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A Review for Physicians, Consultants and Advisors
By Dr. David Edward Marcinko; MBA, CMP™
By Dr. Charles F. Fenton, III; FACFAS, Esq.
The Stark Amendment to the Omnibus Budget Reconciliation Act of 1989 was a step by the federal government to prohibit physicians from referring patients to entities in which they have a financial interest. Originally, the Stark amendment applied only to referral of Medicare patients to clinical laboratories in which the physician had a financial interest.
Stark I Provisions
The Stark Amendment provides that if a physician (including a family member) has a financial interest in a clinical laboratory, then he may not make a referral for clinical laboratory services if payment may be made under Medicare. A financial interest is an ownership interest, an investment interest, or a compensation arrangement.
Exceptions
There are certain exceptions to the Stark Amendment. For example; if a physician personally provides the service or if a physician or employee of a medical group, provides the services.
Safe Harbor Regulations
Like the Safe Harbor Regulations [SHRs], the Stark Amendment permits physician investment in large entities and provides an exception for rural providers. Under the Stark Amendment, large entities are defined as publicly traded entities with assets greater than $100 million.
But, there are certain other exceptions that are similar to the safe-harbor regulations. They include items such as provision for rental of office space, employment and service arrangements with hospitals, and certain service arrangements. These arrangements must be at arms-length and at fair market value.
Stark II
Stark II was passed in 1993 to modify and expand the Stark amendment. In particular, it acts to bring numerous other entities, besides clinical laboratories, within the prohibitions of the Stark amendment.
Stark III
The Federal Register notes that “Stark III” regulations went into effect on March 26, 2008.
Link: http://mamedicallaw.com/blog/2008/06/15/what-do-i-need-to-know-about-the-stark-iii-rules/
Assessment
Self-referral and over utilization may become less of a problem as managed care makes further in roads in medical practice control and quasi-subrogation. Future legislation is likely to address the concerns of the financial incentives towards under utilization of ancillary medical services.
Update
Docs and dollars: This one’s a twofer. The first is a hotly-discussed NEJM paper showing that urologists (not radiation oncologists, as we’ve covered earlier) owning a stake in radiation therapy equipment tend to recommend that equipment more often than docs without an ownership stake. The second is a less-publicized government report showing that surgeons with a stake in device distributors also recommend those devices more than other surgeons. This shouldn’t surprise anyone — doctors are human, after all. The Stark laws designed to prevent physician self-referral, for some reason, make an exception for the IMRT conflict-of-interest in the first paper. And I don’t think any legislation foresaw the physician-owned-distributorships in the second article.
-Austin Frakt PhD
Conclusion
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Filed under: Career Development, Health Law & Policy | Tagged: Stark laws |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
Dear Mr. Stark,
If you are working in the best interest of the people – you will look closly at the Pharr doctor’s owned hospital. It is planned by a special intrest group which includes former State REP. SERGIO Munoz and Pharr Mayor Palacios.
This project was initiated by Commissioner Arturro Cortez and Adan Farias. Why don’t you look into that? The estimated cost is 95 million dollars – $15 million has already been set aside for lobbyists. The people of Pharr are also in need your watchful eye.
Romero Wendorf
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I want you, Mr. Stark, to pay close attention to a particular project in a small town in the Deep South of Texas, in Pharr, Texas. A doctor owned hospital is being built with taxpayer money. Ex-state represenatives, mayors, commissioners and county officials have set aside $15,000,000 dollars to help lobby and manipulate investors to help fund their $95,000,000 project.
They are trying to lobby to get grand-fathered into completing their hospital.
Dionicio Quintanilla
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Dear Romero and Dionicio,
Many thanks for your passionate comments.
Your are correct in that specialty hospitals and ASCs treat some of the most profitable diseases in a predominantly outpatient setting. These facilities have grown due to the increased incidence of these diseases, as well as changes in consumer demands and new technologies.
For example, according to a 2005 survey by the Health Economics Consulting Group, the “intensity and quality of services are likely to be higher in specialty hospitals,” which may drive patients to spend their money at these facilities rather than at an acute care hospital. And, a 2003 analysis of payments made for procedures performed in outpatient departments and ASCs, found that, “overly generous prices for procedures in hospital-based outpatient departments cost $1 billion more than the prices for the same procedures in free-standing surgery centers.”
However, according to Robert J. Cimasi, MHA, ASA, CMP™and others, these specialty facilities, like many ASCs, are also successful because they are able to focus on a few specific procedures enabling treatment of a high volume of patients. Since the managerial staff has limited processes to learn, they are able to master these skills and increase efficiency. Also, as some industry economists explain, these facilities are able to offer more concentrated services for the same price as community hospitals.
In terms of efficiency, another study found that there are several ways that specialty hospitals can achieve production economies. They are able to achieve economies of scale and scope by providing high volumes of a limited scope of services and lowering fixed costs by re-engineering the care delivery process. Also, these facilities showed evidence of learning competencies in which both managerial and clinical staff focused on a narrow array of tasks. This narrow focus may help them achieve profitability.
For more information; please see: http://www.HealthcareFinancials.com
Fraternally,
Ann Miller; RN, MHA
[Executive Director]
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Doctor-Owned Device Firms Under Federal Scrutiny for Fraud
Physician-owned companies that distribute medical devices at hospitals and ambulatory surgery centers where their investors practice medicine have the potential to violate federal anti-kickback laws, the federal government has cautioned. On March 26, the Dept. of Health and Human Services Office of Inspector General issued a special fraud alert stating that the way these “physician-owned distributorships,” or PODs, do business could pose a fraud and abuse risk as well as jeopardize patient safety.
The concern is that the financial incentives offered to physician owners in these arrangements might encourage these doctors to perform medically unnecessary procedures, or choose to prescribe devices the distributorships sell instead of those that may be more clinically appropriate, the alert stated. According to the OIG’s findings, some PODs may have characteristics that put them at risk for violating the federal anti-kickback statute, which is designed to safeguard patients against any physician referrals that may be influenced by financial incentives.
Source: Jennifer Lubell, Amednews.com [4/8/13]
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Beware of Schemes to Circumvent Stark Law
The Stark Law Statute defines a “circumvention scheme” as an arrangement or scheme (such as a cross-referral arrangement) that the physician or entity knows or should know has a principal purpose of assuring referrals by the physician to a particular entity which, if the physician directly made referrals to such entity, would violate the Stark Law, and is subject to a civil money penalty of not more than $100,000 for each such arrangement or scheme.
It is the fundamental nature of the scheme, not clever semantics or “layering” of an arrangement which counts. In sum, if you are presented with an opportunity to earn passive income through the investment in an ancillary service provider, seek the help of an experienced healthcare lawyer. Circumvention schemes, no matter how cleverly structured, can be very risky, and the consequences devastating.
Source: Martin Merritt, Physicians Practice [2/9/14]
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