Health Care Fraud and Abuse Laws
Health regulatory compliance significantly revolves around fraud and abuse laws and regulations. Several distinct yet interrelated rules within this sphere aim to prevent fraudulent and abusive practices. Key among these are the Physician Self-Referral Law (Stark Law), the Anti-Kickback Statute (AKS), the Sunshine Act, the False Claims Act (FCA), Exclusion Authorities, and the Civil Monetary Penalties Law (CMPL). Government agencies such as the Department of Justice (DOJ), the Department of Health & Human Services Office of Inspector General (OIG), and the Centers for Medicare & Medicaid Services (CMS), are tasked with enforcing these laws. Collectively, these laws form the healthcare regulatory framework designed to ensure fair practices, promote transparency, and safeguard patient interests.
This Article provides a high-level overview of the Stark Law. Subsequent pieces will explore other aspects of healthcare fraud and abuse compliance namely, the AKS and the FCA. In particular, given the significant inherent overlap and similarities between the Stark Law, AKS, and FCA, you can also expect an article focusing on a comparative analysis of these laws. Keep in mind that while this Article doesn't delve into specific Stark Law exceptions in detail, rest assured, that they will be featured in future articles.
An Overview of the Stark Law
The Stark Law or the Physician Self-Referral Law serves as a critical measure against health care fraud and abuse with potential civil liability for violations. [1] It largely operates under a strict liability framework. This means that a violation can occur regardless of intent. It applies to both physicians, as individuals, as well as entities. On the one hand, it prohibits a physician, from referring Medicare patients for designated health services (DHS) to an entity with which the physician (or an immediate family member) has a financial relationship. That is...unless an exception applies. On the other hand, it prohibits the DHS-furnishing entity from submitting claims to Medicare for those services resulting from a prohibited referral. So, it's crucial for both physicians and healthcare entities to exercise caution and ensure compliance.
Although Medicaid is not directly within the purview of the Stark Law, it is not entirely out of the picture. This makes sense considering the following. Medicaid is funded jointly by both federal and state governments. The portion that the federal government contributes to the states is known as the Federal Financial Participation (FFP). Originally, in the first draft of the Stark II regulations, the Centers for Medicare & Medicaid Services (CMS) proposed that any services covered by Medicaid and provided under an illegal agreement would not receive FFP. However, these regulations were never officially enacted. Regardless, many states have implemented their own versions of the Stark Law, sometimes referred to as "mini-Stark Laws," specifically for Medicaid. They vary considerably from state to state, so you should consider if and to what extent they apply.
In the context of the FCA, both the DOJ and several courts have taken the position that the Stark Law does apply to Medicaid for purposes of the FCA. So, for example, if a physician bills Medicaid based on an arrangement that violates the Stark Law, it is a false claim to Medicaid. Violations under the FCA can open the door to a whole new level of liability. This can mean possible exclusion from participation in federal health care programs, professional license sanctions, loss of entity accreditation, and criminal penalties.
Unlike the Stark Law, the FCA does not impose strict liability. So, "intent" is relevant. But intent in this regard is an intricate and evolving issue, especially in light of the U.S. Supreme Court’s recent ruling in U.S. ex rel. Schutte v. SuperValu Inc. where it decided on what it means to act “knowingly” under the FCA. In its June 1, 2023, decision, the Court held that in terms of the FCA, a defendant's own subjective belief is relevant and not what an "objectively reasonable" person may have concluded.
For now, though, we're concerned with the Stark Law. So, without further ado, let's dive into its key components.
Key Components of the Stark Law
I. Physician or an immediate family member
Physician refers to a Doctor of Medicine or Osteopathy, Doctor of Dental Surgery (DDS) or Dental Medicine (DMD), Podiatrist, Doctor of Optometry, and Chiropractor. However, midlevel providers are not considered physicians for these purposes. Is it the physician or the entity? As you'll see, both are subject to potential liability.
"Immediate family member" is another key term in this context. It includes a physician's husband or wife (including same-sex spouses), birth or adoptive parents, children or siblings, step-relatives (parents, children, brothers, sisters), in-laws (father/mother, son/daughter, brother/sister), and grandparents or grandchildren along with their spouses. This broad definition encompasses many familial relationships and is vital for understanding the scope of the Stark Law's restrictions.
