The Ethics in Patient Referral Act of 1989

Because of this federal law physicians (which also includes podiatrists, dentists, optometrists and chiropractors) are generally prohibited by law from referring patients to an entity with which the physician or a member of the physician's immediate family has a financial relationship - unless an exception, and there are many, applies. Interestingly, the penalties primarily fall not on the referring physician – but the “entity” that bills Medicare for the referred service.


Why "Stark"?

The law and associated regulations are commonly referred to as “Stark” after the principal cosponsor of the original legislation – Representative Fortney (“Pete”) Stark, whose website described its purpose as: “regulating physician referral for services from which the doctor profits.” Passage of the law was certainly instigated in part by a 1989 OIG study which found that Medicare patients received 45% more lab tests if the referring physician had an ownership interest in the lab. Other studies have reached similar conclusions, however self referral actually seems to have grown since the Act went into place . Learn more. A 2013 report from the Government Accountability Office about self-referral rates in anatomic pathology services ties this practice to recent increases in spending for Medicare Part B - insuring that the debate over self-referral is not over.

Representative Stark was not reelected in 2012, however his legacy will live on in this and just about every other major piece of health related legislation for the last 40 years. He has also recently gone on record as saying that his eponymous legislation should be repealed.

"In-Office" Referrals

Research on potentially financially motivated referral rates has focused most recently on arrangements permitted under the "in-office" exception to the law under which a physician can refer a patient for testing or therapy that is provided "in office" (essentially within the same building) by a lab or therapy provider in which the referring physician has a financial stake. A 2010 study by the Wall Street Journal raised questions about the costs of IMRT treatment - a radiation therapy also frequently ordered and delivered by the same urology group under this exception for Medicare patients diagnosed with prostate cancer. And a 2012 study found that urologists with financial relationships to the labs to which they referred specimens for prostate cancer screening referred 4.3 more specimens per biopsy (72 % more than those physicians referring without the financial incentive) , but actually detected cancer 12% less frequently. (Mitchell 2012).

The Government Accounting Office released a study showing that physicians who self-refer for advanced imaging studies (CT and MRI) were twice as likely to order the tests as those who were not self referring (GAO 2012). The price tag for all those additional studies ($109M), as well as a lukewarm reception of the GAO's recommendations from CMS, will likely add significant fuel to the self referral debate.

Meanwhile a study in the September 2013 issue of the American Journal of Roentgenology.shows that physicians with a financial interest in the MRI equipment used for patients that they refer not only refer more studies but also refer more patients for studies that turn out to be negative.The study's author, a doctor, argues: "Doctors that own MRI scanners order significantly more negative scans," he said. "We're not making accusations that this is overt, but it is something to investigate."

And of course there are the effects on the patients who undergo these perhaps unnecessary studies.

Another member of Congress from California - Jackie Speier from San Francisco - recently introduced a bill to eliminate a number of services from the "in office" exception to Stark. And in 2015 Congressman McDermott from Washington State introduced, again, the Medicaid Self-Referral Act to "clarify" that Stark applies to and penalizes billing Medicaid for referrals from those with "out of exception" financial relationships - not just Medicare.

Getting Into Compliance

At a 1995 hearing on “problems associated with compliance” with the Act, the Honorable Representative blamed a “lack of simplification on hysterical lawyers drumming up business” Learn more Whatever the source of Stark complexity then, each year since has brought at least one more legislative or regulatory “tweak”, making compliance in this area a constantly shifting target.

The DHHS OIG has recently created and distributed a 4 1/2 minute video overview that provides a good intro to the primary Stark concerns and a three part test for whether Stark is implicated in a particular referral.

Individuals and organizations may also submit questions to CMS about physician self-referral. The agency posts its answers on its website.

