Stark Law: An Ultimate Guide against Medicare Fraud

The world has seen how the American economy leads its progress in technological innovations and far-reaching inventions, particularly in the healthcare system. 

Beyond greater heights, however, the United States government has been bombarded with thousands of healthcare fraud cases each year. 

As millions of lives were affected by its detrimental costs, the US government has long prioritized eliminating healthcare fraud through strengthened policies that regulate the activities of physicians and other medical professionals involved in the healthcare system.

Medicare fraud is not only attacking the lives of the healthy and wealthy, but also, it is damaging the state of our elderly patients, patients with disabilities, persons living with HIV, patients suffering with autoimmune diseases, and among others,

Imagine: in the height of coronavirus pandemic, how would you survive amid a Medicare fraud? 

While this question leaves an open-ended possibility, Medicare and Medicaid fraud remains to be a social and economic virus more than a pandemic could. 

To eliminate this social virus, the article is an ultimate guide on Stark Law against the Medicare Fraud.

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What is Stark Law? 

Medicare Fraud

Stark Law or the “Physician Referral law” is a set of laws that forbids doctors from referring to Medicaid or Medicare patients to designated health services (DHS) under certain existing conditions. 

The law regulates physicians’ referral to any entity in which they have a “financial relationship.”

By nature, Stark law is not a state penal law, which means that any cases filed against a physician can be pursued through a civil action under civil monetary penalties law.

Brief Legislative Background

In 1989, California Rep. Peter Stark sponsored an initial bill titled “Ethics in Patient Referrals Act.” The act covered Stark I and Stark II. Hence, when the bill passed into law, the law was titled “Stark Law.”

Originally, Stark I intended to abolish any physicians’ financial scheme in sending patients for unnecessary testings. Congress has perceived that physicians were taking advantage of the overall healthcare costs by ordering additional, often medically unnecessary laboratory tests, where they unjustly enriched themselves.

On the other hand, the scope of the law expanded and created Stark II as part of the Omnibus Reconciliation Act of 1993. 

In enacting Stark II, Congress emphasized more on a physician’s financial relationships, both direct and indirect ownership, investment interests, and compensation arrangements.

Today, laws codified under Sec. 1877 of the Social Security Act and Title 42, Sec. 1395nn of the U.S. Code – Limitation on certain physician referrals are about Stark Law.

What is the purpose of Stark Law?

In our present economy, healthcare costs increase while healthcare quality decreases. Some physicians felt this crisis due to Medicare fraud activities. 

Stark Law primarily combats against fraud, abuse, and intimidation in the federal healthcare system. 

Stark Law seeks to ban physicians’ referrals to a patient covered by Medicare or any state-sponsored costs for designated healthcare services (DHS). 

“Self Referral” 

Self-referral takes place by the efforts of a physician or referring patients to an entity that works for designated health care services. 

What are Designated Healthcare Services?

Designated Healthcare Service covers any medical practices such as performing laboratory tests, prescribing medical drugs, and conducting physical therapy to all patients.

Designed Healthcare Services includes but are not limited to Clinical laboratory services, Physical therapy services, Occupational therapy services, Outpatient speech-language pathology services, Radiology services, Radiation therapy services 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.

What does Stark Law specifically prohibit?

Stark Law regulates any physician’s referrals to a patient covered by Medicare or Medicaid related to an entity working for designated healthcare services.

The Stark Law prohibits two specific areas. 

A Physician’s Financial Relationship to an Entity

Stark Law essentially prohibits a physician from making referrals to a patient for a particular designed healthcare service that is payable by Medicare or Medicaid to an entity. Here, an entity can be a person or an organization to which a payment is made directly or upon assignment on the patient’s behalf. 

Hence, the law construes that an entity refers to a physician, whether practicing in a sole proprietorship or working in a professional limited liability company, is affiliated with the DHS into which a physician in subject refers.