II. Financial Relationship
A financial relationship could be an ownership or investment interest in the entity providing DHS, or a compensation arrangement between the physician and the entity. It's important to note that the Stark Law also covers indirect financial relationships, where the ownership or compensation arrangement is between the physician (or an immediate family member) and another individual or entity in a chain of financial relationships.
Let's break down the different types of financial relationships under the Stark Law, with each of them presenting different implications regarding the potential exceptions that may apply.
1. Direct Ownership or Investment Interest: This type of financial relationship encompasses interests obtained through equity, debt, or other means, such as owning stock, partnership shares, or LLC memberships in an entity that provides Designated Health Services (DHS). It could also include interests in an entity through loans or bonds secured with the entity's property or revenue. However, certain situations do not constitute direct ownership or investment interest. These include interests arising from retirement plans, unexercised stock options or securities earned as compensation, unsecured loans subordinate to a credit facility, "under arrangements" contracts between a hospital and a physician-owned entity, and security interests held by a physician in equipment sold to a hospital (when financed through a loan to the hospital).
2. Indirect Ownership or Investment Interest: An indirect ownership or investment interest exists when there's an unbroken chain of ownership or investment interests between the physician (or an immedaite family member) and the DHS entity. An example could be a situation where a physician's stepdaughter owns an interest in a nursing home, which in turn owns a portion of a corporation providing durable medical equipment (DME). Here, an unbroken chain of ownership/investment interests exists between the stepdaughter and the DME corporation. Importantly, the DHS entity must have actual knowledge of, act in reckless disregard of, or deliberately ignore the fact that the referring physician (or an immediate family member) indirectly has an ownership/investment interest in the entity. However, common ownership in an entity does not, by itself, establish an indirect ownership or investment interest in another common owner or investor.
In both types of ownership or investment interests, understanding the nature of the relationship is crucial as it helps determine whether any exceptions to the Stark Law apply. Keep in mind that the primary goal of the Stark Law is to prevent physicians from making excessive referrals or creating additional ones for their own financial benefit. It is advisable to consult a legal expert when deciphering these complex financial relationships to ensure proper compliance.
Now, let's further delve into the types of financial relationships under the Stark Law by examining direct and indirect compensation arrangements.
3. Direct vs. Indirect Compensation Arrangements: These involve any exchange of "remuneration," directly or indirectly, between a physician (or an immediate family member) and an entity. Remuneration covers any form of payment or benefit, whether overt or covert, in cash or in kind. However, it's crucial to note that certain circumstances are not considered "remuneration." These exceptions include the forgiveness of amounts owed for inaccurate tests or procedures, minor billing error corrections, the provision of items used solely to collect, transport, process or store specimens for the entity, or used to order or communicate test or procedure results for the entity. Additionally, payments made by insurers to physicians to fulfill fee-for-service claims for the services they provided to insured individuals are not counted as remuneration.
Examples of direct compensation arrangements could include a physician renting office space from a hospital, a hospital renting equipment from a physician, or a hospital directly employing a physician. These represent situations where there is a clear, direct exchange of remuneration between the physician and the entity.
Understanding these types of financial relationships and their nuances is critical in navigating the compliance landscape under the Stark Law. As with ownership or investment interests, the nature of the compensation arrangement can affect which exceptions may apply, further highlighting the importance of expert legal advice in this domain.
III. Referral to an Entity
A referral, under Stark Law, is not just the act of sending a patient to another provider. It is broadly defined as a physician's request, order, certification, or recertification of the need for any DHS that can be paid under Medicare Part B (and Medicaid). It also includes the request for a consultation with another physician and any test or procedure ordered by or to be performed by that physician. However, radiologists, pathologists, and radiation oncologists may not be deemed referring physicians in certain situations, such as when they act upon a consultation request and properly document this request in the medical record and provide a written report to the requesting physician. Notably, when physicians personally perform the referred DHS, it does not count as a referral.
The Stark Law's ban on self-referral extends beyond individual physicians and can also apply to physicians within the same group. This means that the self-referral prohibition can be attributed to a doctor if another doctor from the same group makes a referral. In simpler terms, a referral is considered illegal even if made indirectly through a third party.
