Physician Self-Referral (Stark Law)

In the original Compliance Program Guidance for Nursing Facilities, the Department of Health and Human Services Office of Inspector General (OIG) instructed nursing facilities to have policies and procedures in place to ensure compliance with the federal physician self-referral law, commonly referred to as a the “Stark” law. Among the risk areas the OIG identified in the original compliance guidance was financial arrangements with physicians, including a facility’s medical director. 

Consistent with the OIG’s growing interest in protecting federal health care programs from fraud and abuse, the OIG included an expanded discussion of the Stark law in the 2008 Supplemental Compliance Program Guidance for Nursing Facilities. In the Supplemental Guidance, OIG describes the Stark law, the penalties imposed on violations and how to identify potential physician self-referral situations. The following paragraphs will expand on the OIG’s effort to explain the Stark law, describe the importance of compliance and provide guidance on how to address particular compliance issues.

STARK LAW BASICS

A. Prohibition on Physician Self-Referrals

Stark law is intended to address the concern that financial incentives have a tendency to corrupt the medical decision-making of those providing care. As such, the government wants to ensure that medical decisions are made in the best interests of patients.

The Stark Law prohibits a physician from referring Medicare or Medicaid program patients for certain “designated health services” (DHS) to an entity with which the physician or an immediate family member has a “financial relationship.”

The entity furnishing DHS (e.g. a nursing facility) is prohibited from presenting a claim to Medicare or Medicaid for DHS furnished pursuant to a prohibited referral. 

B. Referral

The Stark Law definition of “referral” is much broader than the usual definition in the physician-patient relationship. Under the Stark Law, a “referral” can include:

• a physician’s request for, ordering of, or certifying/recertifying the need for, any DHS reimbursable under Medicare, including a request for a consultation with another physician and any test or procedure ordered by or to be performed by that other physician or under the physician’s supervision; or
• a physician’s request that includes the provision of any designated health service, the establishment of a plan of care that includes the provision of a DHS, or the certifying/recertifying of the need for such a DHS.

However, a “referral” does not include services personally performed or provided by the referring physician.

C. Designated Health Services

The “designated health services” covered by the Stark Law include:

1. clinical laboratory services
2. physical therapy, occupational therapy, and speech language pathology services
3. radiology and certain other imaging services
4. radiation therapy services and supplies
5. durable medical equipment and supplies
6. parenteral and enteral nutrients, equipment, and supplies
7. prosthetics, orthotics, and prosthetic devices and supplies
8. home health services
9. outpatient prescription drugs
10. inpatient and outpatient hospital services
11. nuclear medicine

D. Financial Relationship

Under the Stark Law, a “financial relationship” can be either:

1. A direct or indirect “ownership or investment interest” in the entity that furnishes DHS, or
2. A “compensation arrangement” between the physician and the entity.

Unless a Stark exception is fully satisfied, a physician who is part owner of a nursing facility may not refer a Medicare or Medicaid patient to the nursing facility for DHS (e.g. therapy, clinical lab tests) and the nursing facility may not bill for those services.

Furthermore, if a physician is compensated as a medical director by a nursing facility, the nursing facility may not bill the Medicare or Medicaid program for DHS referred by that physician unless the medical director arrangement meets a Stark exception (see “Exceptions” section).

If there are a number of “financial relationships” between a physician and an entity, each relationship must meet a Stark exception in order for the physician to appropriately refer patients to that facility for designated health services.

COMMONLY USED EXCEPTIONS

Stark Law contains approximately 35 exceptions that describe acceptable financial relationships that allow a physician to refer to an entity for the provision of designated health services. The first group of exceptions can be applied to either “ownership or investment interests” or “compensation arrangements.” The second group of exceptions applies only to “ownership or investment interests.” The third group of exceptions applies only to “compensation arrangements.”

Some commonly applied exceptions to the Stark Law include the exceptions for: personal services, bona fide employment relationships, physician recruitment, and physicians practicing in rural areas and locations designated as Health Professional Shortage Areas.

