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Happy 2012! Here’s to a Whole New “Stark” to the New Year

Health Law Alert Lisa A. Lyons, Sarah E. Coyne, Alyce C. Katayama

My Resolutions for the New Year:

  1. Lose 5 pounds.
  2. Be more patient with my kids.
  3. Appreciate and enjoy family and friends.
  4. Always comply 100% with the Stark Physician Self-Referral Law.

Okay, maybe that last one is a stretch, but the New Year is a great time to do a little Stark housekeeping/compliance. 2011 showered us with increased government investigations, whistleblower suits, court decisions, the pressure to "self-report" violations under PPACA's 60-day report and repay rule, and the birth of CMS's Stark Self-Disclosure Protocol. All of this might have you asking yourselves, "Have we become a little 'lazy' when it comes to internal Stark knowledge and compliance? Have we kept up with the seemingly endless Stark regulatory changes throughout the past decade? Do we want to perhaps ramp up our compliance program to protect against the increased enforcement action?"

Not to worry - we have you covered. Just consider us your Stark personal trainers for the New Year!

The Law
As you already know, the Stark physician self-referral law and regulations prohibit an entity from billing or receiving reimbursement from Medicare for any designated health service[1] (DHS) ordered or referred by a physician if the physician (or a member of the physician's family) has a "financial relationship"[2] with the entity. The only way that the physician can make the referral, and the entity can then submit a bill, is if that relationship meets a Stark exception. Stark has 34 exceptions, basically arranged by "type," i.e., exceptions to cover ownership interests and exceptions to cover compensation arrangements. You have to meet all of the elements of a particular exception.

If there is a Stark violation - meaning Medicare DHS referrals were made without meeting an exception - the DHS entity faces the following penalties:

  • Denial of payments, and mandatory refund of amounts collected from Medicare, for prohibited referrals.

  • Possible Civil Monetary Penalties of up to $15,000 per service if the entity knew of or should have known that it submitted a claim to Medicare in violation of Stark. These can spike to $100,000 in the case of circumvention schemes.
  • Possible False Claims Act liability (treble damages) for failure to report and repay within 60 days of "identifying" that the hospital received Medicare funds for prohibited referrals.

Physicians also face Stark penalties for knowingly entering into noncompliant arrangements.

The devil is in the details, and Stark has plenty of details, i.e., dozens of pages of regulations, plus hundreds of pages of accompanying CMS commentary. While it might be tempting to ignore some of those details, please don't! Stark is both a highly technical law, requiring full and exact compliance with its many exceptions, and a strict liability law - there is no need to prove that the DHS entity intended to induce referrals, nor is it a defense that the DHS entity tried its best to meet an exception but did not fully satisfy the exception. It is also not a defense that the parties did not know that Stark applied to a particular situation.

This is meant as a primer, so we won't go into more details on the law. However, please look at the following list of everyday financial relationships. If any of these relationships exists between a physician and a DHS-entity, Stark is triggered. Remember: Each of these relationships needs to meet a Stark exception.

  • Medical director arrangements

  • Medical office building leases
  • Call-coverage payments
  • Recruitment packages
  • Provision or reimbursement of CME
  • Physician/hospital joint ventures
  • Indigent care payments
  • Physician service arrangements
  • Electronic health record arrangements
  • Employment and independent contractor arrangements
  • Equipment rentals
  • Perks and freebies to medical staff members

The following is a list of common Stark violations:

  • Transactions that have been priced above fair market value, with windfalls to physician

  • Commercially unreasonable deals
  • Undocumented arrangements
  • Expired or unsigned contracts
  • Arrangements where compensation tied to referrals
  • Excessive recruitment deals to existing groups
  • Sweetheart joint ventures with referring physicians
  • Deals that don't match paperwork

Your "Get into Stark Shape" Plan for 2012
Some things you might want to consider doing this year are the following:

  • Make sure that those people in your organization who deal with physician relations know about the Stark law and, more importantly, how to use it.
    • There are many books and webinars available, plus CMS has a decent Stark Web-page at
    • Quarles & Brady is ready to lend assistance, ranging from simple phone advice to onsite staff training.
  • Dust off your compliance plan and make sure it is up to date with the annual Stark regulatory changes. 
  • Institute helpful Stark compliance tools such as:
    • Contract review checklists.
    • Accounts payable flags.
    • Tickler files for contract expiration/renewal dates.
    • Mandatory legal-review of physician relationships.
  • Conduct regular contract and relationship audits (and don't forget to recheck the validity of your fair market valuation!).
  • Give employees a mechanism to tip you off to Stark or fraud complaints - better you hear it before the employee goes to the Feds or a local litigator.
  • Try not to panic when you think you have a Stark violation. Instead, call us at Quarles, and we will help you undertake a thorough internal investigation and develop a proper response. After a complete analysis, you might find that there is no Stark violation (as stated earlier, Stark is a difficult and gray law), or you might discover that there is indeed a violation and, therefore, the need for voluntary disclosure, either to your local Medicare contractor or to CMS under its Stark Self-Disclosure Protocol.

Please let us know how we can help you with your Stark needs this year, whether they are general education and advice, contract drafting, structuring arrangements to meet an exception, compliance plan design, internal investigations or self-reporting. Hopefully, working together in the early stages (advice, contracting and compliance work) will pay off by removing the need for the later steps (investigation and reporting).

For more information, please contact Lisa Lyons at (414) 277-5679 / [email protected], Sarah Coyne at (608) 283-2435 / [email protected], Alyce Katayama at (414) 277-5823 / [email protected] or your Quarles & Brady Attorney.

[1] DHS includes clinical laboratory; physical therapy; occupational therapy; outpatient speech-language pathology; radiology and certain other imaging services; radiation therapy and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services.
[2] "Financial relationship" includes both ownership/investment interests (e.g., a physician investor in an imaging facility) and compensation arrangements (e.g., a contract by which services or items are exchanged with the physician for money). The relationship can be either direct between the physician and DHS entity or it can be indirect, with one or more intervening entities.
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