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Stark Law Compliance: The Value of Fixing Your Own Mistakes

Physician compensation and managing referral relationships are 2 of the biggest time-consumers in the daily duties of many practice managers, and violations of the compliance regulations that govern them can be costly to a practice’s bottom line. Proactive practice managers who quickly identify potential Stark Law conflicts and violations in their referral relationships can avoid serious ramifications, according to Joy Hord, a partner with the law firm of Parker Poe Adams & Bernstein, who shared her compliance best practices at the 13th annual National Organization of Rheumatology Managers conference, held October 4-6, 2018, in Tampa, FL.

The Stark Law is often confused with federal kickback prohibitions, a concept that has been around since the Civil War. “It was rooted in the idea that there should not be illegal incentives that drive the purchase of services that the government is paying for,” Ms Hord explained. The Stark Law is also a prohibition related to referrals, but it applies to a subset of referral relationships intended to protect governmental payers from physicians who are incentivized to order certain types of services to drive their own compensation rather than improve patient care.

Ms Hord asked conference attendees how often their practices have performed Stark-compliance audits or submitted self-reports of Stark Law violations. After a tepid response, she explained what the Stark Law prohibits and where it applies (see box).


“The Stark Law is a strict liability statute. It does not matter whether you know about it. It does not matter if you intended to violate it…which means that the government does not have to show that you intended to violate it. Not knowing that Stark existed is not a defense against it,” Ms Hord said.

What to Expect with a Potential Violation

If you believe that your organization has committed a violation of the Stark Law, the first call should likely be to a lawyer, and one that specifically deals with healthcare compliance issues and understands the Stark Law.

Ms Hord described that she has worked with a number of practices with physician compensation plans developed by outside consultants that were not Stark-compliant. “The first thing you need to do if you think you have a Stark violation? First rule of holes: you stop digging. You fix it, you fix it now, and come up with a compensation plan as fast as you can [that is Stark compliant]. You tell your physicians that it has to be done as quickly as possible because now you have knowledge of the violation.” She then described what needs to happen to address prior noncompliance. “You should consult with the lawyer about whether you need to file a self-report.”

Compared to some of the other self-reporting processes available to healthcare providers for reporting violations of law, the government has been reasonable in assessing penalties on providers who elect to self-report. Ms Hord said that on the first Stark self-report that she  worked on many years ago, she thought her first client with a Stark Law violation would end up writing at least a 7-figure check, yet the penalty ended up being closer to $100,000.  

“That was far from what I thought the best-case scenario would have been, as I expected the violation to reach into the millions,” she said.

Ms Hord briefly explained how the Stark Law’s reach expands well beyond physician compensation plans and noted that there are many exemptions to the law.

“Exemptions may apply to the ownership relationship, the compensation relationship, or both,” she said. It is important to understand the type of relationship in place between the referring physician and any entity to which the physician may refer for designated health services to analyze the exceptions that may apply. For instance, for nonshareholder physicians, the bona fide employment exception “will pretty much generically cover you, as long as you are paying at fair market value in your compensation plan” and not paying for referrals for designated health services.

To determine whether a practice may have any Stark-compliance exposure, it is important to understand all ownership and compensation relationships that its physicians may have with entities to which they refer for designated health services, such as medical directorships, speaking engagements, or investments. It is also important to consider whether the practice’s own compensation plan may violate the Stark Law based on the methodology for distributing income or profits from designated health services, such as imaging, infusions, and laboratories.

Stark Law in Brief

According to the US Office of Inspector General (OIG), “The Stark law prohibits physicians from referring Medicare patients to certain entities for which the physician or an immediate family member has a financial relationship.” To perform your own quick analysis regarding the applicability of the Stark Law, the OIG suggests you ask and answer the following 3 questions:

  1. Is there a referral from a physician for a designated health service?
  2. If so, does the physician or an immediate family member have a financial relationship with the entity providing the designated health service? If yes, then…
  3. Does the financial relationship fit into one of the Stark Law exemptions?

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