Many physicians I speak with are still surprised to learn that the federal Stark statute imposes restrictions on income division within group practices.  These restrictions only apply to profits generated from any of the Stark “designated health services” and only those that are covered by Medicare and Medicaid (including managed care), but if your group provides any of these designated services, the Stark income division rules apply to you and  penalties for failing to comply are steep.  )  Penalties for violating this statute include a $15,000 civil money penalty for each tainted referral and for each claim submitted pursuant to a tainted referral, as well as potential false claims liability.

Here are some of the basics (but realize that Stark is a complex and technical law so if you think this is an issue for your group, you should consult with a knoweldgeable health care attorney).  Stark designated health services include the following:

–clinical laboratory services;
–physical therapy services;
–occupational therapy services;
–radiology, including MRIs, CAT scans and ultrasound services;
–radiation therapy services and supplies;
–durable medical equipment and supplies;
–parenteral and enteral nutrients, equipment and supplies;
–prosthetics, orthotics, and prosthetic devices;
–home health services and supplies;
–outpatient prescription drugs; and
–inpatient and outpatient hospital services

Most physician group practices rely upon what is known as the Stark “in-office ancillary services exception” to legally permit them to refer to and bill for Stark designated health services within their practices.  One of the conditions of this exception is that the practice must meet Stark’s definition of a “group practice”.  And, group practices may only divide Stark profits in a limited number of ways.

Under Stark, physicians in a group practice may receive a share of the practice’s overall profits derived from the DHS of the group provided the share is not determined in any manner which is directly related to the volume or value of referrals by such physician.  The regulations define “a share of the overall profits” to mean a share in either all of the profits derived from the Stark services of the entire group or of any component of the group that consists of at least five (5) physicians.  This means that Stark DHS profits may be allocated among all physicians in the group or among subgroupings of no fewer than five (5) physicians – bu even then, the profits may not be allocated to individual physicians in a manner that reflects their referrals to the stark services.

The Stark regulators have provided the following examples of permissible income division formulas:

–per capita division of the overall profits (i.e., equally among all physicians in the group);
–based on the distribution of the group practice’s revenues attributable to services that are not Stark services payable by federal or private payors;
–Any distribution of Stark revenues if the group practice’s Stark revenues are less than 5% of the group’s total revenues, and no physician’s allocated portion is more than 5% of that physician’s total compensation from the group.

Physicians may also be paid productivity bonuses for personally-performed services (or incident to personally perfomed services) as long as the bonus is not directly related to the volume or value of referrals for Stark services by the physician.

Stark is a strict liability statute, so penalties will attach to a violative arrangement whether the violation was intentional or inadvertant.  Therefore, if you have not reviewed your income division formula for Stark compliance, you should do so without delay.



Earlier this month the closely watched case of U.S. ex rel Drakeford v Tuomey Healthcare System Inc. (675 F.3d 394 (4th Cir. 2012) concluded with a jury finding that the compensation paid to physicians under certain part-time employment agreements by Tuomey Healthcare System resulted in violations of both the federal False Claims Act and the federal Stark law.

The Stark law prohibits a physician from referring to an entity for Stark "designated health services" (including outpatient and inpatient hospital services) if the physician has an ownership or compensation relationship with that entity.  While there is an exception to the Stark law prohibition for bona fide employment arrangements, one requirement of that exception is that the compensation paid must be consistent with fair market value.

Although Tuomey relied upon an expert assessment of the fair market value, the government’s expert disagreed and the jury obviously found the government’s case to be compelling.

Under the False Claims Act, Tuomey’s penalties could exceed $350 million. Although the Tuomey case is interesting for a number of reasons, perhaps the primary lesson to be learned is that a proper, defensible assessment of fair market value In hospital-physician arrangements–even W2 employment arrangements–is critical.

In what would undoubtedly be a devastating blow to many medical practices that rely on the Stark in-office ancillary services exception (which allows physicians to refer within their practices for Stark services), President Obama’s proposed FY 2014 would seek to eliminate the exception for physical therapy, radiation therapy and advanced imaging such as CT and MRI.  The budget suggests that the exception may still apply for those providers that meet certain "accountability standards" established by the Secretary of the Department of Health and Human Services.  The proposed budget offers no further detail on what these accountability standards might be. 

Although passing budgets has not been much of a priority in Washington for the last few years, this proposal clearly demonstrates that these services in the physician office setting are targeted for extinction.  Practices that offer these services should begin making contingency plans now to divest or restructure in the event that the exception is eliminated.

We spend a great deal of time on this blog recounting stories of physicians and other providers who have run afoul of the various federal and state abuse laws applicable to the practice of medicine.  However, in my travels in working with physicians and group practices, it is apparent that many physicians still lack a basic understanding of the complex legal and regulatory framework within which they practice every day.  Many physicians operate under the mistaken belief that their greatest area of legal exposure is professional (malpractice) liability.  But, unlike fraud and abuse exposure, most physicians carry significant insurance against catastrophic malpractice claims.  Too few physicians appreciate the fact that running afoul of Medicare billing and coding requirements or entering into an arrangement which is a violation of the federal stark or anti-kickback statutes could result in significant overpayments which must be refunded to the Medicare program or even worse, massive civil money penalties or false claims liability.

