Healthcare Regulations

What Is Stark Law in Healthcare? What Are the Probable Penalties for Violating Stark Law?

What is Stark Law in healthcare What are the probable penalties for violating Stark Law

Healthcare services are mostly provided keeping the care of the patient in mind with fee-for-services-based structures. This means healthcare providers are obligated to care for the patient according to the predetermined set of rules for which they get paid. While Stark Law legislation was first determined in the late 1980s to record the physicians’ ethics in providing the healthcare facilities to the patients. But what is Stark Law in healthcare?

Stark Law is a federal law that prohibits physicians from referring patients for certain health care services to any entity with which the physician or immediate family has a financial relationship. The law is also referred to as the Physician Self-Referral Act.

Although Stark Law was initially applied to the physicians’ referrals based on the laboratory healthcare services later it expanded its horizon to other healthcare services as well. In the article, we’ll discuss the elements involved in the Stark Law and some volition consequences for physicians.

What is Stark Law in healthcare – Basic components of Stark Law

Generally, Stark Law consists of three main components;

  • Stark Law prohibits physicians from requesting or referring patients with Medicare plans to a business or laboratory providing healthcare services, which are directly related to the physician’s financial interest.
  • Stark Law also denies accepting Medicare claims made against the healthcare services taken on improper referral service.
  • Thirdly, the law also describes several exceptions for the above provisions and authorizes the Department of Health and Human Services secretary in order to create the exceptions of the referrals to the healthcare provider business that will help in smooth processing without creating a conflict of interest.

The provisions applied from the Stark Law by the secretary of the United States Department of Health and Human Services may look burdensome for some. But the thing which needs to be kept in mind is that these exceptions are for only the patients having Medicare as their insurer. The purpose of these exceptions applied by the Federal government is to protect the elderly and most importantly impaired and disabled patients who are likely more vulnerable to their health complications and are easy targets for physicians to get unnecessary treatments and services.

What is Stark Law in healthcare Basic components of Stark Law

To narrow down the process and make it easy to find out, the Federal government categorized the process for only Medicare patients who are referred to have additional services from the designated healthcare business or service provider.

How does Stark Law define the designated healthcare services?

Medicare and Medicaid services have described the designated healthcare business or service provider as anyone of the following or the combination of some listed below;

  • Durable medical equipment supplies
  • Clinical laboratory services
  • Occupational therapy services
  • Home Health services
  • Outpatient and inpatient hospital services
  • Outpatient prescription drugs
  • Physical therapy services
  • Parenteral and enteral equipment, nutrients, and supplies
  • Outpatient speech-language pathology services
  • Radiation therapy services and supplies
  • Orthotics, Prosthetics, and prosthetic devices and supplies
  • Radiology, scans, and other imaging services.

Other services that are not listed above cannot be taken as the exceptions of the Stark Law. Thus, someone referring to them is not liable for penalization due to a violation of Stark Law.

Does Stark Law cover all healthcare referrals?

Stark Law does not apply to the referrals made to the patients insured other than Medicare and Medicaid. This simply means that the private-pay patients who are referred to designated healthcare services are not counted under stark legislation.

In addition, several exceptions in the referral rule are there which include referrals made to services of a healthcare provider (where the provider is a member of the group), academic medical center, clinical lab services, and in-office accessory services such as offering glucose monitors and wheelchairs.

Probable penalties for the violation of the Stark Law

Healthcare providers that are covered and licensed under Medicare and Medicaid are strictly obligated to follow the Stark Law rules. Violation of the rules can bring strict liabilities for the registered physician(s). Here the strict liability translates to the fact that the licensed provider will be held liable under the law even if he is unintentionally involved in the referrals.  Also, even if the court doesn’t find an intention or proof that the provider was involved, they will still be liable.

