Stark Law (Physician Self-Referral Law)

Official Source: Centers for Medicare & Medicaid Services

Statute: 42 USC Sec. 1395nn | Regulations: 42 CFR Sec.Sec. 411.350-411.389

Enacted: 1989 (Stark I), 1993 (Stark II), 1995 (Stark III) | Enforcing Agencies: CMS, HHS OIG

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Overview

The Stark Law prohibits a physician from making referrals for certain designated health services (DHS) payable by Medicare or Medicaid to an entity with which the physician (or immediate family member) has a financial relationship (ownership or compensation), unless an exception applies.

Strict Liability: Stark Law violations do not require proof of intent. If a financial relationship exists and no exception applies, the referral is prohibited regardless of the physician's knowledge or intent.

Key Consequences:

• Entity cannot bill Medicare/Medicaid for services from prohibited referral


• Must refund any payments received


• Civil monetary penalties up to $24,822 per service (2024)


• CMP up to $165,482 for circumvention schemes


• Exclusion from Medicare/Medicaid programs

Massachusetts: MGL Ch. 111 Sec. 53D prohibits certain provider self-referrals for clinical laboratory and imaging services. Comply with both federal and state laws.

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Who is Covered

Physicians

42 USC Sec. 1395nn(h)(1) | 42 CFR Sec. 411.351

Definition: Medical doctors (MD), doctors of osteopathy (DO), doctors of dental surgery (DDS), doctors of dental medicine (DMD), doctors of podiatric medicine (DPM), and doctors of optometry (OD).

Includes:

• Employed physicians


• Independent contractor physicians


• Physicians with ownership in referring/receiving entity


• Physicians with compensation arrangements

Immediate Family Member (42 CFR Sec. 411.351):

• Spouse


• Birth or adoptive parent, child, sibling


• Stepparent, stepchild, stepbrother, stepsister


• Father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law


• Grandparents and grandchildren


• Spouse of grandparent or grandchild

Entities

42 CFR Sec. 411.351

Entity: Person or organization furnishing DHS, including:

• Hospitals


• Ambulatory surgical centers


• Clinical laboratories


• Imaging centers


• Physical therapy, occupational therapy, speech therapy providers


• DME suppliers


• Home health agencies

Excludes: Physicians in solo practice, group practices (for in-office ancillary services exception)

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Designated Health Services (DHS)

Complete List of DHS

42 USC Sec. 1395nn(h)(6) | 42 CFR Sec. 411.351

1. Clinical Laboratory Services

- Blood tests, urinalysis, pathology, etc.

1. Physical Therapy, Occupational Therapy, Speech-Language Pathology Services

1. Radiology and Certain Other Imaging Services

- X-rays, MRI, CT scans, ultrasound, PET scans

1. Radiation Therapy Services and Supplies

1. Durable Medical Equipment (DME) and Supplies

- Wheelchairs, hospital beds, oxygen equipment

1. Parenteral and Enteral Nutrients, Equipment, and Supplies

1. Prosthetics, Orthotics, and Prosthetic Devices and Supplies

1. Home Health Services

1. Outpatient Prescription Drugs

1. Inpatient and Outpatient Hospital Services

CMS DHS List: https://www.cms.gov/medicare/fraud-and-abuse/physicianselfreferral/list-of-codes

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Financial Relationships

Ownership or Investment Interest

42 USC Sec. 1395nn(a)(2)(A) | 42 CFR Sec. 411.354(b)

Includes:

• Equity, stock, partnership shares


• Limited partnership interests


• LLC membership interests


• Bonds, debentures, notes


• Secured debt


• Other ownership/investment interests

Excludes:

• Interest in publicly traded securities (if meets requirements)


• Mutual funds (if meets requirements)

Compensation Arrangements

42 USC Sec. 1395nn(a)(2)(B) | 42 CFR Sec. 411.354(c)

Any remuneration between physician (or immediate family) and entity, including:

• Salary, bonus, incentive payments


• Dividends, profit distributions


• Lease payments (office space, equipment)


• Service agreements


• Medical director agreements


• Personal services arrangements


• Loans

Includes: Direct and indirect compensation relationships.

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Prohibition and Penalties

Referral Prohibition

42 USC Sec. 1395nn(a)(1)

Prohibited: Physician who has financial relationship with entity (or immediate family member has financial relationship) CANNOT refer Medicare/Medicaid patients to that entity for DHS, unless exception applies.

Billing Prohibition

42 USC Sec. 1395nn(a)(1)(B)

Prohibited: Entity CANNOT bill Medicare/Medicaid for DHS furnished pursuant to prohibited referral.

