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Stark Law FAQ's
What does the physician referral law prohibit? The physician referral law (section 1877 of the Social Security Act) prohibits a physician from referring patients to an entity for a designated health service (DHS), if the physician or a member of his or her immediate family has a financial relationship with the entity, unless an exception applies. (The exceptions are specified in 42 CFR Part 411, Subpart J.) The law also prohibits an entity from presenting a claim to Medicare or to any person or other entity for DHS provided under a prohibited referral. No Medicare payment may be made for DHS rendered as a result of a prohibited referral, and an entity must timely refund any amounts collected for DHS performed under a prohibited referral. Civil money penalties and other remedies may also apply under some circumstances. My hospital has
physician recruiting contracts that
predate the Stark Phase II interim final regulations. Do these contracts need to
comply with the new regulations?
Yes, all recruiting arrangements must comply with the new regulations as of July 26, 2004. Each financial relationship with a physician must be evaluated for compliance with the Stark law based on its specific facts and circumstances. However, we are mindful of the concerns raised by the question and can offer the following observations. First, the Stark law is a self-implementing statute that went into full force and effect on January 1, 1992 with respect to referrals for clinical lab services and January 1, 1995 with respect to referrals for other designated health services. Accordingly, parties have had a legal obligation to comply with the statute since those effective dates. In the absence of final regulations for a particular exception, parties must have complied with a reasonable interpretation of the statute. Second, the Phase II regulation, including the new exception at § 411.357(e)(4) for certain joint recruitment arrangements, went into full force and effect on July 26, 2004. Thus, a hospital-funded recruitment arrangement in which the recruited physician is subject to a restriction against competing with the group will not comply with the new joint recruiting exception in the Phase II regulations. Parties should document that any non-compete clause is void and will not be enforced. Third, continuing obligations (i.e., obligations for which performance is not yet required or is not yet complete) under a pre-existing recruitment arrangement must comply with the Phase II regulations as of July 26, 2004. For example, past payments under an income guarantee need not be recalculated so long as, at the time they were paid, the arrangement complied with a reasonable interpretation of the statute. Finally, in addition to the Stark law, all recruitment arrangements are also subject to the Federal anti-kickback statute located at section 1128B(b) of the Social Security Act (42 U.S.C.1320a-7b(b)), which may prohibit recruitment arrangements even if they do not violate the Stark law. Inquiries with respect to that statute should be directed to the Office of Inspector General.
There are two references in the Phase
III preamble (72 FR 51033, 51045) that
appear to prohibit referrals for
ancillary services provided in office
space and using equipment that is leased
other than in a block lease arrangement.
May a group practice provide and bill
for ancillary services provided in
shared office space using shared
equipment if the supervision requirement
for the particular service is satisfied
by a “member” of the group and the
arrangement otherwise complies with
Medicare coverage and reimbursement
regulations? Yes. Services that qualify for the in-office ancillary exception in §411.355(b) must satisfy performance, location, and billing requirements. In order to satisfy §411.355(b)(1), a service must be furnished personally by: (i) the referring physician, (ii) a physician who is a member of the same group practice as the referring physician; or (iii) an individual who is supervised by the referring physician or, if the referring physician is in a group practice, by another “physician in the group practice.” A “physician in the group practice” is defined at §411.351 to include both a “member” of the group practice as well as an independent contractor during the time the independent contractor is performing services in the group practice’s facilities. Assuming that the location and billing requirements in §411.355(b) are satisfied, in-office ancillary services supervised by a member of the group practice would not be subject to the referral prohibition.
Are dialysis facilities required to
limit compensation for medical director
services to the amount allowed under the
fair market value “safe harbor”
provision in the Stark Phase II interim
final regulations?
No. In an effort to address public
concerns about how to determine fair
market value for medical director
compensation, the Stark Phase II
regulations provide a “safe harbor”
under the definition of “fair market
value” at §411.351 for hourly payments
to physicians that are calculated using
one of two specified methodologies.
However, use of the safe harbored
methodologies is strictly voluntary.
Parties may use other appropriate
methodologies to determine whether
compensation is fair market value. DHS
entities that choose to use either of
the two safe harbor methodologies will
be assured that their compensation rates
will be deemed fair market value for
purposes of the Stark law. For more
information on the safe harbor
methodologies, see the Phase II preamble
discussion at 69 Fed. Reg. 16092 and the
definition of “fair market value” at 42
C.F.R. § 411.351.
