Stark Law

Published on: March 22, 2021

A Primer on the Stark Law, Anti-Kickback Statute, and EKRA

Imagine a physician wants to rent office space from another physician, but the two refer patients to each other. Or a clinical laboratory wants to contract with a marketer to promote their products. Three of the largest compliance concerns when structuring such an arrangement are the Stark Law, also known as the Physician Self-Referral Law, the Anti-Kickback Statute, often referred to as the AKS, and the Eliminating Kickbacks in Recovery Act, or EKRA. All three regulate referrals and can carry stiff penalties, sometimes criminal penalties. However, each also contains a series of exceptions or safe harbors into which some business structures may fit. Even simple arrangements between healthcare entities can involve complex analysis to comply with these statutes.

The Stark Law, 42 U.S.C. 1395nn, prohibits physicians from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both compensation and ownership or investment interests. Designated health services include clinical laboratory services, PT and OT, DME, some imaging services, and several other services. Some of the most common exceptions to the Stark law include the in-office ancillary exception, fair market value compensation, and bona fide employment relationships. CMS has also recently implemented exceptions related to value-based arrangements.

The AKS, 42 U.S.C. 1320a-7b(b), is a criminal statute that prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by federal health care programs. Remuneration means far more than cash payments and includes anything of value. If the AKS applies, conduct may still be lawful if it falls into one of several “safe harbors.” Some of the most common safe harbors are the investment interest safe harbor, specific types of rental agreements for office space or equipment, and contracts for personal services that meet certain criteria. Like the Stark Law, CMS has also implemented safe harbors for certain value-based arrangements.

Published on: December 2, 2020

CMS Releases Finalized Stark and Anti-Kickback Rules

by Wachler & Associates, P.C.

On November 20, 2020, the Centers for Medicare & Medicaid Services (CMS) released the final rules amending the Stark Law and Anti-Kickback Statutes (AKS). Efforts to clarify these outdated laws began in 2018, with the goal to reduce regulatory obstacles for care coordination, following a general move toward value-based care. The Stark Law and AKS were initially created for a fee-for-service healthcare system, where there are financial incentives to provide more services to patients. However, the current U.S. healthcare system is shifting towards rewarding providers for keeping patients healthy and providing quality care, focusing on the value a payment has to a patient rather than the amount of services billed. The final rules offer increased flexibility to providers, reduce administrative burdens, and emphasize the interests of the patient.

The Physician Self-Referral Law, or the Stark Law, was initially enacted to prohibit physicians from making referrals to entities in which the physician has a financial relationship. The ambiguous language in the Stark Law created uncertainty as to whether certain relationships might violate the law and discouraged potential innovative relationships. As such, the final rule creates exceptions to the self-referral prohibitions for specific value-based payment arrangements among various providers and suppliers, and offers new guidance for providers with a financial relationship governed by the Stark Law. Under the rule, a value-based arrangement is one that provides at least one value-based activity to a patient between the value-based enterprise and at least one of its participants, or the participants in the same value-based enterprise. A value-based activity can mean the provision of a service, an action, or refraining from taking an action, so long as the activity is reasonably curated to achieve a value-based purpose. The exceptions apply to all patients, not just Medicare beneficiaries. The final rule creates three new exceptions to the Stark Law:

Value-based arrangements for participants in a value-based enterprise that is financially responsible for, and assumes the entire prospective financial risk, for the cost of all related patient care items and services for every patient;

Published on: July 27, 2018

Potential Stark Law and Anti-Kickback Statute Reforms to Support Coordinated Care

by Wachler & Associates, P.C.

During a hearing on July 17, 2018, Department of Health and Human Services (HHS) Deputy Secretary Eric Hargan announced that HHS is interested in reforming the Stark law and the Anti-Kickback Statute (AKS). As value-based care is becoming more prominent in the healthcare system, coordinated care between providers is a necessity; but the Stark law and AKS are considered an impediment to coordinated care. Hargan contends that since the Stark law was created in a fee-for-service context, it “may unduly limit ways that physicians and healthcare providers can coordinate patient care [in a value-based system].”

HHS’s push for reform comes out of the “Regulatory Sprint to Coordinated Care,” which is an initiative launched by CMS that seeks to remove barriers to coordinated care while still upholding laws and rules that keep patients safe. According to Hargan, HHS is working on creating administrative rules to address these barriers.

Aside from the regulatory hurdles that the Stark law imposes on coordinated care, HHS is also concerned about the strict liability aspect of the Stark law. Strict liability imposes civil liability with monetary penalties onto the provider, regardless of the intent underlying the Stark law violation arises from an accident. HHS believes that strict liability turns providers away from entering into coordinated care arrangements, because the complexity of the Stark law may cause providers to violate it unintentionally and become liable. A suggested change from HHS is to define “noncompliance” in a clearer manner, which would allow providers to feel more at ease with participating in coordinated care.

Published on: September 25, 2015

Florida Hospital District Settles False Claims Act Allegations for $69.5 Million

by Wachler & Associates, P.C.

The U.S. Department of Justice (DOJ) recently announced a $69.5 million settlement with the North Broward Hospital District (the “District”) arising out of allegations that the District violated the federal Stark law and False Claims Act by entering into improper financial relationships with employed physicians.