A Physician’s Referral to an Entity

Stark Law prohibits the submission, or plans of submitting, any claims furnished by a third-party entity to a designated healthcare service, as a result of a prohibited referral. 

A prohibited referral contains improper overpayments on the amounts paid on claims submitted to Medicare. Hence, improper payments may result in the billing of unnecessary medical services and treatment.

To expound, the law defines “referral” as the act of a physician referring to his own medical practice or to include services performed by a referring physician’s coworkers, employees, or independent contractors. 

The act of referral includes but is not limited to a physician’s request, order, or certification of a medical necessity for an item or service payable under Medicare or Medicaid benefits, a physician’s consultation with another physician, or a physician’s plan of care through a request. 

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What government agencies are enforcing Stark Law?

Three government agencies collaborate in enforcing Stark Law including the Center for Medicare and Services (CMS), the Office of the Inspector General (OIG), and the Department of Justice (DOJ).

Center for Medicare and Services 

The Centers for Medicare and Services (CMS) is the federal agency primarily responsible for enforcing Stark Law. They are tasked with collecting and analyzing data to develop research reports in eliminating healthcare fraud activities in the healthcare system. Hence, CMS administers the nation’s healthcare programs such as Medicare and Medicaid. 

Currently, CMS has been adopting a lax and lenient implementation of Stark Law due to the insufficient resources. With this predicament, the Congress added a provision in the Affordable Care Act which requires the Secretary in a self-disclosure protocol on potential violators of Stark Law.

Although CMS has faced a dilemma on enforcement, whistleblowers have been vigorous in enforcing Stark Law.

Who are whistleblowers? 

A whistleblower reports fraudulent activities, graft and corruption, and organization abuses that affect the public’s welfare. 

Public whistleblowers check safety practices inside the healthcare organization, report healthcare fraudulent activities committed outside the organization, and encourage other whistleblowers to speak up.

With the aid of the Federal False Claims Act in protecting public whistleblowers, the government has successfully prosecuted thousands of cases in the violation of Stark Law. 

The Office of the Inspector General 

The Office of the Inspector General (OIG) is tasked to investigate suspected healthcare fraud activities and report cases to the U.S. Department of Justice (DOJ) for criminal or civil actions. They are also tasked to seek civil monetary penalties and assess if such Stark Violations are part of the exceptions. 

The Department of Justice 

The DOJ, through the guidance of the Federal Bureau of Investigation, investigates suspected Stark Law violations and evaluates if such cases are in conjunction with violations of the Anti-Kickback Statute or the False Claim Acts. 

What are some prominent cases involving Stark Law violations?

Stark Law Violations of Adventist Health System 

The case of Adventist involved a healthcare organization that submitted false claims to Medicare and Medicaid programs for unnecessary services rendered. 

The court found the physician’s referrals to Adventist-owned hospitals, such as Park Ridge, and the bonuses given to the employed physicians. Whistleblowers Melissa Church, Michael Payne, And Gloria Payne revealed that Adventist had submitted bills to Medicare for its employed physicians’ professional service containing improper coding modifiers. 

As a court verdict, Adventist Health System agreed to pay the United States $115 Million to settle False Claims Act violations. 

Stark Law Violations of Tuomey Healthcare System 

Tuomey, a South Carolina-based healthcare system, was found guilty of Stark Law violations. 

Whistleblower Dr. Michael K. Drakeford, an orthopedic surgeon, sued Tuomey for the illegal contracts it entered for the physicians’ referral in conducting outpatient surgical procedures. Dr. Drakeford had revealed that Tuomey contracted around 19 specialist physicians and paid them compensation beyond their market value. Being said, the court also found that Tuomey had filed more than 21,000 false claims with Medicare.

As a blatant violation of physician self-referral law, the court promulgated a decision resolving a $237 million judgment against the Tuomey HealthCare system for illegally billing the Medicare program for services referred by physicians. 