Still, these exceptions only apply in limited circumstances. For example, the Stark Law exception that covers a medical director agreement with an SNF would not cover the medical director’s ownership of that facility. A separate Stark law exception would need to be satisfied.

When a potential self-referral situation is identified it is advisable to speak with a Stark Law expert or an attorney to help determine which exception fits a proposed financial relationship.

Exceptions commonly relied upon by nursing facilities in their relationships with referring physicians include the following:

A. Personal Services Exception

To satisfy the personal services exception, an agreement for a physician’s services must:

• Be in writing, be signed by the parties to the agreement, and specify the services covered by the agreement;
• Cover all of the services to be furnished by the physician under the arrangement;
• Cover aggregate services that do not exceed those that are reasonable and necessary for the legitimate purposes of the arrangement;
• Be for a term of at least one year;
• Provide for compensation to be set in advance, not to exceed fair market value, and not be determined by the volume or value of any referrals or other business generated between the parties; and
• Not involve counseling or promotion of a business arrangement or other activity that violates any state or federal law, such as the federal anti-kickback statute.

B. Non-Monetary Compensation

The non-monetary compensation exception permits compensation from a nursing facility in the form of items or services (not including cash or cash equivalents) that does not exceed an aggregate of $355 in calendar year 2009, if all of the following conditions are satisfied:

• The compensation is not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician;
• The compensation may not be solicited by the physician or the physician's practice (including employees and staff members); and
• The compensation arrangement does not violate the anti-kickback statute or any federal or state law or regulation governing billing or claims submission.

The annual aggregate nonmonetary compensation is adjusted each calendar year to the nearest whole dollar by the increase in the Consumer Price Index.  CMS publishes the new nonmonetary compensation limit on the physician self-referral Web site: http://www.cms.hhs.gov/PhysicianSelfReferral/10_CPI-U_Updates.asp

C. Bona Fide Employment

Any amount paid by an employer to a physician (or immediate family member) that has a bona fide employment relationship with the employer for the provision of services is permissible if the following conditions are met:

• The employment is for identifiable services;
• The amount of the remuneration under the employment is consistent with the fair market value of the services; and is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician; and
• The remuneration is provided under an agreement that would be commercially reasonable even if no referrals were made to the employer.

D. Compliance Training

A nursing facility may sponsor compliance training for a physician or to the physician's immediate family member or office staff if the following conditions are met:

• Physician practices in the entity's local community or service area; and
• Training is held in the local community or service area.

For purposes of this exception, “compliance training” means training regarding the (1) basic elements of a compliance program (e.g., establishing policies and procedures, training of staff, internal monitoring, or reporting); (2) specific training regarding the requirements of federal and state health care programs (for example, billing, coding, reasonable and necessary services, documentation, or unlawful referral arrangements); or (3) training regarding other federal, state, or local laws, regulations, or rules governing the conduct of the party for whom the training is provided.

The compliance training may include programs that offer CME credit, provided that the compliance training is the primary purpose of the program.

E. Temporary Non-Compliance

Despite failing to comply with an exception, payment may be made to a nursing facility that submits a claim or bill for a DHS if:

• The financial relationship between the entity and the referring physician fully complied with an applicable ownership or compensation exception for at least 180 consecutive calendar days immediately preceding the date on which the financial relationship became noncompliant with the exception;
• The financial relationship has fallen out of compliance with the exception for reasons beyond the control of the entity, and the entity promptly takes steps to rectify the noncompliance;
• The financial relationship does not violate the federal anti-kickback statute, and the claim or bill otherwise complies with all applicable federal and state laws, rules, and regulations;
• The entity rectifies the noncompliance within 90 consecutive calendar days following the date on which the financial relationship became noncompliant with an exception;
• An entity may rely upon the temporary non-compliance exception only once every 3 years with respect to the same referring physician; and
• The non-compliant financial relationship can not be the result of failing to comply with the exception for non-monetary compensation or medical staff incidental benefits.

