Stark Law

The Stark law is a US federal law that prohibits a doctor from referring a patient to a facility or laboratory for treatment or services covered by Medicare or Medicaid, if the referring doctor (or their family) has any direct or indirect financial stake in that other facility or laboratory. It is, on its face, a simple and logical way to prevent a doctor from profiting from a referral. The intention behind the Stark law is to ensure that a physician has no other interest in a patient than that patient’s well-being—that is, the treatment and recovery from illness. Because the primary diagnostician (the physician who initially defines the patient’s condition) is assumed to not have a wide range of specialty services available and because diagnosis necessarily requires immediate and specialized attention to prevent further complications, the concept of outside referrals has been an element of medical care for decades.

The assumption for years was that a physician, with greater knowledge of the medical community, would act only in the best interest of the patient when directing a patient to area services or medical facilities that would provide efficient and effective treatment. With the rise in government-sponsored health care, however, the government oversight community, directed largely by the massive Health and Human Services Department, has worked to prevent even the appearance of impropriety in the referral system under which federally managed health-care operates. Under laws governing kickbacks, the burden is to show a physician deliberately recommended a service or facility in which they have a vested financial interest; violators must pay criminal or civil fines and possibly face jail time. By contrast, the Stark law penalizes (with significant civil fines) even the indirect referral—that is, even if the doctor had no intention of sending a patient to a service or facility in which they or their immediate family have even an indirect financial interest. Thus, the law punishes the mere appearance of impropriety, which is why the medical profession has criticized and sought to change the law.

Background

The logic behind the referral system is simple. A patient comes to a physician’s office either because of a long-standing professional relationship or because the doctor has been recommended to them. The patient arrives with complaints or ailments (symptoms) that are suspected to be contributory and related. The patient wants to confirm what is wrong and then receive appropriate and effective treatment. The doctor, working only with basic in-office data such as temperature, heartbeat, respiration, and blood pressure, conversation with the patient, and prior expertise and experience, moves toward a diagnosis, for which the patient provides a fee, some of which might be covered by medical insurance. However, to confirm a diagnosis (or perhaps direct it into a newer, more specific direction), the doctor often needs to send the patient to designated health services (DHS) available at other facilities, hospitals, or medical groups designed to more specifically diagnose particular ailments that are beyond the care range of the primary diagnostician.

Decisions or recommendations concerning where the patient should receive these services should not be compromised by the diagnostician’s financial investment or interest in other facilities. If, for instance, the patient with arthritis requires a walker for mobility, the diagnostician should not refer the patient to a facility that is run by her own sister. The Stark law was initially designed to prohibit just such circumstances.

The law, Section 1877 of the massive Social Security Act, which went into effect on January 1, 1995, outlined a wide variety of DHS that would be regulated: outside consultations; prescription drugs; clinical laboratory work; physical rehabilitation or therapy sessions; occupational therapy; diagnostic imaging; radiation treatments; medical equipment; nutritional aids; prosthetics and orthotics; hospital services; speech-language pathology; and home care. The law’s chief architect, Congressman Fortney "Pete" Stark (b. 1931), who had served as the chair of the influential House Ways and Means Subcommittee on Health since 1985, titled the initial 1989 provision as the Ethics in Patient Referral Act. The intent was simple: prevent doctors from taking kickbacks for referrals to family or to business operations in which they had a financial interest, including hospitals, medical groups, or labs. Referrals should be based on competency and adequacy of service provided and, more importantly, the best interests of the patient. Because the majority of this outside work was in turn covered by Medicare and Medicaid programs, the federal government wanted to ensure a completely transparent process. The law was modeled on the American Medical Association’s own long-standing code of medical ethics. It was meant to codify a basic assumption behind medical treatment: everything is conducted solely in the best interest of the patient.

Stark Law Today

Since its inception, the Stark law has become increasingly specialized and complex, in part because Congress expanded its provisions to address new health care issues like nuclear medicine and in part because of a growing list of exceptions. Problems arose in determining what exactly indirect financial interest means and which relationships could pose issues. Lawyers representing physicians’ medical groups quickly moved to create numerous exceptions (about three dozen, by 2013)—most notably, referrals to other doctors within the diagnostician’s own medical group. Because of the "strict liability" nature of the law, even doctors who have no intention of violating the outside referral guidelines can be held accountable.

Moreover, lines of influence within an area’s medical community can be deep and complex—for instance, a gynecologist might refer a patient to a breast surgeon for consultation, but unknown to the first doctor, the surgeon then requests an ultrasound from an imaging center where the gynecologist’s spouse is a shareholder. Because the law puts complete transparency as its sole objective, does not require intent, and considers physicians responsible for downstream activities, they can still be held liable. Consequently, the law has generated confusion, complicated paperwork requirements, and litigation, accompanied by steep fines. Although few dispute that the original intent (to protect patients from ineffective care and to prevent fraud and abuse among doctors) was laudable, and even necessary, the Stark law has become an example of how federal oversight can be poorly executed.

Bibliography

Carlson, Joe. "Pete Stark: Repeal the Stark Law." Vital Signs. Modern Healthcare, 2 Aug. 2013. Web. 24 Aug. 2016.

Gosfield, Alice G. "The Stark Truth about the Stark Law: Part I." Family Practice Management 10.10 (2003): 27–33. AAFP. Web. 24 Aug. 2016.

Gosfield, Alice G. "The Stark Truth about the Stark Law: Part II." Family Practice Management 11.2 (2004): 41–45. AAFP. Web. 24 Aug. 2016.

Merritt, Martin. "Stark Law: Understanding the Rule." Physicians Practice. UBM Medica, 9 June 2013. Web. 24 Aug. 2016.

"Physician Self-Referral." CMS.gov. Centers for Medicare and Medicaid Services, 5 Jan. 2015. Web. 24 Aug. 2016.

"A Roadmap for New Physicians: Fraud and Abuse Laws." Office of Inspector General. US Dept. of Health and Human Services, n.d. Web. 24 Aug. 2016.

Schencker, Lisa. "Stark Relief? CMS Proposals Could Ease Burden of Self-Referential Law." Modern Healthcare. Crain Communications, 10 July 2015. Web. 24 Aug. 2016.