What is the Stark Law?

The Stark Law, Section 1877 of the Social Security Act, places limitations on certain physician referrals. Physicians are prohibited from referring Medicare patients to health care entities — designated health services or DHS — with which the physician or an immediate family member has a financial relationship.  There are exceptions to the rule, as well as two versions of the statute: Stark I and Stark II.

United States Congressman Fortney “Pete” Stark of California proposed the law in 1988. It was enacted in 1989 and became effective in 1992. In its first iteration, the Stark Law only regulated clinical laboratory services. Congress extended the referral prohibition to include 11 additional DHS, including most types of imaging, inpatient and outpatient hospital services, and certain Medicaid Managed Care arrangements.  Stark II, as it was called, went into effect in 1995.

The Stark Law applies if any one of these conditions exists:

  • The arrangement involves a referral of a Medicare or Medicaid patient by a physician or an immediate family member of a physician
  • The referral is for a designated health service
  • There is a financial relationship of any kind between the referring physician or family member and the entity to which the referral is being made

Even if one of these arrangements exists, it may be included in the nearly 20 Stark statutory exceptions which include these types of referrals:

  • To other physicians in the group
  • For in-office ancillary services
  • Within prepaid health plans
  • To entities in which the physician is invested, such as publicly traded entities, hospitals in Puerto Rico, rural providers and the hospital itself

These financial relationships are also exceptions:

  • Rental of office space and equipment
  • Real employment relationships
  • Personal services arrangements
  • Physician recruitment

The consequences of violating the Stark Law are serious and can include civil penalties, denial of payments for the services provided and exclusion from participation in Medicare, Medicaid, or any other federal health care program. At Buttaci Leardi & Werner, LLC, we work with physicians to ensure that they are in compliance of Stark.

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Posted in: Regulation, Stark Law