Entity must:

• Not bill Medicare/Medicaid


• Refund any payments received


• Inform patient that patient has no obligation to pay

Civil Monetary Penalties

42 USC Sec. 1395nn(g) | 42 CFR Sec. 411.361

Penalties:

1. Per-Service Penalty: Up to $24,822 per DHS (2024 amount, adjusted annually)

- Applies to physician or entity that knows or should know referral prohibited
- Applies if bills submitted or caused to be submitted

1. Circumvention Scheme Penalty: Up to $165,482 (2024 amount)

- Applies to arrangements/schemes to circumvent Stark Law
- Pattern or practice of billing for prohibited referrals

1. Exclusion from Medicare/Medicaid

- CMS may exclude physician or entity from Medicare/Medicaid programs

No Statute of Limitations: CMS can seek refunds for overpayments without time limit under certain circumstances.

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Exceptions

General Exceptions (Ownership/Compensation)

42 USC Sec. 1395nn(b) | 42 CFR Sec. 411.355-411.357

1. Physician Services (42 CFR Sec. 411.355(a))

• Services personally performed by referring physician


• Services performed by physician in same group practice

2. In-Office Ancillary Services (42 CFR Sec. 411.355(b))

• DHS furnished by referring physician, physician in same group, or supervised individual


• Furnished in same building as group practice


• Billed by physician, group, or entity wholly owned by group

Requirements:

• Building requirement (same building where patient has office visit or centralized building)


• Supervision requirement


• Billing requirement

3. Prepaid Health Plans (42 CFR Sec. 411.355(c))

• Services furnished by organizations with risk-sharing arrangements

4. Academic Medical Centers (42 CFR Sec. 411.355(e))

• Physician services in academic medical centers


• Strict requirements on faculty practice plan

5. Implants in ASC (42 CFR Sec. 411.355(f))

• Implants furnished in ASC where referring physician has investment

6. EPO and Dialysis (42 CFR Sec. 411.355(g))

• EPO and dialysis-related drugs furnished in or by ESRD facility

Ownership/Investment Exceptions

42 CFR Sec. 411.356

1. Publicly Traded Securities (42 CFR Sec. 411.356(a))

• Securities listed on NYSE, AMEX, or NASDAQ


• $75 million market cap or $50 million net tangible assets

2. Mutual Funds (42 CFR Sec. 411.356(b))

• Authorized mutual fund with $75 million assets

3. Rural Provider (42 CFR Sec. 411.356(c))

• Hospital or entity furnishing DHS in rural area


• Physician must make substantial number of referrals to other entities

4. Hospital in Puerto Rico (42 CFR Sec. 411.356(d))

Compensation Exceptions

42 CFR Sec. 411.357

1. Rental of Office Space (42 CFR Sec. 411.357(a))

• Written lease for at least 1 year


• Space does not exceed reasonable needs


• Rent is fair market value (FMV) and not based on referrals


• Consistent with commercially reasonable rates

2. Rental of Equipment (42 CFR Sec. 411.357(b))

• Same requirements as office space rental

3. Bona Fide Employment (42 CFR Sec. 411.357(c))

• Written employment agreement for at least 1 year


• Compensation is FMV and not based on volume/value of referrals


• Services are commercially reasonable


• Compensation consistent with FMV for services furnished

4. Personal Services Arrangements (42 CFR Sec. 411.357(d))

• Written agreement for at least 1 year


• Covers all services (no per-service contracts)


• Aggregate services do not exceed reasonable needs


• Compensation is FMV and not based on referrals


• Services are commercially reasonable

5. Physician Incentive Plan (42 CFR Sec. 411.357(e))

• Compensation from physician incentive plan meets requirements

6. Fair Market Value Compensation (42 CFR Sec. 411.357(l))

• Compensation for items/services actually provided


• FMV


• Not based on volume/value of referrals


• Commercially reasonable

7. Medical Staff Incidental Benefits (42 CFR Sec. 411.357(m))

• Low-value non-monetary benefits to medical staff


• Annual limit ($46 in 2024)

8. Risk-Sharing Arrangements (42 CFR Sec. 411.357(n))

• Compensation from risk-sharing arrangements

9. Compliance Training (42 CFR Sec. 411.357(o))

• Compliance training provided to physician

10. Indirect Compensation (42 CFR Sec. 411.357(p))

• Unbroken chain of financial relationships between physician and DHS entity


• Compensation not based on referrals

Key Requirements Across Compensation Exceptions:

• Fair Market Value (FMV): Compensation must be FMV for services/items provided


• Not Based on Referrals: Cannot be determined in manner that takes into account volume/value of referrals


• Commercially Reasonable: Arrangement makes sense from business perspective without referrals


• Written Agreement: Generally required for at least 1 year


• Signature: Signed by parties

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Compliance Best Practices

Financial Relationship Review

• Inventory all physician financial relationships (employment, contracts, ownership)


• Identify all DHS furnished by entities with physician financial relationships


• Map referral patterns for DHS


• Determine which exception applies to each arrangement

Written Agreements

• Ensure all compensation arrangements are in writing


• Include all required terms for applicable exception


• Fair market value documentation (independent valuation, compensation survey)


• Signature and dating by all parties


• Term of at least 1 year (holdovers permitted if meet exception)

Fair Market Value

• Obtain independent FMV determination (appraisal, compensation survey)


