The Physician Self-Referral (Stark) Law

From a hospital compliance perspective, the physician self-referral Law (section 1877 of the Social Security Act (Act), commonly known as the ‘‘ Stark’’ Law) should be viewed as a threshold statute. Hospitals face significant financial exposure unless their financial relationships with referring physicians fit squarely in statutory or regulatory exceptions to the statute.

For purposes of analyzing a financial relationship under the Stark Law, the following three-part inquiry is useful:

• Is there a referral from a physician for a designated health service? If not, then there is no Stark Law issue (although other fraud and abuse authorities, such as the anti-kickback statute, may be implicated). If the answer is ‘‘yes,’’ the next inquiry is:
• Does the physician (or an immediate family member) have a financial relationship with the entity furnishing the DHS (e.g., the hospital)? Again, if the answer is no, the Stark Law is not implicated. However, if the answer is ‘‘yes,’’ the third inquiry is:
• Does the financial relationship fit in an exception? If not, the statute has been violated.

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The Federal Anti-Kickback Statute
Hospitals should also be aware of the Federal anti-kickback statute, section 1128B(b) of the Act, and the constraints it places on business arrangements related directly or indirectly to items or services reimbursable by any Federal health care program, including, but not limited to, Medicare and Medicaid. The anti-kickback statute prohibits in the health care industry some practices that are common in other business sectors, such as offering gifts to reward past or potential new referrals.

The anti-kickback statute is a criminal prohibition against payments (in any form, whether the payments are direct or indirect) made purposefully to induce or reward the referral or generation of Federal health care program business. [ Click here for more information.]

For purposes of analyzing an arrangement or practice under the anti-kickback statute, the following two inquiries are useful. If it appears that there is a problem, it is also useful to ask a series of questions.

• Remunerative Relationship? Does the hospital have any remunerative relationship between itself and persons or entities in a position to generate Federal health care program business for the hospital directly or indirectly? Persons or entities in a position to generate Federal health care program business for a hospital include physicians, ambulance companies, clinics, hospices, home health agencies, nursing facilities, and other hospitals.

• Inducement or Reward for Referral/Recommendation of Business? With respect to any remunerative relationship identified, could one purpose of the remuneration be to induce or reward the referral or recommendation of business payable in whole or in part by a Federal health care program? Importantly, under the anti-kickback statute, neither a legitimate business purpose for the arrangement, nor a fair market value payment, will legitimize a payment if there is also an illegal purpose (i.e., inducing Federal health care program business).

• What to ask if Potentially Problematic? Hospitals should ask the following questions about any potentially problematic arrangements or practices they identify:
  1. Does the arrangement or practice have a potential to interfere with, or skew, clinical decision-making?
  2. Does the arrangement or practice have a potential to increase costs to Federal health care programs, beneficiaries, or enrollees?
  3. Does the arrangement or practice have a potential to increase the risk of over utilization or inappropriate utilization?
  4. Does the arrangement or practice raise patient safety or quality of care concerns?
• Steps to Reduce or Eliminate Risk. Hospitals that have identified potentially problematic arrangements or practices can take a number of steps to reduce or eliminate the risk of an anti- kickback violation, including the use of safe harbors.

Potential Anti-kickback Risks
Potential risks under the anti-kickback statute arising from hospitals’ relationships in the following five categories: (a) Joint ventures; (b) compensation arrangements with physicians; (c) relationships with other health care entities; (d) recruitment arrangements; (e) discounts; (f) medical staff credentialing; and (g) malpractice insurance subsidies. (In addition, the kickback risks associated with gain sharing arrangements are discussed below.)