When is a Physician Liable for Stark Law Violations?

by Ruder Ware
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I frequently hear attorneys claim the Stark law applies equally to hospitals and physicians.  This position is sometimes taken in the process of negotiating a transaction between a hospital and a physician or physician group.  In this context it is limited to simple posturing to attempt to get a better financial deal in the negotiated arrangement.  This position takes on different and much more serious repercussions when taken in the context of addressing a potential compliance violation.

Let me make it clear, Stark law applies to physicians.  It applies when physicians are the provider of designated health services.  It also potentially applies to physicians when they make referrals to hospitals or other providers of designated health services.  The potential liability to the physician is much different and more remote than the liability of the designated health service provider.

The primary sanction for violating the Stark law is denial of payment of designated health services that flow from referrals made by a physician who has a prohibited financial arrangement with the DHS provider.  The Stark law is primarily a payment ban effective regardless of intent.  If there is a financial relationship with the physician and no exception exists to permit the referral, there is a violation and the provider of the designated health service is denied the right to seek payment for the prohibited services.  Prohibited billings result in an overpayment.

The Affordable Care Act attaches additional penalties under the Federal False Claims Act if repayment is not made within 60 days after the designated health service provider discovers an over-payment occurred as a result of the Stark law infraction.  Penalties for failing to make timely repayment include triple the amount of the improper payment plus an additional $22,000 per claim.  In many cases the potential exposure to the designated health service provider can be astronomical and large enough to threaten the potential viability of their business.  However, none of this exposure falls on the referring physician if the referring physician does not bill for the designated health service. In the typical case involving a hospital/physician relationship, the liability exposure for improperly billed designated health services only falls on the hospital, not the referring physician.

This is the source of a common misconception among physicians and even some hospital attorneys.  A physician is not subject to the primary sanction for violating the Stark law which is repayment of amounts received for improperly billed designated health services.  This has been confirmed multiple times by the Center for Medicare and Medicaid Services.  Physicians who make referrals to DHS entities are only liable if found to have participated in a circumvention scheme the physician knows or should know has a principal purpose of assuring improper referrals.  Participation in a circumvention scheme is a serious offense and can result in exclusion and the imposition of penalties.  A circumvention scheme requires proof and is not a strict liability offense resulting in the obligation to repay billings.

A circumvention scheme is likely not present if a contracting physician is being compensated in excess of an appraisal obtained by the contracting hospital.  A circumvention scheme is a scheme (such as a cross-referral arrangement) the physician knows or should know has a principal purpose of assuring referrals that could not be made directly.  It does not occur just because a physician is paid a little bit over fair market value.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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