Is physician ownership a prerequisite
for meeting the definition of “physician
organization” or “physician practice”?
In other words, must all “physician
organizations” or “physician practices”
have at least one physician owner?
No.
Physician ownership is not determinative
as to whether an entity (regardless of
its legal form, for example, limited
liability company, professional
corporation, etc.) is a “physician
organization.” We note that 42 C.F.R.
§411.352 states that, with respect to a
group practice (which is a “physician
organization”), the single legal entity
that is the group practice may be
organized by any party or parties,
including, but not limited to,
physicians, health care facilities, or
other persons or entities. Likewise,
physician ownership is not determinative
as to whether an entity (regardless of
its legal form, for example, limited
liability company, professional
corporation, etc.) is a “physician
practice.”
If a hospital (or other Part A provider)
directly employs or contracts with
physicians to provide physician services
to hospital patients, does that make the
hospital (or other Part A provider) a
“physician organization”?
A hospital (or other Part A provider) is
not considered to be a “physician
organization” simply because it has
employment or contractual arrangements
with physicians for the provision of
patient care services.
Can you please provide some examples of
organizations, providers, or other
entities that are NOT “physician
organizations” as defined at 42 C.F.R.
§411.351? The following are examples of organizations, providers, or other entities that are NOT physician organizations. This list is illustrative, not exclusive:
What is a “physician practice” within
the definition of “physician
organization” at 42 C.F.R. §411.351?
A “physician practice” is a medical
practice comprised of two or more
physicians organized to provide patient
care services (regardless of its legal
form or ownership). For example, a
“physician practice” may be a group of
physicians that practice together but do
not meet all of the requirements of
§411.352 for “group practices” for
purposes of satisfying the requirements
of the physician services and in-office
ancillary services exceptions. We note
that the provision of patient care
services by employed or contracted
physicians does not automatically cause
an entity to become or be considered a
“physician practice” (and, thus, a
“physician organization”). For example,
a hospital, which, in general terms, is
an institution that provides medical,
surgical, or psychiatric care and
treatment for the sick or the injured,
is not considered a “physician practice”
or “physician organization” even though
it employs or contracts with two or more
physicians to provide patient care
services to its inpatients and
outpatients. Do the provisions regarding termination/amendment of leases apply to personal services arrangements?
Yes. As stated in the Phase III final
rule, “a personal service contract can
be amended in the same manner as an
office space or equipment lease” (72 FR
51047). The provisions regarding
termination/amendment of office space
and equipment leases (see 72 FR 51044)
apply to personal service arrangements.
Is a federally qualified health center a
“physician organization”?
No. A federally qualified health center
(as defined at 42 C.F.R. §405.2401(b))
is not a “physician organization” as
defined at §411.351. Federally qualified
health centers are subject to the
conditions for coverage at 42 C.F.R.
Part 491. These regulations require,
among other things, that the federally
qualified health center have written
policies and procedures, disclosure of
certain information to patients, minimum
staffing composition and levels, and
that the federally qualified health
center provides medical emergency
procedures as a first response to common
life-threatening injuries and acute
illness. Federally qualified health
centers may share some characteristics
with physician medical practices.
However, federally qualified health
centers typically are not structured as
physician medical practices in the
traditional sense, nor are physician
medical practices required to meet the
same conditions for coverage as
federally qualified health centers.
Does the Phase III “stand in the shoes”
“grandfathering” provision apply to an
arrangement that, as of September 5,
2007, did not meet the definition of an
“indirect compensation arrangement” (and
was not directly between a physician and
a DHS entity) but would have satisfied
the requirements of the exception for
indirect compensation arrangements in 42
C.F.R. §411.357(p) if it had been
applicable?
No. The only arrangements that qualify
for the “grandfathering” provision in
§411.354(c)(3)(ii) are those that, as of
September 5, 2007, both (1) met the
definition of an “indirect compensation
arrangement set forth in §411.354; and
(2) satisfied the requirements of the
exception for indirect compensation
arrangements in §411.357(p). If an
arrangement satisfies both of these
criteria, it need not be amended during
its original term or the current renewal
term (that is, the renewal term the
arrangement is in as of September 5,
2007) to comply with the requirements of
another exception. (See 72 FR 51028.)
