Physician Self Referrals and Compliance: What You Should Know

To keep designated health services in the clear, know Stark regulations and their exceptions.

By Julie E. Chicoine, Esq., RN, CPC

Physicians and their practices are undergoing increased government scrutiny with regard to their referrals and financial relationships for health care services. At the heart of this scrutiny lies the physician self-referral law, known as the Stark law (provided in full detail at section 1877 of the Social Security Act, and codified at 42 U.S.C. section 1395nn). As a coding professional, you should understand the basic principles of Stark law so that you are able to recognize when a possible infringement may be taking place.

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Self Referrals Pose Conflict of Interest in Patient Care

Congress originally passed the Stark law in 1989 in response to a growing concern about physicians referring patients to laboratories where the physician had a financial interest. This posed a conflict of interest; Congress’ concern was that physicians who stood to benefit financially from ordering laboratory tests were likely to order more tests, including more complex tests, even when such services were unnecessary .

Following enactment, Congress expanded the Stark law’s prohibition to include additional designated health services (DHS) and extended its application to the Medicaid program. In 1997, Congress added a provision authorizing the secretary of the Department of Health & Human Services (HHS) to issue written advisory opinions concerning whether a referral relating to DHS (other than clinical laboratory services) is prohibited under the Stark law. Congress also authorized the secretary in 2003 to publish an exception to the physician self-referral prohibition for certain arrangements in which the physician receives necessary non-monetary remuneration used solely to receive and transmit electronic prescription information. They established a temporary moratorium on physician referrals to certain specialty hospitals in which the referring physician has an ownership or investment interest, as well.

The Centers for Medicare & Medicaid Services (CMS) has published a number of regulations interpreting the physician self-referral statute over the years. These rules were published in phases and are referred to as “Phase I, II, and III.” An overview of the Stark law’s regulatory history can be found on the CMS website.

Get to the Core of Stark Law

At its core, the Stark law prohibits physician referrals to entities providing certain DHS in which the physician (or his or her family member) has an ownership or compensation interest, unless an exception applies. The law further prohibits the entity from presenting, or causing to be presented, a claim to bill Medicare or Medicaid for any DHS provided pursuant to a prohibited referral. Due to this broad language, the law also establishes many exceptions.

Under Stark (42 CFR at § 411.351), physician means:

  • A doctor of medicine or osteopathy
  • A doctor of dental surgery or dental medicine
  • A doctor of podiatric medicine
  • A doctor of optometry
  • A chiropractor

A referral is a request by a physician for, or ordering of, or certifying necessity for, any designated health service for which payment be made under Medicare Part B. DHS personally performed or provided by the referring physician are specifically excluded from the referral definition; however, the service is not considered to be personally performed by the referring physician if the designated health service is performed or provided by the referring physician’s employees, independent contractors, or group practice members.

DHS cover a broad range of health care items and services including:

  • 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 (DME) 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

CMS Identifies DHS Codes

Because the regulations define certain DHS by CPT® and HCPCS Level II codes, CMS maintains a list of CPT® and HCPCS Level II codes identifying those items and services included within the categories referenced above. CMS updates this list annually to correspond with CPT® and HCPCS Level II manual updates in Medicare coverage and payment policies. The updated code list is also published in the Federal Register as an addendum to the annual Physician Fee Schedule final rule, which is published annually in November with a Jan. 1 effective date for the following year.

The DHS categories defined by the code list include:

  • 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

The following DHS categories are defined without reference to the code list (42 CFR §411.351):

  • DME 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

Bottom Line: Stay Stark Compliant

When analyzing physician referral activity, physicians and entities must ask two questions:

  • Is there a physician referral of a Medicare or Medicaid patient for the provision of a designated health service?
  • Is there a financial relationship (a compensation arrangement or an ownership interest) between the referring physician (or his or her family member) and the entity that will provide the designated health service?

If the answer to both of these questions is “yes,” the referral is prohibited under Stark law unless one of the statutory exceptions applies. Stark exceptions are generally divided into three categories, including:

1. General exceptions

2. Ownership/investment interest exceptions

3. Certain compensation arrangements

Learn more about these exceptions by visiting CMS’ physician self-referral website. Stark law exceptions can be viewed in their entirety.

Seek Professional Advice on Referrals

Penalties for referrals violating the Stark law can be substantial. If a referral is made violating the Stark law and payment is received by the entity providing the designated health service, penalties can include: civil penalties up to $15,000 for each illegal referral, exclusion from participation in federal health care programs, denial of payment for services, refunding of payments received, a fine of up to $100,000 for each illegal cross-referral arrangement, and civil penalties up to $10,000 per day for failing to report violations. Physician and entity compliance with the Stark law is mandatory.

Because non-compliance with the Stark law requirements poses financial impact, physicians and entities developing arrangements that include referrals for DHS should retain legal counsel to make sure these referrals fit within one of the Stark exceptions.

 

Julie E. Chicoine, Esq., RN, CPC, is senior attorney for Ohio State University Medical Center. Ms. Chicoine earned her Juris Doctor degree from the University of Houston Law Center. She also holds a Bachelor of Science and a nursing degree from the University of Texas Health Sciences Center at Houston. She has written and spoken widely on health care issues, and is an active member of the AAPC community.

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