The lawsuit alleged that the District provided compensation to nine employed physicians that exceeded fair market value for the physicians’ services, and instead rewarded the physicians for their referrals of patients to the District. The compensation arrangements were alleged to violate the federal Stark law, which prohibits physician referrals of Medicare and Medicaid services to entities with which the physician has a financial relationship, unless an exception applies. Stark exceptions related to physician compensation and employment arrangements require, in addition to other requirements, that the physician’s compensation is consistent with fair market value and not determined in a manner that takes into account the volume or value of the physician’s referrals. By submitting claims pursuant to referrals that violated the Stark law, the District also submitted claims in violation of the False Claims Act.

The lawsuit against the District was originally filed by a whistleblower pursuant to the qui tam provisions of the False Claims Act, which allow private individuals to sue on behalf of the government and share in the recovery. The whistleblower in this case brought the lawsuit after the District offered to employ him under terms that he believed may violate the Stark law. The DOJ announced that the whistleblower will receive over $12 million for his role in the case. The DOJ also announced that the recovery marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which is a partnership between the U.S. Attorney General and U.S. Secretary of Health and Human Resources that has been instrumental in the government’s recovery of $16 billion from fraud in the federal health care programs since 2009.

Published on: July 16, 2015

U.S. Court of Appeals for the Fourth Circuit Upholds $237 Million Judgment Against Toumey Healthcare System

by Wachler & Associates, P.C.

On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million verdict against Toumey Healthcare System (“Toumey) for violations of the federal Stark law (“Stark”) and, consequently, the federal False Claims Act. The verdict marks the latest decision in the government’s longstanding legal battle against Toumey, a community hospital in South Carolina, and serves as a reminder to healthcare providers of the significant liability that can result from compensation arrangements that fail to comply with Stark’s safe harbor requirements.

In this case, the lower court determined that Toumey entered into part-time employment agreements with physicians that violated Stark. The agreements violated Stark’s limitations on physician compensation arrangements by varying with, or taking into account, the volume or value of the physicians’ referrals to the hospital. Under the False Claims Act, claims submitted for payment arising out of referrals prohibited by Stark constitute false claims, and subject providers to treble damages. In this case, the jury found that Toumey knowingly submitted 21,730 false claims, which amounted to $39.3 million in Medicare payments. The court awarded treble damages as well as other penalties.

The Fourth Circuit’s decision analyzed Toumey’s argument that since Toumey relied upon the advice of lawyers in determining that the compensation arrangements were permissible under Stark, Toumey could not have knowingly violated the False Claims Act. In rejecting this argument, the Fourth Circuit highlighted the fact that Toumey consulted with multiple attorneys, one of which raised serious concerns about the compensation arrangements, and that Toumey effectively lawyer-shopped for legal opinions that approved the employment contracts. Accordingly, the case should provide notice to providers to proceed with caution if they are contemplating obtaining multiple legal opinions in order to determine that an arrangement is compliant with health care fraud and abuse laws because of how the opinions may be scrutinized in hindsight.

Published on: October 28, 2014

CMS Extends Fraud and Abuse Waivers for ACO Shared Savings Program

by Wachler & Associates, P.C.

On October 17, 2014, the Centers for Medicare and Medicaid Services (CMS) extended its interim final rule regarding fraud and abuse waivers for accountable care organizations (ACOs) that participate in the Medicare Shared Savings Program. The Medicare Shared Savings Program was one of the initial steps taken under the Affordable Care Act to both increase quality and lower costs in the Medicare program. ACOs that participate in the Medicare Shared Savings Program can share in the savings generated to Medicare.

Originally, the interim final rule was published in the November 2, 2011 Federal Register, and had the typical three-year period before becoming a final rule. The continuation of the interim final rule extends the timeline for an additional year, establishing a new deadline of November 2, 2015. The interim final rule offers five waivers to ACOs, which allow healthcare entities to form and operate ACOs without fear of violating federal fraud and abuse laws. The ACO waivers include:

An ACO participation waiver;

Published on: December 13, 2013

CMS Advisory Opinion Approves Proposed Hospital Expansion under Stark Law’s Whole Hospital Exception

by Wachler & Associates, P.C.

The Centers for Medicare & Medicaid Services (“CMS”) recently released a favorable advisory opinion, CMS AO-2013-03, that interprets the “whole hospital” exception to the physician self-referral prohibition commonly known as the Stark Law. CMS determined that the proposed arrangement, which adds a new observation unit and 14 observation beds to a physician-owned hospital, complies with the “whole hospital” exception’s restriction on facility expansions.

In general, the Stark Law prohibits the referral of Medicare patients for designated health services (“DHS”) to an entity in which the referring physician has a financial relationship. The law also prohibits the entity that furnishes DHS as a result of a prohibited referral from billing Medicare, the beneficiary, or any other entity.

The Stark Law contains several exceptions to which the self-referral prohibition does not apply, including the “whole hospital” exception under Section 1877(d)(3). The “whole hospital” exception allows referring physicians to have physician ownership or investment interests in a hospital provided that the referring physician is authorized to perform services at the hospital and the ownership or investment interest is in the hospital itself.