Must a physician who “stands in the
shoes” of his or her physician
organization (as defined at 42 C.F.R.
§411.351) become a signatory to a
written agreement between the physician
organization and a DHS entity in order
to satisfy the requirements of a direct
compensation arrangement exception?
No. For purposes of satisfying the
requirements of an exception to the
physician self-referral prohibition, we
consider a physician who is standing in
the shoes of his or physician
organization to have signed the written
agreement when the authorized signatory
of the physician organization has signed
the agreement.
Is the exception for physician
recruitment in 42 C.F.R. §411.357(e)
available to a hospital that wants to
recruit a resident it has trained?
Assume that the resident already resides
in the geographic area served by the
hospital (as defined in §411.357(e)(2)).
The exception in §411.357(e)(3) may be
available to the hospital for the
provision of recruitment assistance to
the resident upon completion of the
residency. When all of the requirements
of §411.357(e) are satisfied, the
exception protects remuneration provided
by a hospital to a physician to induce
the physician to relocate his or her
medical practice into the geographic
area served by the hospital in order to
become a member of the hospital’s
medical staff. In the case of a
resident, the resident need not relocate
a medical practice, provided that the
resident establishes his or medical
practice in the geographic are served by
the recruiting hospital. However, the
resident must become a member of the
hospital’s medical staff.
1. Resident is not a member of the
organized medical staff.
To the extent that, during his or her
residency, the resident is not
considered to be part of the hospital’s
organized medical staff, the exception
in §411.357(e) would be available to the
hospital. CMS recognizes that, often,
residents do not join the organized
medical staff of the training hospital
until their training is complete and
they are able to practice without
supervision. Having “privileges” or
“permission” to provide patient care
services only under the supervision of
an attending physician (in the case of
residents) is not necessarily the same
as “being a member of the medical
staff.” We note that this discussion is
limited to residents and any activities
that occur within the scope of their
training programs. If a resident
moonlights, he or she may be a member of
the organized medical staff of the
hospital at which he or she moonlights.
Of course, as always, all of the
requirements of an exception must be
satisfied in order for remuneration to
comply with the physician self-referral
rules.
2. Resident is a member of the organized
medical staff, but such membership is
coterminous with his or her employment
with the training hospital.
If the resident’s privileges terminate
(for example, pursuant to a provision in
the medical staff bylaws or the
resident’s employment contract) at the
end of his or her residency and the
physician (formerly the “resident”) is
not considered a member of the medical
staff upon the completion of the
residency, the hospital may use the
exception at §411.357(e) to provide a
recruitment payment to the physician,
provided that all of the requirements of
the exception are satisfied at the time
of the arrangement. We caution that this
answer is contingent upon: (1) the
coterminous nature of the medical staff
membership having been established prior
to the parties entering into the
recruitment arrangement; and (2)
consideration provided by either party
pursuant to the recruitment arrangement
not occurring until after the
termination of the physician’s medical
staff membership as a resident. Is a staffing company a “physician organization”?
A staffing company that does not
directly provide and bill for patient
care services, but merely facilitates
the provision of physicians to hospitals
and other health care providers, is not
a “physician organization” as defined at
42 C.F.R. §411.351.
STARK FREQUENTLY ASKED QUESTIONS
What is the Stark ban on physician
self-referral?
The Stark II ban took effect on January
1, 1995. On January 4, 2001, the Centers
for Medicare and Medicaid Services
("CMS"), which oversees enforcement of
the Stark ban, issued the first part of
final regulations implementing the ban.
The Phase I final regulations took
effect on January 4, 2002 and contained
many changes to the Stark II ban that
directly impacted healthcare providers'
common business relationships. Phase I
of the rule addressed Section 1877 of
the Act, paragraphs (a) and (b),
regarding the general prohibition and
the exceptions related to ownership and
investment interests; the statutory
exceptions for certain compensation
arrangements; and the reporting
requirements. Additionally, Phase II
creates new regulatory exceptions and
addresses public comments on Phase I of
the rulemaking. Phase I and Phase II of
the final regulations are intended to be
integrated and read together as a whole.
Modifications and revisions to Phase I
are indicated in the Phase II preamble
and corresponding regulations. The Phase
I and Phase II rules together supersede
the 1995 final rule (60 Fed. Reg.