Strict liability definition can vary depending on the variety of settings. According to the Stark Law, if a court sees proof that a physician was involved in the referral or an improper referral was made under his treatment, the court will impose liability whether the physician was aware of the financial interest or not. The intention would be enough to prove the liability.

However, any healthcare system, practice, or hospital that was found at fault for the improper referrals, will be required to repay all the amount received from the improper billing along with the penalty of $15,000 per improper referral. Not only this but hospitals and practitioners will be excluded from all the existing and future governments’ healthcare programs.

In addition, if the healthcare provider or the hospital is found intentionally and knowingly involved in the improper referrals, they would be liable to get civil penalties. The penalty amount for civil violation for improper referrals is $100,000 per violation.

Does Stark Law cover all the healthcare referrals

In some cases, the employing authority (hospitals) will be liable for paying the fines and penalties, but oftentimes the court extends its ruling and holds the practitioner liable for the violations. With this, a practitioner can still work under his medical license but would be excluded from the government institutions, current, and future Healthcare programs.

Real-life Stark Law cases

1. Baldwin Bone Joint case

In Baldwin Bone and joint case, the Healthcare company intentionally and improperly filed the claims to both insurers Medicare and the Tricare (healthcare program for veterans’ families and veterans). The Healthcare company claimed that they have hired physical therapists and orthopedic surgeons who perform physical therapy and associated services. But in reality, they were unlicensed individuals intentionally providing services and claiming improperly. Later, the company had to pay $1.2 million in order to dismiss the case.

2. Amedisys Home Health

This case showed an unrealistic example of violating Stark Law where they have to pay $150 million to resolve the lawsuit. The Healthcare Company was accused of filing false claims to Medicare from 2008 to 2010. These false claims were filed for providing a variety of services. But eventually were proved to be connected with the allegation of financial relationships with the potential referring businesses.

3. Halifax Hospital Medical Centre

This company got into hot waters for filing false claims and intentionally violating the Stark Law and was found liable under the False Claims Act where they were found connected with the medical providers through illegal contracts. These illegal contracts include illegal financial incentives and bonuses that were connected to a number of prescription medicines and tests. and treatments that were subjected to be billed to Medicare intentionally.

Additionally, it was found that the center admitted the patients of neurosurgeries that were not truly needed to be admitted and receive the services they were delivered. These admissions were only made to increase the medical billing to Medicaid. The company paid $80 million to settle the lawsuit. Along with the other penalties where the contracts between neurosurgeons and the healthcare company were found illegal and outside the contracting provisions.

Things should be counted to avoid violating Stark Law

Real-life Stark Law cases

There are plenty of recommendations and solutions available for the business and the healthcare industries to stay on the right track without violating the Stark Law.  Entities should;

  • Keep maintaining the log of all the conflicts of interests
  • Create a database of information and contacts made with the healthcare providers
  • Document every payment information
  • Note all the transactions made between parties
  • Update and train employees on the regulations of Stark Laws to avoid future complications
  • Develop internal policies and provide disciplinary measures in compliance with the stark rules
  • Maintain and update the documentation as the practice or healthcare system grows.

Employee contracting – Safe harbor provision

According to the law, “A complete Safe Harbor Law (1) prevents minors (any child under 18) from being prosecuted for prostitution and (2) directs juvenile sex trafficking victims to non-punitive specialized services”.

According to the Stark Law safe harbor provision, the Healthcare provider contract must;

  • Be documented and signed by both the parties involved
  • Have a duration of at least one year
  • Have a documented salary provision that is reasonable and should be market competitive.
  • Specify the services, procedures, and treatments that have to be performed during duty.
  • Not associate the salary with the payment volume of the services performed
  • Must be according to the Stark Law compliance.


By complying with the Stark Law, practitioners can prevent themselves from violating Stark Law and having strict liabilities. Penalties for violating Stark Law are severe no matter if the practitioner is guilty or not.  Hopefully, with this guide, we have answered your question “what is Stark Law in healthcare” and will help you not violate this rule.