Physician Self-Referral Law: Navigating Section 1877 Of The Social Security Act

Physicians who refer patients for designated health services (DHS) under Medicare to entities they have a financial relationship with may be in violation of Section 1877 of the Social Security Act, also known as the physician self-referral law or the Stark Law. This law prohibits such referrals unless specific exceptions apply. Violations can result in severe penalties, including repayment of Medicare funds, hefty fines, and exclusion from federal healthcare programs.

Understanding Physician Self-Referral

Physician self-referral occurs when a doctor refers patients to entities with which they or their immediate family members have a financial interest. This interest could be through ownership, investment, or a compensation arrangement. The law targets certain DHS that Medicare reimburses, including clinical lab services, radiology, therapy, durable medical equipment, and more.

When enacted in 1989, Section 1877 initially applied only to clinical lab services but was later expanded to cover other DHS. The statute aims to prevent financial incentives from influencing medical decisions, protecting the integrity of patient care and reducing healthcare costs for government programs.

Key Provisions of the Law

The law has two primary prohibitions:

1. Referrals for DHS: A physician may not make referrals for DHS payable by Medicare if they or their family member has a financial relationship with the entity providing the services unless an exception applies.
2. Billing for Improper Referrals: The entity providing the DHS cannot submit claims to Medicare or bill third-party payors for services referred in violation of the self-referral law.

Violations of the Stark Law can lead to severe penalties, including denial of payment for services, repayment of improper claims, fines up to $15,000 per service, and exclusion from Medicare or Medicaid programs.

Exceptions to the Self-Referral Prohibition

While the Stark Law broadly prohibits self-referrals, it includes numerous exceptions that allow certain financial relationships without violating the law. These exceptions fall into two categories: ownership or investment interests and compensation arrangements.

Some common exceptions include:

• In-office ancillary services: Physicians can refer patients for DHS within their practice if certain requirements are met, including proper supervision and billing practices.
• Bona fide employment relationships: Physicians may refer patients to entities they are employed by, provided the compensation is fair market value and not tied to the volume of referrals.
• Non-monetary compensation: Non-cash compensation below a specific threshold (updated annually) may be permissible under certain conditions.
• Fair market value arrangements: Referrals are allowed if the compensation is consistent with fair market value and not influenced by the volume or value of referrals.

The Department of Health and Human Services (HHS) has also been granted the authority to create regulatory exceptions for financial relationships that do not pose a risk of program or patient abuse. For example, certain value-based arrangements and remuneration for electronic prescribing technology fall under specific exceptions.

Legal Consequences for Violations

Violating the Stark Law can result in significant legal and financial consequences for physicians and healthcare entities. These penalties include:

• Denial of payment: Medicare may refuse to pay for DHS provided through improper referrals.
• Refund of payments: Physicians or entities must return any Medicare funds received from unlawful referrals.
• Civil monetary penalties: Violators may face fines of up to $15,000 per improper referral and up to $100,000 for schemes intended to circumvent the law.
• Exclusion from federal programs: Physicians may be excluded from participating in Medicare and Medicaid, which can have catastrophic effects on their practice.

Compliance and Risk Mitigation Strategies

To avoid violations of the Stark Law, physicians and healthcare entities must implement comprehensive compliance programs. These strategies include:

1. Regular Audits: Conducting internal and external audits of referral practices and financial relationships helps identify potential violations before they escalate.
2. Legal Counsel: Healthcare lawyers specializing in Stark Law compliance can provide guidance on structuring financial arrangements that comply with regulations.
3. Training and Education: Physicians and staff should be educated about the intricacies of the law, including the importance of documenting relationships and understanding exceptions.
4. Documentation: Keeping detailed records of financial arrangements, including contracts and compensation agreements, helps demonstrate compliance if audited by regulators.

Evolving Regulations and Future Trends

Over the years, the Stark Law has undergone several modifications to adapt to the changing landscape of healthcare. For instance, the 2020 Modernizing and Clarifying the Physician Self-Referral Regulations introduced new exceptions for value-based care arrangements, acknowledging the shift towards outcome-driven healthcare models.

Additionally, the focus on cybersecurity technology exceptions and updates to the definition of “commercially reasonable” arrangements show an effort to balance patient protection with the needs of modern healthcare practices.

Looking forward, healthcare providers should anticipate continued regulatory changes, particularly around emerging healthcare technologies and value-based care models. Staying informed about regulatory updates and working closely with legal experts will be crucial for maintaining compliance and protecting practices from violations.

Contact The Baez Law Firm

The physician self-referral law, or Stark Law, is a critical regulation that governs how doctors can refer patients for certain designated health services when they have financial relationships with the entities providing those services. Given the complexities of the law and the potential consequences of violations, it is essential for physicians to maintain strict compliance. By understanding the law, utilizing exceptions, and implementing robust compliance programs, healthcare providers can protect their medical practices from the severe penalties associated with Stark Law violations.

If you are a physician or healthcare provider facing allegations of Stark Law violations or need guidance on structuring compliant financial relationships, contact The Baez Law Firm today. Our experienced attorneys specialize in healthcare fraud and can help protect your practice and reputation.

Source:

cms.gov/medicare/regulations-guidance/physician-self-referral?redirect=/physicianselfreferral/