The court awarded Dr. Drakeford approximately $18.1 million under the settlement and awarded the United States around $72.4 million.    

The Stark Violation Case of Baldwin Bone & Joint, P.C.

Baldwin Bone & Joint, P.C. (BB&J), an orthopedic surgery and physical therapy practice located in Alabama, violated Stark Law and False Claim Act provisions through billing unnecessary services.

According to the civil lawsuit filed by John Seddon, a former employee of BB&J, the company referred patients to unauthorized providers, including athletic trainers and an exercise physiologist, who were prohibited from billing Medicare and TRICARE. The court found BB&J made direct compensation arrangements with its shareholder physicians for designed healthcare services such as physical therapy, X-rays and MRIs.  

As a court’s verdict, BB&J agreed to pay a total of $1.2 million to resolve a lawsuit violating the False Claims Act and Stark Law. As a part of the settlement, the court awarded Seddon approximately $200,000. 

In cases of Medicare Fraud, where can I ask legal assistance?

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Khouri Law counsels are intellectually equipped, highly competent, and quality-driven attorneys in litigating healthcare fraud cases

Honed by profound experiences and proven results, the medical fraud lawyers in Khouri Law have a solid background in Medicare and Medicaid reimbursement regulations including Stark Law and Anti-Kickback Statute. 

More than the passion for the legal profession, the counsels of Khouri ensure that you are always in good hands. 

Contact us today!

What are some common exceptions for Stark Law?  

Last year, CMS amended the provisions of Stark Law terms and its exceptions, including the referral requirement, circumstances of compensation, the proportion of clients, etc. Hence, the following are the general conditions for Stark Law exceptions:

In-Office Ancillary Service Exception

In-Office Ancillary Service is one of Stark Law Exceptions that allows physicians and other medical practitioners for certain DHS referrals within-practice. 

The law enables physicians to furnish those DHS to practice patients, retain and use the revenues earned from services provided with the group for payment of physician’s expenses and compensation, and bill Medicare and Medicaid for rendered services.

Furthermore, this Stark law exception allows medical practices to provide radiology, laboratory, and other outpatient prescription drugs. 

Bona Fide Employment Relationship Exception  

This exception applies to the hospital providing compensation arrangements on compensation and benefit to a physician employee. The compensation agreement should stipulate that employees still get compensation without referrals.

Also, a physician should comply with the employees’ identifiable services and employees’ fair compensation based on market value.  

Physician Services Exception 

As the In-Office Ancillary service allows physicians and other medical practitioners for certain DHS referrals within-practice, this exception refers to referrals between physicians in the “same group practice.”

Physicians must meet all requirements including written and signed agreements covering all services, for a term of at least, one year, and among others.

Fair Market Value Exception

Fair Market Value Exception should be consistent with the General Market Value.

The law provides that “fair market value” is the value in arms’ length transactions concerning rentals or leases and the value of rental property for general commercial purposes. 

This exception takes effect when there is an arrangement into writing that specifies the time frame and remuneration, and meets Anti-Kickback Statutes provision on “safe harbor” requirements.

Intra-Family Rural Referral 

Intra-Family Rural Referral allows physicians to refer patients to a DHS entity if no other healthcare provider can furnish needed services within 25 miles or 45 minutes from the patient’s home.

This exception is intended to protect patients living in rural areas with few health care options. 

Key Takeaways 

Man signing legal document

Stark Law is one of the best legal remedies in eliminating the social virus in the healthcare system. It seeks to ban physician’s referrals to the patient covered by Medicare for designated health care services furnished by an entity. 

As a result of the overarching healthcare predicament, the US government, as well as whistleblowers, now collaboratively works for the greater good.

Ultimately, this is your challenge as a concerned citizen and as a potential victim of Medicare fraud. In your initiatives, how will you eliminate or prevent healthcare fraud activities?

If you are ready to make a move and report a healthcare fraud incident, Khouri Law is one step away to help you. Contact us now.

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