Stark Act Fraud

The Stark Act, codified under the federal statutes governing Social Security and found at 42 U.S.C. §1395nn, prohibits certain physician “self-referrals” to entities in which the physician (or a member of their immediate family) has a financial interest, due to the inherent conflict of interest in such situations.

The prohibition originally applied only to clinical laboratory services, but later was broadened to include a long list of designated health services, including:

  • Clinical laboratory services
  • Physical therapy (PT), Occupational therapy (OT), speech language pathology services
  • Radiology services, including magnetic resonance imaging (MRI), computerized axial tomography (CT) scans, and ultrasound services
  • Radiation therapy services and supplies
  • Durable medical equipment
  • Parental and enteral nutrients, equipment and supplies
  • Prosthetics, orthotics and prosthetic devices
  • Home health services
  • Outpatient prescription drugs
  • Inpatient and outpatient hospital services

Generally speaking, Stark Act liability may apply when four conditions are met:

First, the referral must have been made with regard to a Medicare or Medicaid patient by a physician or an immediate member of that physician’s family.

Second, the referral must have been made with regard to a designated health service.

Third, there must be a financial relationship between the referring physician or an immediate member of that physician’s family and the referred entity.

Fourth, there must be no statutory exceptions that apply to protect the referral arrangement from liability.

If all the above conditions are met, then the referral may violate federal law, subjecting the physician and entity to civil penalties, denial of payments for the services rendered in violation of the Stark Act, and exclusion from the federal health care provider system.

The Stark Act applies regardless of good or bad intention. Compliance with the provisions of the Stark Act is a condition of payment within Medicare and Medicaid, and other federally-funded programs. Stark Act violations can create liability under the False Claims Act when persons or entities submit or cause others to submit claims for payment to Medicare or Medicaid with knowledge that the underlying transactions were in violation of the Stark Act prohibitions.

Real World Examples of Recent Stark Act Violation False Claims Act Cases:

2012: Hospital chain Hospital Corporation of America (HCA) paid $16.5 million to resolve claims arising out of a whistleblower lawsuit that its subsidiaries violated the Stark Law by entering into improper financial transactions with a physician practice, such as leasing office space for a price well below fair market value, with the intention of inducing the referral of patients. The whistleblower received over $3 million as a result of the settlement.

2011: Midtown Imaging LLC, a radiology clinic, paid $3 million to settle a lawsuit brought under the False Claims Act in which it was alleged that the company violated the Stark Law and the Anti-Kickback Statute. Midtown Imaging violated the Stark Law by receiving referrals from physician groups with whom the clinic had a financial relationship. The whistleblowers were two former physician employees of Midtown Imaging, and they received $600,000 as an award.

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