COMMON QUESTIONS

A. If one exception to the Stark Law is satisfied, is an entire arrangement between a physician and an entity protected?

Not necessarily. A Stark exception has to be satisfied for each financial relationship between a physician and an entity that will receive referrals for DHS. Also, the Stark Law applies to both direct and indirect financial relationships. A medical director agreement with a physician’s practice entity, rather than the physician individually, is considered a “financial relationship” with the physician under the Stark Law.

B. Can a physician who has a financial relationship with a facility avoid implicating the Stark Law if the facility only accepts Medicaid patients, and does not bill Medicare?

No. The Stark Law applies to referrals for DHS reimbursable by either the Medicare or Medicaid programs. CMS will not reimburse for the federal share of Medicaid to any entity that provides a designated health service prohibited by Stark Law, unless a Stark exception is fully satisfied. The physician who made the Medicaid patient referral is subject to the Stark Law as well.

C. Does the Stark Law apply to Hospital-based SNFs only, or to any SNF or NF participating in a federal health care program?

The Stark Law applies to any SNF or NF that provides DHS reimbursable by the Medicare or Medicaid programs, whether that SNF or NF is hospital-based or a stand-alone facility.

D. Is there a special rule involving the definition of “DHS” when an SNF is involved?

Yes. When determining whether a particular service constitutes a “DHS” in the SNF setting, the Stark Law excludes items or services that Medicare pays for on a “per diem” basis as part of a composite rate (e.g., the Part A “RUG rate”). Therefore, if an item or service that would otherwise be a DHS is included as part of the SNF per diem rate, it is not considered a DHS for Stark Law purposes.  However, if an SNF furnishes DHS that are not covered under the composite rate, such as therapy services furnished under Medicare Part B, these services would be DHS covered by the Stark Law.

E. Is a medical director of a facility required to meet a Stark Law exception for the referral of one of his or her patients to the facility for the provision of non-per-diem services?

Very likely. As mentioned above, “per diem” items or services that are covered as part of a composite rate are not considered DHS for the purposes of the Stark Law. Items or services that are not paid for as part of a composite rate (i.e., “non-per-diem” services) are subject to the Stark Law if those items or services fall into one of the DHS categories.

F. What difference does the “per-diem” issue make?

Almost all SNFs that participate in the Medicare and Medicaid programs provide both “per diem” and “non-per-diem” reimbursed items or services. It is highly unlikely that a physician would be affiliated with an SNF that provides items and services solely reimbursed on a “per diem” basis.  A physician with a “financial relationship” with an SNF should assume that at least some his or her patients will receive DHS from that SNF during their stay. Therefore, a physician with a “financial relationship” with an SNF should plan on qualifying for an exception to the Stark Law if the physician is planning on referring his or her patients to the facility for items or services that might be subject to the Stark Law.

G. What precautions should a nursing facility take when engaging a medical director?

Stark is a strict liability law, so an arrangement with a physician that cannot meet a Stark exception results in a violation of the law simply by engaging in a prohibited referral, regardless of the parties’ intent or lack of knowledge of the law. A medical director candidate for an SNF should become familiar with the various DHS the SNF might provide. The prospective medical director should also become familiar with what constitutes a “referral,” since the Stark Law defines the term so broadly. 

Fortunately, the Stark Law provides a “personal services exception” that many medical director arrangements should be able to satisfy. A medical director agreement must meet all of the elements of the personal services exception in order for it to comply with the Stark Law.

H. The Stark Law requires that a medical director’s compensation not exceed “fair market value.” What is “fair market value”?

The Stark Law defines “fair market value” as “the value in arm’s length transactions, consistent with the general market value.” “General market value” means “the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to an agreement who are not otherwise in a position to generate business for the other party” at the time of the agreement.