• Document FMV methodology


• Update FMV periodically (generally every 3 years or at renewal)


• Do NOT base compensation on referrals

Monitoring and Auditing

• Annual Stark Law compliance review


• Review new physician arrangements before execution


• Monitor changes in referral patterns


• Track in-office ancillary services (building, supervision, billing)


• Review medical directorship agreements

Training

• Train physicians on Stark Law prohibitions and exceptions


• Train contracting/credentialing staff on Stark requirements


• Train billing staff on prohibited billing


• Annual compliance training

Documentation

• Maintain all written agreements


• FMV documentation


• Exception analysis


• Compliance committee meeting minutes


• Training records

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Massachusetts State Law

MGL Ch. 111 Sec. 53D - Provider Self-Referral

https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXVI/Chapter111/Section53D

Prohibition: Healthcare provider who has financial interest in healthcare facility providing clinical laboratory or diagnostic imaging services CANNOT refer patients to that facility for such services.

Exceptions:

• Services provided in provider's office


• Services provided in hospital where provider has staff privileges


• Emergency services

Penalties:

• Civil penalty up to $10,000 per violation


• DPH may suspend or revoke facility license

Comparison to Federal Stark Law:

• Narrower scope (only lab and imaging, not all DHS)


• Applies to all patients (not just Medicare/Medicaid)


• Different exceptions

Compliance: Must comply with BOTH federal Stark Law and Massachusetts Sec. 53D.

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Voluntary Self-Disclosure

CMS Self-Referral Disclosure Protocol (SRDP)

https://www.cms.gov/medicare/fraud-and-abuse/physicianselfreferral/self_referral_disclosure_protocol

Purpose: Allow providers to self-disclose actual or potential Stark Law violations to CMS.

Process:

1. Submit disclosure to CMS via SRDP


2. Describe violation, financial impact, corrective action


3. CMS reviews and may negotiate settlement


4. Settlement typically less than maximum CMPs

Benefits:

• Reduced penalties (generally 1.5x-3x actual damages vs. statutory maximum)


• Avoid False Claims Act liability (if timely)


• Resolution of liability

When to Use: Discovered actual or potential Stark violation, want to resolve liability proactively.

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Relationship to Other Laws

Anti-Kickback Statute (AKS)

Differences:

• Stark: Strict liability, no intent required, financial relationship triggers prohibition


• AKS: Requires intent to induce referrals (willfulness)


• Stark: Only DHS


• AKS: Any items/services covered by federal healthcare programs

Overlap: Arrangement may violate both Stark and AKS. Analyze separately.

Exceptions vs. Safe Harbors: Stark exceptions do NOT automatically satisfy AKS safe harbors (and vice versa).

False Claims Act (FCA)

• Billing for services resulting from Stark violation can be False Claims Act violation


• Stark violation = claim is false (no valid exception)


• FCA penalties: 3x damages plus $13,946-$27,894 per claim (2024)

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Official Resources

Centers for Medicare & Medicaid Services (CMS)

• Stark Law Main Page: https://www.cms.gov/medicare/fraud-and-abuse/physicianselfreferral


• Regulations: https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-411/subpart-J


• DHS List: https://www.cms.gov/medicare/fraud-and-abuse/physicianselfreferral/list-of-codes


• SRDP: https://www.cms.gov/medicare/fraud-and-abuse/physicianselfreferral/self_referral_disclosure_protocol

HHS Office of Inspector General (OIG)

• Fraud & Abuse Laws: https://oig.hhs.gov/compliance/physician-education/fraud-abuse-laws


• Advisory Opinions: https://oig.hhs.gov/compliance/advisory-opinions

Massachusetts Department of Public Health

• Provider Self-Referral: https://www.mass.gov/service-details/provider-self-referral-law


• Contact: (617) 753-8000

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Key Takeaways for Massachusetts Healthcare Providers

1. Strict Liability: Stark Law does NOT require intent. If financial relationship exists and no exception, referral is prohibited.

1. Written Agreements Required: Employment, medical director, personal services, leases must be in writing for at least 1 year with all exception requirements.

1. Fair Market Value Critical: All compensation must be FMV and not based on volume/value of referrals. Get independent FMV determination.

1. Exception Analysis: For every physician financial relationship, identify applicable Stark exception and document compliance.

1. In-Office Ancillary Services: Common exception for group practices. Must meet building, supervision, and billing requirements.

1. Billing Prohibition: If referral violates Stark, entity CANNOT bill Medicare/Medicaid. Must refund payments received.

1. Massachusetts Sec. 53D Also Applies: State law prohibits certain lab/imaging self-referrals for ALL patients (not just Medicare/Medicaid).

1. Self-Disclosure: If violation discovered, consider CMS SRDP to resolve liability and reduce penalties.

1. Separate from AKS: Analyze Stark Law separately from Anti-Kickback Statute. Different requirements and exceptions.

1. Annual Review: Conduct annual Stark Law compliance review. Review all physician financial relationships, referral patterns, and exception compliance.