The Stark law, actually three separate provisions, governs physician self-referral for Medicare and Medicaid patients.

In 1989, Congress adopted a physician self-referral proscription applicable to entities providing Medicare-covered clinical laboratory services. In 1993, Congress expanded the physician self-referral prescription beyond clinical laboratory services to a host of “designated health services.” This law is often referred to as the “Stark Law” after Pete Stark (D-CA), the Congressman who introduced and strongly supported the statute.

Physician self-referral is the practice of a physician referring a patient to a medical facility in which he has a financial interest, be it ownership, investment, or a structured compensation arrangement.

Critics of the practice allege an inherent conflict of interest, given the physician’s position to benefit from the referral. They suggest that such arrangements may encourage over-utilization of services, in turn driving up health care costs.

In addition, they believe that it would create a captive referral system, which limits competition by other providers. (see physician self-referral)

Others respond to these concerns by stating that while problems exist, they are not widespread. Further, these observers contend that, in many cases, physician investors are responding to a demonstrated need that would otherwise not be met, particularly in a medically under-served area.

In summary, the Stark Law prohibits a physician (or an immediate family member of such physician) who has a “financial relationship” (including compensation and investment/ownership interests) with an entity from referring (broadly defined) patients to the entity for “designated health services” covered by the Medicare program, unless an exception is available.

In the event, a proscribed referral is made and no exception is available, the entity performing the services is prohibited from submitting a claim for the services to the Medicare program or billing any individual, third-party pay/or other entity for the services. In addition, certain aspects of the Stark Law apply to the state Medicaid programs.

The Stark Law provides significant civil (but not criminal) sanctions for violations including denial of payment; refunds of amounts collected in violation; a civil money penalty (CMP) of up to $15,000 for each bill or claim for a service a person knows (or should know) is a service for which payment may not be made; the imposition of up to three times the amounts for each item or service wrongfully claimed; potential exclusion from Federal health care programs; and a CMP of up to $100,000 for each arrangement or scheme which the physician or entity knows (or should know) has a principal purpose of assuring referrals which, if directly made, would be in violation of the proscription.

The Passage of Stark II raised a series of concerns on the part of many provider groups.

While Stark I and II were intended to remove potential conflicts of interest from physician decision making, a number of persons have argued that the legislation, particularly parts of Stark II, represents an unwarranted intrusion into the practice of medicine.

They have stated that the legislation, particularly the provisions relating to compensation arrangements, is too complex and may, in fact, impede physicians’ ability to participate in managed care networks.

A medical facilitator or staffing company that does not directly provide and bill for patient care services, but merely facilitates the provision of clients to hospitals and other health care providers, is not a “physician organization” as defined at 42 C.F.R. �411.351.