Prior regulations had included a “safe harbor” for establishing fair market value by comparison to either the average hourly rate for emergency room physicians or the hourly rate based on salary surveys for physicians in the same specialty. In December, 2007, those safe harbors were eliminated, although the fair market value requirement remains in place. Elimination of the safe harbor should not be construed as an indication that CMS will not scrutinize the fair market value of arrangements. CMS noted in the preamble to the regulation that, “Nothing precludes parties from calculating fair market value using any commercially reasonable methodology that is appropriate under the circumstances and otherwise fits the definition.” CMS also observed that reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value. 

I. Under the Stark Law, may a physician become an owner or co-owner of an SNF where he or she is a medical director?

A physician may perform duties as a medical director at a facility he or she co-owns, but a Stark Law exception for both the medical director arrangement and the physician’s ownership interest in the facility must be met.

J. What are the penalties for violating the Stark Law?

A broad range of penalties may be imposed for violations of the Stark Law, including:

• Repayment of all amounts billed to the Medicare and Medicaid program that violate the Stark Law;
• Civil monetary penalties up to $100,000 if an arrangement is found to have as its principal purpose the intent to ensure physician referrals; or
• Exclusion from the Medicare and Medicaid programs.

Additionally, filing a Medicare or Medicaid claim in violation of the Stark Law constitutes a “false claim,” which could trigger liability under the federal False Claims Act.

K. If the Stark Law is violated as a result of an error and without a bad intent, will the parties involved be penalized?

Yes. Stark is a strict liability law and may be violated regardless of good intentions to benefit patient care or improve patient access to health care resources. Penalties for violations of the Stark Law may be greatly increased if the intent of the arrangement is to secure patient referrals in violation of the federal anti-kickback statute or the federal False Claims Act.

STARK ANALYSIS

Facilities may use the following analysis to determine whether the Stark Law is implicated by a relationship with a physician and whether any financial relationship with that physician is permissible.

Step 1:  Is a physician involved (M.D. or D.O.)?
Step 2:  Has a physician made a referral for DHS?
Step 3:  Is the service or supply payable in whole or in part by Medicare or Medicaid?
Step 4: Is there a direct or indirect financial relationship with the entity? (includes immediate family of physician)
Step 5: Does an exception apply?

The following is a sample auditing and monitoring approach facilities may wish to use, tailored to their own operations, to track and ensure compliance with their physician relationships.  As in other parts of this compliance guidance, we approach this monitoring task in three discrete sections, posed as questions to guide the compliance monitoring staff or team:

Specifically, what are we being asked to measure or monitor?

1. Does the facility have financial relationships (directly or indirectly) with physicians who refer patients to the facility for services paid for by Medicare or Medicaid?
2. Does the facility provide any gifts or other items of value to physicians?
3. Are physicians or their office staff invited to participate in facility-sponsored training programs?
4. Does the facility pay its medical director(s) compensation that exceeds fair market value for the services provided?
5. Are the services of the facility’s medical directors reasonable and necessary?

Specifically, where should we look to answer questions 1 – 5, above?

1. Review financial relationships with physicians to ensure that, when necessary, an exception to the Stark Law is met.
2. Do medical directors have written agreements that include a term of one year or more?
3. Does the facility have a written policy for sponsoring physician or physician-office participation in compliance training?
4. Does the facility have a written policy addressing non-monetary compensation provided to physicians, including a mechanism for tracking the amount of non-monetary compensation provided to each physician during the calendar year?
5. Does the facility have an appropriate process for making and documenting reasonable, consistent and objective determination of FMV and ensuring that needed items and services are furnished or rendered?

What do we do with the results of our Physician Self-Referral (Stark) monitoring efforts?

1. Results should be provided to the facility’s compliance officer and legal counsel for evaluation and response.
2. Policies and procedures governing physician relationships should be modified, as appropriate, based on these findings and appropriate training or re-training provided to relevant staff.
3. Other corrective actions should be implemented as appropriate and explained to physicians and/or staff, with follow up to ensure compliance with same.
4. This information should be provided to the facility/company legal counsel, including the results of the audit, any problems identified and any corrective measures implemented, along with a plan for ongoing review and monitoring of corrective actions.