A Stark Law Overview for Non-Legal Minds
Written by: David M. Glaser, Shareholder | Fredrikson Health Law
Stark is perhaps the most difficult of health law regulations, which may explain why there are so many misunderstandings about it.
The first source of confusion is that the law is commonly called an “anti-self referral law.” But that is terribly misleading. In fact, it is really an “anti-plan of care law.” Let me explain. If I were an orthopedic surgeon and my patient needed a brace and I said to the patient, “Glaser’s Braces is the worst store in the world. Whatever you do, don’t get your brace from Glaser’s Braces,” any normal human would conclude that I haven’t referred the patient to my brace store. But under Stark, I have. According to the statute, “the request by a physician for the item or service constitutes a referral by a referring physician. For other items and services like a brace, the request or establishment of a plan of care by a physician which includes the provision of the designated health service constitutes a referral by a referring physician.” As soon as the medical professional says to the patient, “You need X,” the physician has referred the patient to whatever location the patient chooses to receive X. The “referral” is the request for the service, not the specification of where the service should be provided. Truly bizarre.
With that complicated definition clarified, let me try to explain Stark in a sentence. “If a physician who establishes the plan of care for one of Stark’s ‘designated health services,” and the patient goes to an entity that has a financial relationship with the physician, or any member of the physician’s immediate family, the entity can’t bill for the designated health service unless the financial relationship qualifies for an exception under Stark.”
First, note that the definition of “immediate family” is quite broad, including 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. Identifying financial relationships with such a broad range of people is very difficult.
The definition of designated health services is a bit easier to understand. The list is:
• Clinical laboratory
• Physical therapy
• Occupational therapy
• Radiology services
• Radiation therapy services and supplies
• Durable medical equipment and supplies
• Parenteral and enteral nutrition
• Prosthetics and orthotics
• Home health services
• Outpatient prescription drugs
• Inpatient and outpt. hospital services
• Outpt. SLP services
The exceptions to Stark are very complicated, and too hard to outline in a short article. But I will briefly describe one element that is important for physician groups to understand.
In December of 2020 Stark was modified in a number of ways. Many of the changes made Stark more flexible, but one important change was more restrictive. It imposes new limits on compensation on physician group practices. In particular, CMS is requiring groups to distribute the profits from all designated health services exactly the same way. Historically, it has been possible to allocate DHS income for each type of DHS differently. For example, you could split income from imaging evenly while basing physical therapy on productivity and lab on seniority. CMS claims that they never intended to allow that level of flexibility, though over the last 25 years I think there’s been near universal agreement that that approach was legal. But now, CMS is insisting that if you are using “profit sharing” as a means to distribute income, you have to take all the profit from all designated health services, aggregate it, and split it in one consistent fashion.
CMS still permits physician groups to subdivide into smaller units that contain at least five physicians. CMS takes the position that you can take the profit generated from designated health services within that subgroup and divide it amongst the subgroup.
There are several things about those changes that bother me but most of them come down to this: I don’t believe that whoever wrote these changes understands how physician compensation typically works and they haven’t considered the unjust result. CMS fully recognizes that there are clinics with fewer than five physicians. Those clinics can share the profits from their ancillary income despite the fact that there are fewer than five of them. That creates the following perverse result. If three rheumatologists are in practice on their own, they can split the profit from their infusion business amongst themselves. However, should those same three physicians choose to join a multi-specialty group, their previously perfectly permissible compensation formula suddenly becomes improper. They need to include at least two other physicians or run afoul of Stark. That’s utterly irrational. In fact, I would argue that it is arbitrary and capricious. For that reason, I’m hoping someone will choose to challenge CMS’ interpretation of the law.
The key point is that if you are part of a physician group, or a hospital that employs physicians but chooses to use the group practice exception because it allows you to credit physicians for designated health services that are performed incident to the physician’s work, you need to understand the impact of these Stark changes. (For hospitals seeking to compensate employed physicians for infusions or physical therapy that they supervise, the in-office ancillary can be useful.) If you haven’t done so, you should make sure your compensation formula satisfies the new criteria.
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About the Author:
David M. Glaser, Shareholder | Fredrikson Health Law
David is a shareholder in Fredrikson’s Health Law group and co-founded its Health Care Fraud & Compliance group. He has considerable experience in health care regulation and litigation, including voluntary disclosures, criminal and civil fraud investigations, overpayments and reimbursement disputes.
David’s goal is to explain the government’s enforcement position, and to analyze whether this position is supported by the law or represents government overreaching.