For instance, suppose a physician refers a patient to a skilled nursing facility (SNF) and anticipates that the physical therapy company, which they own and has a contract with the SNF, will be providing physical therapy services to that patient. In such a case, this is still considered a prohibited referral under the Stark Law, despite the physician not directly referring the patient to their own physical therapy company. In this way, the Stark Law extends its reach to cover such indirect, yet ethically complex, situations to maintain the integrity and impartiality of healthcare services.
In the context of the Stark Law, an "entity" refers to any person or organization that furnishes Designated Health Services (DHS). This definition encompasses various health care organizations, including an individual physician's medical practice, a group practice with multiple physicians, and clinical labs. For the purposes of "stand in the shoes," a physician and the professional corporation of which they are the sole owner are treated as the same entity when determining whether a referral is prohibited.
IV. Designated Health Services
DHS are a broad range of services that, if referred by a physician with a financial relationship with the entity providing these services, can potentially trigger a Stark Law violation. The following services are DHS under the Stark Law:
1. Clinical laboratory services
2. Physical therapy services
3. Occupational therapy services
4. Outpatient speech-language pathology services
5. Radiology and certain other imaging services
6. Radiation therapy services and supplies
7. Durable medical equipment and supplies
8. Parenteral and enteral nutrients, equipment, and supplies
9. Prosthetics, orthotics, and prosthetic devices and supplies
10. Home health services
11. Outpatient prescription drugs
12. Inpatient and outpatient hospital services
The term "furnishing DHS" under the Stark Law encompasses two primary actions: first, the actual provision or execution of the Designated Health Services (DHS), and second, the process of submitting a claim to Medicare for these services. This definition holds true even when the right to receive payment for these services has been reassigned to another entity.
An Overview of the Stark Exceptions
The Stark Law includes several exceptions that allow certain referrals, even when a financial relationship exists. When applying a Stark exception, you must meet each of the criteria of the applicable exception, or the activity will not fall under the exception. Remember, each and every financial relationship with a referring physician must meet an exception to Stark Law (ownership, compensation, or both) in order to avoid violations and penalties. These exceptions, over thirty in number, may permit an otherwise prohibited referral.
Once you determine that the Stark Law applies, the next step is to look for an applicable exception. Some common concepts that appear in most exceptions include fair market value, compensation set in advance, and the condition of the compensation on referrals.
Each financial relationship needs to fulfill only one exception to permit what would otherwise be a prohibited referral. For instance, if a compensation agreement meets the requirements of the “in-office ancillary services” exception, there's no need for it to comply with any other exceptions. Also, a financial relationship might fit under more than one exception according to the Stark Law. For instance, a compensation arrangement concerning on-call services between a hospital and a physician could potentially qualify for exceptions under either “personal services arrangements” or “fair market value payments.” This means that several exceptions could be applicable to one financial relationship, providing a range of compliance options.
As indicated, Stark Law exceptions come into play based on the type of financial relationship at hand. The exceptions fall into three categories:
1. Exceptions applicable to both an ownership interest and a compensation arrangement;
2. Exceptions applicable exclusively to an ownership interest; or
3. Exceptions applicable exclusively to a compensation arrangement.
It is essential to satisfy every element of the applicable exception to ensure full compliance with the Stark Law. This requires a careful analysis of the financial relationship and the conditions of the exception to avoid non-compliant arrangements. Now, let’s discuss some key components of many of the Stark Law exceptions.
While each Stark Law exception has its unique criteria, there are a few common elements often present in many of them. By ensuring that these components are present in your agreements, you will be in a better position to comply with the Stark Law exceptions. These elements include:
1. Written Agreement: The arrangement must be formally documented in writing.
2. Signatures: The agreement should be signed by all involved parties. Importantly, these signatures should be obtained before the agreement takes effect.
