How the Stark Law Affects the Health Care Industry

May 20, 2023 - 1:31 am - 4 min read
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The Basics of the Stark Law

The Stark Law is a federal law that prohibits physicians from making referrals for certain designated health services to entities in which they or their family members have a financial interest. The law is intended to prevent conflicts of interest and to ensure that medical decisions are made based on the best interests of patients.

Under the Stark Law, if a physician refers a patient for a designated health service to an entity in which the physician has a financial interest, the entity is not allowed to submit a claim for payment to Medicare or Medicaid for that service. Additionally, the physician is subject to penalties, including fines and exclusion from participation in federal health care programs.

The Stark Law applies to all physicians who participate in Medicare and Medicaid, regardless of whether they work in a hospital, physician practice, or other health care setting.

The Impact on Providers

The Stark Law has a significant impact on providers in the health care industry. Because the law prohibits physicians from referring patients to entities in which they have a financial interest, it can be challenging for physician practices and other health care providers to structure their business arrangements in a way that complies with the law.

For example, if a physician has an ownership interest in an imaging center, and the physician refers patients for imaging services to that center, the center would be prohibited from submitting claims for those services to Medicare or Medicaid. To avoid this situation, the physician would need to either divest his or her ownership interest in the center or refer patients to a different imaging center.

The Stark Law also creates significant compliance challenges for providers. In order to comply with the law, providers must carefully document their financial relationships with other entities, including any ownership interests or compensation arrangements. Providers must also ensure that they do not provide items or services for which they receive improper referrals.

The Impact on Patients

While the Stark Law is intended to protect patients by ensuring that medical decisions are made based on the best interests of the patient, it can also have unintended consequences. One potential consequence of the law is that it may limit access to certain services, particularly in rural or underserved areas where there may be fewer providers available.

Additionally, because the law prohibits physicians from referring patients to entities in which they have a financial interest, it can limit the ability of physicians to coordinate care for their patients. For example, if a physician is unable to refer a patient to a particular specialist because of a financial interest, the patient may need to seek care from a different provider, which can lead to delays in treatment and increased costs.

The Future of the Stark Law

In recent years, there has been a push to reform the Stark Law in order to reduce the burden on providers and to promote more coordinated and efficient care. In 2019, the Centers for Medicare and Medicaid Services (CMS) proposed several changes to the law, including changes to the definition of “fair market value” and revisions to the rules governing compensation arrangements.

However, there is still some uncertainty about the future of the Stark Law, particularly given the ongoing changes in the health care industry. As providers continue to move towards value-based care and other innovative models of care, it is likely that the Stark Law will continue to evolve in order to keep pace with these changes.

The Bottom Line

The Stark Law is a critical piece of legislation that is designed to ensure that medical decisions are made based on the best interests of patients, rather than financial incentives. While the law can create challenges for providers, it is an important safeguard that helps to protect patients and maintain the integrity of the health care system.

Providers must be diligent in their efforts to comply with the law, including carefully documenting their financial arrangements and ensuring that they do not provide items or services for which they receive improper referrals. With ongoing changes in the health care industry, it is likely that the Stark Law will continue to evolve, and providers will need to stay informed in order to ensure that they remain compliant.

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