Stark I") to apply to a physician's referrals for clinical laboratory services to entities with which the physician had a financial relationship, the Stark Law was expanded in 1993 ("Stark II") to cover ten other "designated health services." The Stark Law is codified at 42 U.S.C. 1395nn.

Unlike the Anti-kickback statute, Health Care Finance Administration (HCFA) has authority for promulgating regulations attempting to explain the Stark Law. HCFA did not publish final regulations implementing Stark I until 1995. 60 FR 41914 , codified at (42 CFR 411 et. seq.), Aug. 14, 1995. In January 1998, HCFA finally published proposed regulations Stark II. 63 FR 1659, Jan. 9, 1998. Then on January 4, 2001, HCFA published "Phase I" of the final Stark II regulations. 66 FR 856, Jan. 4, 2001. However, the effective date of Phase I of the Stark II regulations was delayed until January 4, 2002. Phase I does not address several of the most important Stark Law exceptions, including the employment exception, personal services exception and recruiting exception. However, several of the concepts addressed in Phase I will carry over and apply to the exceptions yet to be addressed in Phase II. HCFA promised the Phase II regulations shortly, but after extending the comment period for the Phase I regulations until June 4, 2001, it appears that "shortly" may mean sometime after January 2002.

The Stark Law prohibits a physician from making a referral to an entity for the furnishing of designated health services (or DHS) for which Medicare or Medicaid would otherwise pay if the physician has a direct or indirect financial relationship with the entity, unless a specific exception applies. Each of the underlined words has a material definition for purposes of the Stark Law. In order to fully understand the breadth of the Stark Law, you must understand the definitions, which are discussed in detail below. The most important aspect of this statute, however, is the lack of an intent requirement. Under this statute, if a financial arrangement does not meet all of the requirements of one of the exceptions, the financial arrangement violates the statute, regardless of any intent by either party to the arrangement to do so.

The penalties under this statute are harsh. Penalties under the Stark Law are civil in nature. They include denial of payment for claims made under arrangements that violate the law, refunds of all payments that were made under such improper arrangements, civil fines of up to $15,000 for each claim for a service that a person knew was made under a prohibited arrangement, and civil fines of up to $100,000 for each arrangement where the principal purpose was to circumvent the law. Additionally, a violation can result in both the entity and physician being excluded from federally funded health care programs. While both health care entities and physicians are potentially at risk for violations of the Stark Law, it is not clear which of the sanctions will apply to the physician that makes a prohibited referral.

Finally, some courts have now held that a violation of the Stark Law can result in liability under the federal False Claims Act. The federal False Claims Act prohibits any person from submitting a "false" claim for payment to the government. Violations of the act are punished by up to treble damages and can be prosecuted by third-party whistle blowers. The argument is that a claim submitted under an arrangement that violates the Stark Law is a "false" claim.

To date, there has been minimal enforcement of the Stark Law. However, various governmental enforcers (e.g., the OIG and Department of Justice) have begun asserting, at least informally, that they will assert violations of the Stark Law in health care fraud investigations. Entities and physicians should be ready to face full Stark enforcement atmosphere in the very near future.

As discussed in full below, the Stark Law has far reaching implications and impacts virtually all physician financial arrangements. The medical and legal professions have widely criticized both the breadth of the act and the lack of binding guidance. In 1999, two bills were introduced in Congress that could limit the scope of the statute. Neither of those bills had much success.

next page ›››