Continue Reading Physicians Need to Pay Attention to Fraud and Abuse Risks

The United States Attorney’s Office for the District of Maryland has announced that St. Joseph Medical Center in Towson Maryland will pay $22 million to settle allegations that it violated the federal False Claims Act, the federal anti-kickback statute and Stark by entering into several improper professional services contracts with a cardiology group, MidAtlantic Cardiovascular Associates that involved the payment of illegal remuneration.

The DOJ alleged that St. Joseph paid kickbacks to the cardiology group through sham professional services agreements between 1996 and 2006. Specifically, the parties had entered into 11 professional services agreements which involved payments above fair market value, and/or payments for services that were either not rendered or not commercially reasonable.

Importantly, the settlement was the result of a qui tam whistleblower lawsuit brought by a group of cardiac surgeons who alleged that the service agreements were in violation of federal law. 

This settlement underscores the importance of ensuring that all financial relationships between physicians and hospitals to which they refer, including medical directorships, call coverage arrangements, rental arrangements and the like are for legitimate and necessary items/services and that payments are consistent with fair market value. 



The Centers For Medicare and Medicaid Services (CMS) has published the CY2011 Proposed Medicare Physician Fee Schedule for public inspection.  The Proposed Fee Schedule includes a number of provisions which, if adopted, would implement the recently enacted Affordable Care Act (ACA).  One of the proposed regulations would serve to clarify the requirement in ACA that physicians notify patients referred for imaging services within the physician’s practice of alternate imaging providers. 

or someone in the physician’s group practice and provide the patient with a list of suppliers who furnish the service in the area in which the patient resides.

CMS has interpreted the ACA disclosure requirement to be effective only when the final rule is adopted.  If adopted in final, CMS would propose making the rule effective as of January 1, 2011.

Continue Reading CMS Proposes Regulations Clarifying Stark Imaging Disclosure Requirements

Among its many provisions, the newly signed Patient Protection and Affordable Care Act has imposed a new requirement on physicians who rely on the Stark "In-Office Ancillary Services" exception.  Physicians who refer patients for CT, MRI or PET (or other Stark services as designated by the Secretary of HHS) that will be provided by the referring physician’s practice under the Stark In-Office Ancillary Services exception must now inform the patient in writing at the time of the referral that the individual may obtain the services for which the individual is being referred from a person other than the referring physician’s practice, and provide the patient with a written list of suppliers (who furnish such services in the area in which such individual resides.

The provision in the new law has an effective date of January 1, 2010, so absent clarification from Congress or HHS, the above requirement is effective immediately. 



A recent whistleblower case out of the federal 3rd Circuit in Pennsylvania highlights some of the dangers in not properly documenting financial relationships between physicians and hospitals. Specifically, in US ex. rel. Kosenske v. Carlisle HMA, Inc., a Qui Tam lawsuit brought by the former member of an anesthesia group, the 3rd Circuit Court of Appeals reversed a US District Court’s summary judgment in favor of the defendant hospital and anesthesia group.

The anesthesia group in question had a written exclusive contract with the hospital for anesthesia services but, subsequent to entering into the exclusive agreement, began providing pain management services at the hospital’s freestanding pain center. The hospital did not charge the anesthesia group rent for use of the space in the pain center and the qui tam relator claimed that the arrangements failed to meet the Stark exception for personal service arrangements (and therefore that claims for services referred by the anesthesia group’s physicians to the hospital were in violation of the federal False Claim Act).


Continue Reading Pennsylvania Qui Tam Case Highlights Dangers in Physician/Hospital Arrangements

For those of you who have not been watching your Stark radar screen closely, be aware that CMS recently made a number of substantial changes to the Stark self-referral regulations that may affect your practice arrangements. Some of these changes will not take effect until October 1, 2009, but others changes will take effect on October 1, 2008. Key changes include (but are not limited to the following:

1.  “Stand-in-the shoes” Relationships – Under current regulations, physicians who refer to a Stark entity with which they have a financial relationship will be deemed to “stand in the shoes” (i.e., be treated as if they had the same compensation arrangements) of their physician organizations (e.g., their medical practice entity). CMS has clarified that, Effective October 1, 2008, this rule only applies to physicians who have an ownership interest in the physician organization – not physicians who are only employees, independent contractors or whose ownership interest is only titular.

2.  Services Furnished “Under Arrangements” — CMS has in the past expressed concern over “under arrangements” ventures where a physician supplies items and services to a hospital for which the hospital bills the Medicare program and pays the physician fee. To address this concern, CMS has revised the definition of the term “entity” for purposes of the Stark prohibitions to the person or entity that actually performs a Stark services as well as the entity that causes a claim for the Stark service to be submitted to the Medicare program. This change will take effect on October 1, 2009.


Continue Reading More Changes to the Stark Self-referral Regulations