The Stark Law broadly makes it illegal for physicians to refer Medicare patients to any entity with which they have a financial relationship.

What is the Stark Law?

The Stark Law, formally known as the Physician Self-Referral Law, broadly makes it illegal for physicians to refer Medicare patients for certain “designated health services” to any entity with which they, or an immediate family member, have a financial relationship, such as an ownership or investment interest or a compensation arrangement.

The Stark Law also prohibits hospitals and other healthcare entities that provide designated health services from submitting or causing the submission of claims for payment by Medicare for those services that were based on prohibited referrals. These prohibitions have been extended to payments for Medicaid patients.

The government and whistleblowers can bring False Claims Act lawsuits against physicians and health care providers, such as hospitals, that violate the Stark Law. The False Claims Act provides a way for the government to collect the money it paid for claims submitted in violation of the Stark Law.

The Stark Law helps ensure that doctors refer patients for treatment or services based on the needs of the patient rather than based on financial motives. When doctors or other healthcare providers benefit financially from referring patients to a particular hospital, laboratory or other healthcare provider, they are incentivized to send patients for treatments that are not medically necessary, which can be harmful to patients and cost the federal government money that could be used for medical treatment that is needed.

Academic studies have shown that physicians who had financial relationships with medical service providers used more of those providers’ services than similarly situated physicians who did not have such relationships.

The Stark Law and the Anti-Kickback Statute are similar in some ways, including that the laws have the same goals of protecting patients and preventing fraud and waste in the healthcare system. See our medical kickbacks page to learn about the differences between the the Stark Law and the Anti-Kickback Statute.

What does the Stark Law cover?

The Stark Law and its regulations generally apply to patient referrals by physicians with a prohibited financial relationship with certain “designated health services” (DHS), although there are exceptions. The Stark Law covers the following DHS:

  • Clinical laboratory services
  • Physical therapy services
  • Occupational therapy services
  • Outpatient speech-language pathology services
  • Radiology and certain other imaging services
  • Radiation therapy services and supplies
  • Durable medical equipment and supplies
  • Parenteral and enteral nutrients, equipment, and supplies
  • Prosthetics, orthotics, and prosthetic devices and supplies
  • Home health services
  • Outpatient prescription drugs
  • Inpatient and outpatient hospital services

The Stark Law and Whistleblowers

Qui tam cases brought by whistleblowers have been very effective at helping the government collect money for claims that violated the Stark Law. Cases that involve Stark Law violations often also involve violations of the Anti-Kickback Statute, which prohibits payments to induce the use of federally funded healthcare services. Whistleblowers play an important role in protecting patients’ health and safety.

One of the biggest whistleblower cases involving Stark violations was brought by Phillips & Cohen clients against Adventist Health Systems. The whistleblowers’ qui tam lawsuit alleged a scheme to pay doctors excessive compensation in return for patient referrals to Adventist hospitals, clinics and other outpatient services in Florida, North Carolina, Tennessee and Texas.

The three whistleblowers were former Adventist employees: a risk manager, a director of physician services and a compliance officer.

Adventist paid the government $118 million to settle the whistleblower case.

A separate qui tam lawsuit filed by Phillips & Cohen settled for what was a significant amount paid by a single hospital in a case alleging Stark violations. Wheeling Hospital paid $50 million to the government to settle the whistleblower case, which was brought by a former executive vice president for the hospital.

The qui tam lawsuit alleged that the West Virginia hospital violated the Stark Law, the Anti-kickback Statute and the False Claims Act by paying improper compensation to doctors.

Enforcement – Stark cases against hospitals

There have been a number of government enforcement actions alleging Stark violations by hospitals. Those Stark cases often were initiated by whistleblowers who brought qui tam lawsuits.

Some of the largest hospital settlements that covered alleged Stark violations include:

  • Adventist Health System – $118.7 million (2015) *
  • Halifax Hospital Medical Center – $85 million (2014)
  • William Beaumont Hospital – $84.5 million (2018)
  • Tuomey Healthcare System – $72.4 million (2015 – settlement after $237 million judgment)
  • Broward Health – $69.5 million (2015)
  • Wheeling Hospital – $50 million (2020) *
  • Columbus Regional Healthcare System – $35 million (2015)
  • Mercy Hospital Springfield – $34.5 million (2017)
  • Columbus (Ga.) Regional Healthcare System – $25 million (2015)
  • Kalispell Regional Healthcare System – $24 million (2018)
  • Westchester Medical Center – $18.8 million (2015)
  • Vanguard Health Systems – $2.9 million (2015)

*Phillips & Cohen case.

History of the Stark Law

 The Stark Law is named after its main sponsor in Congress, former US Rep. Pete Stark of California.

Congress first enacted the Stark Law in 1989, then passed additional legislation several years later that expanded the scope of the law.

Initially the Stark Law applied only to physician referrals for clinical laboratory services. The reason for the law was to prevent unnecessary medical testing that could raise the government’s overall healthcare costs.

Congress later amended the Stark Law to expand the types of health services covered and extended the prohibitions to Medicaid claims.

What should I do if I am aware of Stark Law violations?       

The best advice for determining what to do about Stark Law violations is to discuss your options with a lawyer who is experienced in representing whistleblowers in Stark Law cases. The whistleblower lawyer can evaluate the evidence and discuss the pros and cons of pursuing a qui tam case.

If you would like to discuss your matter with the whistleblower attorneys at Phillips & Cohen, please contact us for a confidential, free review.

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