Stark Law

What is Stark law?

Stark law, named after Congressman Pete Stark, is a set of legislation dealing with self referral for Medicare and Medicaid patients. It also reformed a system of abuses by setting limits on physicians that refer patients to other specialists that have a financial relationship with the doctor’s office, increasing billable hours that could be then used to exploit government-run healthcare enterprises.

What is a physician self referral?

Whenever a physician refers a patient to another health service to receive a service, test or examination that the doctor’s office is unable to perform, that is a referral. A self-referral occurs when the doctor and service provider have a preexisting financial relationship and the doctor benefits financially from the arrangement, usually by billing Medicare and Medicaid, which provided incentive for doctors to overbill and otherwise exploit the system. The doctor may also perform the service himself and collect the additional fees associated with the test.

For example:

A patient may need an x-ray of a broken arm. The physician may perform the x-ray himself with a machine that he has purchased for his practice. The physician then collects the facility fee which was intended to pay another facility that had an x-ray machine to perform the fee and the professional fee to analyze the x-rays himself. The Medicare reimbursement that is allocated for sending patients to specialists for testing is instead pocketed by the doctor. This gives the doctor incentive to order several tests, in order to collect multiple fees, although the tests may be frivolous. Alternatively, an internal imaging practice may provide financial incentives to the physician to refer the patients to that practice.

Some medical practices thrive on over-billing and Stark law aimed to put an end to the practice. However n exemption that allowed physicians to conduct inter-office referrals has been exploited with doctors purchasing all the equipment the need to run tests that would otherwise require referrals.

What are the provisions of Stark law?

Part 1 of the Stark law, also called Stark I bans the use of Medicare funds for self-referrals to clinical laboratories

Part 2 of Stark law, also called Stark II clarifies legitimate business dealings that physicians can have with other health services providers. Critics have argued that this provision impedes the traditional physician’s care network of providers that the physician trusts to complete testing and ancillary services.

Stark III went into effect in 2007 and provides the final clarifications of relationships that healthcare providers can have with other services and how they may claim reimbursements from Medicare and Medicaid.