Stark Law/Referrals

The federal Stark Law, 42 U.S.C. § 1395nn, is motivated by the same concerns as the Anti-Kickback Statute. It was passed in response to the overutilization of services by physicians who stood to profit from referring other patients to facilities or entities in which they had a financial interest. The Stark Law prohibits a physician (or his/her immediate family member) who has a “financial relationship” with an entity – such as a hospital – from making a “referral” to that hospital for the furnishing of “designated health services” for which payment otherwise may be made by Medicare/Medicaid, except in a few specific circumstances. A hospital must also reimburse any payments mistakenly made by the government in this case. The law defines a “financial relationship” to include “a compensation arrangement” in which “remuneration” is paid by a hospital to a referring physician “directly or indirectly, overtly or covertly, in cash or in kind.” For example, an indirect financial relationship would exist if there is an indirect compensation arrangement between the referring physician and an entity that provides services. An indirect compensation arrangement exists if the referring physician receives aggregate compensation that “varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing” services.

To receive payment from Medicare or Medicaid, healthcare providers must certify that they are in compliance with federal laws and regulations, including the Stark Law. It is important to note that the Stark Law does not create its own right of action, and thus the government relies upon the False Claims Act to pursue Stark Law violations. Falsely certifying compliance with the Stark Law may be a violation of the FCA. In addition, the Stark Law’s referral prohibition and the prohibition on billing are not dependent on a party’s intent.

Supporters of the Stark Law note that it has helped to eliminate physician ownership of separate diagnostic centers. Critics contend that it has led to a proliferation of group practices in which physicians provide medical services. In addition, since statutory penalties attach to the submission of claims for services, hospitals (and not physicians themselves) have considerably more exposure to potentially devastating penalties. One critic has observed that many physicians view the Stark Law as the hospital’s problem. Moreover, since whistleblowers under the qui tam provisions largely get to decide who to prosecute, the healthcare industry views Stark enforcement “as akin to a lightning strike.” Recognizing the enormous exposure of defendants to Stark Law violations prosecuted under the FCA, some in the industry have suggested that the Centers for Medicare and Medicaid Services implement a self-disclosure provision that would allow industry players a way to address potential Stark Law violations once identified. However, this has not yet been pursued, and Stark Law violations continue to be pursued under the FCA.


In 2010, Rush University Medical center settled an FCA case for over $1.5 million for allegedly entering into improper financial relationships with physicians in violation of the Stark Law. Specifically, the complaint alleged that Rush entered into leasing arrangements with two individual physicians and three physician practice groups. In order for a leasing arrangement to be lawful under the Stark Law, it must be written, signed by the parties, and represent a fair market value of the leased space. The law is designed to prevent leasing arrangements where doctors overpay for space in exchange for patient referrals from the hospital. Rush’s leasing arrangements did not meet these legal requirements, and Rush was ultimately liable under the FCA for falsely certifying compliance with the Stark law. The whistleblowers in this case received an award of $270,760.

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