Stark Law

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The Stark law is a limitation on certain physician referrals. It prohibits physician referrals of designated health services ("DHS") for Medicare and Medicaid patients if the physician (or an immediate family member) has a financial relationship with that entity. 42 U.S.C. 1395nn. A financial relationship includes ownership, investment interest, and compensation arrangements. 42 U.S.C. 1395nn(h)(5). The term “referral” is defined more broadly than merely recommending a vendor of DHS to a patient. Instead, the term “referral” means, for Medicare Part B services, “the request by a physician for the item or service” and, for all other services, “the request or establishment of a plan of care by a physician which includes the provision of the designated health service.” DHS includes clinical laboratory services as well as the following: physical-therapy services; occupational-therapy services; radiology, including magnetic resonance imaging, computerized axial tomography 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.

The Stark Law contains several exceptions. They include physician services, in-office ancillary services, ownership in publicly traded securities and mutual funds, rental of office space and equipment, bona fide employment relationship, etc.

The law is named for United States Congressman Pete Stark (D-CA) who sponsored the initial bill.


Penalties include: denial of payment for the DHS provided; refund of monies received by physicians and facilities for amounts collected; payment of civil penalties of up to $15,000 for each service that a person “knows or should know” was provided in violation of the Stark Law, and three times the amount of improper payment the entity received from the Medicare program; exclusion from the Medicare program and/or state healthcare programs including Medicaid; and payment of civil penalties for attempting to circumvent the Stark Law of up to $100,000 for each circumvention scheme.

Physician self-referral[edit]

Physician self-referral is the practice of a physician referring a patient to a medical facility in which the physician has a financial interest, be it ownership, investment, or a structured compensation arrangement. Critics argue that this practice is an inherent conflict of interest, because the physician benefits from the physician's own referral. They suggest that such arrangements may encourage overutilization of services, in turn driving up health care costs. In addition, they believe that it would create a captive referral system, which limits competition by other providers.

Those who defend the practice contend that these problems are not widespread. They argue that physicians who own, invest in, or operate medical facilities are responding to a need for medical services which would otherwise not be met, particularly in medically under-served areas. In addition, it is often the case that physician owned entities present a lower-cost alternative to the facilities that are located at hospitals. This is due mostly to higher overhead costs that hospitals must pass down to their services.


Congress included a provision in the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) which barred self-referrals for clinical laboratory services under the Medicare program, effective January 1, 1992. This provision is known as "Stark I". The law included a series of exceptions to the ban in order to accommodate legitimate business arrangements. A number of observers recommended extending the ban to other services and programs. The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) expanded the restriction to a range of additional health services and applied it to both Medicare and Medicaid; this legislation, known as "Stark II," also contained clarifications and modifications to the exceptions in the original law. Minor technical corrections to these provisions were included in the Social Security Amendments of 1994.

Passage of Stark II raised a series of concerns on the part of many provider groups. While Stark I and II were intended to remove potential conflicts of interest from physician decision making, a number of persons[who?] have argued that the legislation, particularly parts of Stark II, represents an unwarranted intrusion into the practice of medicine. It has been suggested that the legislation, particularly the provisions relating to compensation arrangements, is too complex and may, in fact, impede physicians' ability to participate in managed care networks.

On November 20, 1995, Congress gave final approval to the conference report on the Balanced Budget Act (BBA) of 1995. President Clinton vetoed the measure on December 6, 1995. BBA included several amendments to the physician self-referral provisions. The two major changes were the repeal of the prohibitions based on compensation arrangements and the reduction in the list of services subject to the ban.

The Federal Register announced that publication of Stark III has been extended until March 26, 2008, and Phase II will remain in effect through that date.

The Phase III final rule was published on September 5, 2007, at 72 FR 51012, and became effective December 4, 2007.

The Stark Law is related to, but not the same as, the federal anti-kickback law.

The Stark Law can be found at 42 U.S.C. 1395nn,[1] which is §1877 of the Social Security Act. Additionally, the regulations are at 42 C.F.R. §411.350 through §411.389.


Multiple federal entities oversee enforcement of Stark Law. These include the Department of Justice, CMS, and the Department of Health and Human Services. In recent years, enforcement of Stark Law has become increasingly aggressive, largely as a result of the Patient Protection and Affordable Care Act and its amendments to the False Claims Act.

2014 saw some of the largest Stark Law violation settlements to date. On June 9, 2015, the Office of Inspector General issued a fraud alert targeting physician compensation arrangements with hospitals and health systems.

Risk Abatement[edit]

Contracts between physicians and hospitals must fit within the seven safe harbors for Stark Law in order to fully alleviate violation risk: the contract's duration must be at least a year; in writing and signed by both parties; specify aggregate payment which is set in advance; payment is reasonable and fair market value; payment must not relate to volume or value of business; the exact services to be performed must be outlined; and be commercially reasonable.[2] Because current processes for monitoring contract compliance and logging physician work hours are often done on paper, the majority of Stark Law violation settlements are the result of technical violations.[2]

Healthcare experts agree that Information technology is necessary to streamline hospital processes, including those relating to compliance and Stark Law. Certain Electronic health record companies help healthcare systems collect, organize, and store data. Multiple technology solutions exist that specifically automate physician time logging and eliminates Stark Law violation risk.


 This article incorporates public domain material from the Congressional Research Service document "Medicare: Physician Self-Referral (“Stark I and II”)".

  1. ^ 42 U.S.C.S. §1395nn
  2. ^ a b "Becker's Hospital Review". 

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