41914), which had been applicable to
clinical laboratory services. On
September 5, 2007, CMS issued Phase III
of the final regulations. Phase III
responds to comments on Phase II and,
thus, addresses the entire Stark
regulatory scheme. Phases I, II and III
of the rulemaking are intended to read
as a unified whole. CMS states that
except as otherwise noted, to the extent
that the preamble in Phase III uses
different language to describe a concept
that was addressed Phase I or Phase II,
the intent is to expound on previous
discussions, not to change the scope or
meaning.
What are the penalties for violating the
Stark ban?
Penalties for violating Stark can be
severe. They include denial of payment,
refund of payment, imposition of a
$15,000 per service civil monetary
penalty and imposition of a $100,000
civil monetary penalty for each
arrangement considered to be a
circumvention scheme.
Who qualifies as a "physician" subject
to the Stark ban?
The Phase I final regulations define
"physician" as a doctor of medicine or
osteopathy, a doctor of dental surgery
or dental medicine, a doctor of
podiatric medicine, a doctor of
optometry, or a chiropractor.
Who qualifies as an "immediate family
member" subject to the Stark ban?
The term "immediate family member" is
defined broadly to mean a husband or
wife; birth or adoptive parent, child or
sibling; stepparent, stepchild,
stepbrother, or stepsister;
father-in-law, mother-in-law,
son-in-law, daughter-in-law,
brother-in-law, or sister-in-law;
grandparent or grandchild; and spouse of
a grandparent or grandchild.
What are the "Designated Health
Services" subject to the Stark ban? The Designated Health Services (DHS) encompassed within Stark include the following categories:
With regard to the first five categories
of DHS, the Stark regulations identify
the specific insurance billing codes in
each category, which are considered to
constitute DHS. The remaining six
categories of DHS are defined in the
Stark regulatory text.
What constitutes a "referral" for
purposes of the Stark ban?
Stark broadly defines "referral" to
include a request by a physician for an
item or service payable under Medicare
or Medicaid (including the request by a
physician for consultation wit another
physician and any test or procedure
ordered or performed by such other
physician), or a request by a physician
for the establishment of a plan of care
that includes the provision of a DHS.
The definition of "referral," does not
include services personally performed by
a referring/ordering physician (but not
services furnished by employees of, or
other members of the same group practice
as, the ordering physician).
Accordingly, physicians who personally
perform the DHS that they order for
their patients can structure
arrangements without worrying about
potential Stark violations.
What constitutes a "financial
relationship" for purposes of the Stark
ban?
A "financial relationship" is defined to
include either a direct or indirect
ownership or investment interest in an
entity through equity, debt or other
means, or a direct or indirect
compensation arrangement with an entity.
What types of statutory exceptions exist
if an arrangement falls within the Stark
ban?
The exceptions to the Stark ban fall
into three categories based on the type
of financial relationship the physician
has with the entity to which he or she
refers patients for DHS:
Exceptions applicable to both
compensation and ownership/investment
arrangements.
Examples of exceptions in this category
include the exception for in-office
ancillary services, which is perhaps the
most important exception to the Stark
ban, and the exception for physician
services.
Exceptions applicable only to ownership
or investment arrangements.
Examples of exceptions in this category
include exceptions for publicly traded
securities and mutual funds, services
furnished by a rural provider, and
ownership in a whole hospital.
Exceptions applicable only to
compensation arrangements.
Examples of exceptions in this category
include exceptions for bona fide
employment relationships, personal
services arrangements and rental of
office space and equipment.
Is there a process for obtaining
clarification concerning whether an
arrangement falls outside of the Stark
ban or meets an exception to the ban?
CMS has established an advisory opinion
process under which parties to an
arrangement can obtain a written
determination from CMS concerning
whether the arrangement constitutes a
"financial relationship" under Stark II
and whether the arrangement meets and
exception.
TYPES OF BUSINESS ARRANGEMENTS SUBJECT
TO THE STARK II BAN In the final version of its Compliance Guidance for Individual and Small Group Physician Practices issued on September 25, 2000, the Office of Inspector General of the Department of Health and Human Services advised physicians to have all business arrangements that involve referrals reviewed by legal counsel familiar with the anti-kickback and Stark laws. Additionally, on June 8, 2004, the OIG issued a supplemental guidance for hospitals, which also focuses on physician and hospital relationships under Stark. Business arrangements that should be reviewed for compliance with Stark include, but are not limited to, the following:
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