3. Description of Services: The agreement should clearly describe the specific items or services to be provided.
4. Fair Market Value: The FMV refers to the value of an arms-length transaction, consistent with general market value (GMV). GMV is the amount determined through bona fide bargaining between well-informed parties that are not in a position to generate business for each other. The remuneration, or payment, involved in the agreement should align with fair market value. This means it should be comparable to what would be paid in a competitive market under similar circumstances. One of the fundamental principles underlying many Stark Law exceptions is the concept of Fair Market Value (FMV). This principle stipulates that compensation must reflect the FMV for goods or services actually provided. FMV is defined as the value that would be agreed upon during bona fide bargaining between well-informed parties. This concept applies generally but is also specifically relevant to rental agreements for equipment or office space. In essence, FMV ensures that transactions mirror those in a competitive marketplace and are not influenced by any potential for referrals.
5. Volume or Value of Referrals: Compensation cannot be determined in a way that takes into account the volume or value of a physician's referrals to an entity as this could incentivize unnecessary services and create conflicts of interest. The New Special Rules on Compensation clarify that if a formula for compensation includes the physician's referrals to the entity as a variable, this would be problematic under the Stark Law. So, a physician's compensation must not correlate with the number or value of their referrals to the entity. The same standard applies to the "other business generated" standard, giving life to the policy that the quality of healthcare, and not the quantity or value of referrals, should guide compensation. The New Directed Referral Rule prohibits basing the existence of a compensation arrangement or the amount of compensation on the number or value of referrals. However, it is permissible to condition such compensation on a set percentage or ratio of referrals. This maintains the integrity of physician compensation without compromising patient care or the ethics of the healthcare industry.
6. Commercially Reasonable: The terms of the agreement should be commercially reasonable. This means the arrangement furthers a legitimate business purpose of the parties involved and is sensible considering their characteristics. These characteristics may include their size, type, scope, and specialty. It's important to note that for an agreement to be commercially reasonable, it doesn't necessarily have to result in profit for one or more parties. The idea is that the agreement should make sense in a business context, even without any referrals between the parties.
Adapting to New Healthcare Delivery and Payment Models
Over the years, Stark Law has adapted to new healthcare delivery and payment models, incorporating protections for value-based arrangements. These are arrangements that provide at least one value-based activity to a target population and involve parties collaborating to achieve at least one value-based purpose.
However, with the introduction of these value-based arrangements, it's important to note a significant shift. These arrangements do not prohibit remuneration that takes into account the volume or value of referrals, do not require that the remuneration be fair market value, and do not prohibit remuneration conditioned on referrals that are part of the Target Patient Population. The value-based arrangement does not have to be wholly devoted to the value-based purpose. For this reason, they're quite attractive. But there are tons of nuisances you should consider before getting too excited.
Self-Referral Disclosure Protocol (SRDP)
In the case of a potential violation, the Stark Law provides a Self-Referral Disclosure Protocol (SRDP). This protocol is essentially a process enabling providers to self-disclose actual or potential violations of the Stark Law. It offers the possibility of reduced penalties, avoidance of exclusion as part of a settlement, and potential protection from a viable qui tam whistleblower action.
Consequences of Violating the Stark Law
The Stark Law strictly regulates referral practices within the healthcare sector, particularly pertaining to the Medicare program. Its stringent penalties underscore the critical importance of ensuring lawful and ethical practices within the healthcare sector. Any transgressions can result in severe consequences, which include:
1. Denial of Payment: If a prohibited referral is made for Designated Health Services (DHS), the Medicare program is explicitly prohibited from making the payment for such services.
2. Refund of Payments: Any entity that receives a payment for a DHS that was provided following a prohibited referral is obligated to promptly refund such payment.
3. Civil Monetary Penalties by CMS: A person or entity who knowingly, or should have known, bills Medicare for a DHS resulting from a prohibited referral can face a civil monetary penalty. The Centers for Medicare and Medicaid Services (CMS) can impose a penalty of up to $15,000 for each such service.
4. Penalty by the OIG of the DHHS: In addition to the penalties levied by CMS, the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (DHHS) may also impose penalties. The OIG can assess a penalty equal to three times the amount claimed for the DHS, if it was billed to Medicare following a prohibited referral.
The Stark Law is a critical piece of legislation that regulates physician referrals in the healthcare system, aiming to ensure ethical and fair practices. Understanding its components and implications is crucial for physicians and healthcare entities to navigate the complex healthcare landscape while maintaining the highest standards of patient care. Please reach out to your preferred health care lawyer. I am happy to help or otherwise direct you to get the help you need.
[1] 42 USC § 1395nn.
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