Another tool that can be of assistance is having “checklists” like these to remind those setting up physician relationships of the elements of the most frequently used exceptions:

Advisory Opinions

One way to understand the reach of this law is to read some of the Advisory Opinions that have been requested from the Centers for Medicare and Medicaid Services (CMS) regarding different proposed "financial relationships" with physicians. For example, in 2010 CMS was asked to decide if clinical laboratories that provided physicians with single use, disposable specula worth less than $2 each would be creating a "compensation arrangement" with the physicians that would prevent the laboratories from billing Medicare for performing the resulting PAP smears. Reading that advisory opinion , or some of the others, is enlightening. (Notably, CMS has no control over the topics for which opinions are sought so the issuance of an opinion is not an indication of the agency's enforcement agenda.)

Voluntary Self-Disclosure Protocol

In 2010 the Affordable Care Act required CMS to create a protocol by which providers that had entered into relationships that potentially violated the Stark provisions could voluntarily “self-disclose” and receive some mitigation of the potential penalties. That protocol was opened in September 2010 and to date approximately 100 “entities” have reportedly made disclosures. Notably, one of the required disclosures is "a description of the existence and adequacy of a pre-existing compliance program that the disclosing party had." A CMS official has advised the the agency is particularly interested in "what changed" after discovery of the potential violation(s). Learn more.

CMS maintains a website where settlements under the protocol are reported. There are more than 60 reported settlements - virtually all with hospitals. Not all are for large sums. However little detail is provided about what led to the settled violations.

The American Health Lawyers Association has published Practical Tips on the Stark Self-Disclosure Protocol (AHLA 2012) as a Public Interest Resource. A Practitioner's Guide to the Stark Self-Disclosure Protocal came out from the same source in May 2013.

In March 2012 CMS submitted a report to Congress describing its first 18 months of implementation of the protocol.

Settlements and Verdicts

Meanwhile, Stark settlements and actions outside the protection of the Self-Disclosure protocol have continued, including:

  • March 2014 - Shortly before the start of trial, Halifax Hospital Medical Center settled a Stark and False Claims action brought by the Department of Justice and one of its employees for $85 Million. This settlement also includes a five year corporate integrity agreement for the health system.

  • Also in 2014 - Both the hospitals ($3.8M) AND the physician ($1M) with whom they had an improper financial relationship eventually paid to settle a self-disclosed Stark violation in West Virginia.

  • Two Montana Hospitals self-disclosed a practice of providing "incentive pay" to referring physicians. In return they were required to pay $3.95 Million and be described as having "allegedly put their financial interest ahead of their responsibility to provide cost effective health care". The FBI press release was slightly less accusatory.

  • A West Virginia physical therapy practice (1-20-2012) self-disclosed and settled civil monetary penalties resulting from the provision of services to patients referred to the practice by the wife of one of the group members.

  • A Connecticut Hospital settled false claims liability for providing an office suite to a referring physician group without a written rental agreement and failing to collect rent even once a lease was executed.

  • A New York Medical Center settled a quit tam suit filed by one of its physicians relating to some of its recruitment arrangements.

  • A North Carolina Life Sciences Company (7-2-2012) self disclosed "thousands of gift cards" given in exchange for referrals and paid a Civil Monetary Penalty for its generosity.

  • A Massachusetts Long Term Care Hospital (9-11-2012) agreed to pay $1,149,396.50 because of remuneration paid to two physicians.

  • The Hospital Corporation of America, despite its longstanding compliance program, paid $16.5 M and agreed to a corporate integrity agreement in order to settle a whistle-blower suit about its relationships with a Tennessee physicians group.

  • A lithotripsy company - 11-02-2012 agreed to pay $127,249.30 in Civil Monetary Penalties after it treated customers, including physicians, to an all expenses paid trip to the Masters Golf Tournament.

  • Following two jury trials, Tuomey Healthcare System was ordered to pay more than $236,000,00.00 in penalties for entering into "employment" agreements with potential physician competitors that didn't come close to meeting Stark requirements. Unsurprisingly, the system's CEO and COO both resigned. That judgement was upheld on appeal in July 2015.

  • The Office of the Inspector General for DHHS also tracks and reports Stark related settlements on its website.

Stark Resources on the Web:

Shared by Toolbox members:

  • < Click "edit" above and start typing here>