What Are the Compensation Arrangement Exceptions to the Stark Law?
Under the Physician Self-Referral Law (42 U.S.C. § 1395nn), or Stark Law, physicians are barred from referring Medicare/Medicaid beneficiaries to a “designated health services” (DHS) provider in which the referring physician (or his immediate family member) has a “financial relationship.” Because maintaining the Stark Law without exceptions would make the practice of medicine almost impracticable, the federal legislator continues to legitimize scenarios that, although Stark is technically implicated, are protected from enforcement as recognized exceptions.
Compensation Arrangement Exceptions to the Stark Law
The Stark Law outlines numerous compensation arrangement exceptions aimed at allowing physicians to enter into business relationships with DHS entities without having their hands tied regarding patient referrals. Generally, the compensation arrangement exceptions require that any agreements be written and commercially reasonable, and any compensation be set in advance, consistent with fair market value, and unaffected by the volume or value of the physician’s patient referrals to the DHS entity. Notably, notwithstanding their exception from the Stark Law, all compensation arrangements must comply with all other state and federal healthcare regulations including anti-kickback laws.
Rental of Office Space: A physician may refer patients to an entity from which he leases office space as long as the lease is commercially reasonable and the rent rate is set in advance, comports with fair market value, and is not tied to the volume or value of referrals. Additionally, the leased space must be identified in the lease agreement, cannot be shared with the landlord, and must be limited to that necessary for legitimate business purposes.
Rental of Equipment: A physician may refer patients to an entity from which he leases equipment as long as there is a written lease for at least one year that is commercially reasonable and the rent rate is set in advance, comports with fair market value, and is not tied to the volume or value of referrals.
Bona Fide Employment Relationships: A physician may refer patients to an employer that pays the physician (or immediate family member) for performing identifiable employment services. The payment must be fair market value and cannot be affected by the volume or value of referrals, but compensation may include a productivity bonus.
Personal Services Arrangements: A physician may refer patients to an entity with which he has a contract to provide non-medical personal services, such as administrative services, as long as the services are specified in a written agreement for a term of at least one year, the services do not involve the counseling or promotion of business arrangement, the services are limited to those reasonably necessary for legitimate business purposes, and the rate of compensation is set in advance, comports with fair market value, and is not affected any the volume or value of referrals. This exception includes an additional carve out for physician incentive plans, which are compensation arrangements “between an entity (or downstream contractor) and a physician or physician group that may directly or indirectly have the effect of reducing or limiting services furnished with respect to individuals enrolled with the entity.”
Physician Recruitment: Physicians who received a recruitment bonus from a DHS, such as a hospital, are not barred from referring patients to the recruiting entity, provided there is a written recruiting agreement, the payment is not conditioned on referrals, and the physician relocates by at least 25 miles to join the DHS.
Isolated Transactions: The Stark Law does not apply to isolated business transactions between physicians and DHSs as long as the agreements are commercially reasonable, the compensation is consistent with fair market value and does not reflect the volume or value of patient referrals, and the parties do not enter into another transaction within the following 6 months.
Certain Arrangements with Hospitals: Hospitals may provide remuneration to a physician outside the purview of the Stark Act on the condition that the remuneration is wholly unrelated to the furnishing of DHS.
Group Practice Arrangements with a Hospital: This exception covers arrangements between group practices and hospitals commenced before, and continually operating since, December 19, 1989, whereby the hospital bills for DHS performed by the group practice. There must be a written agreement detailing the covered DHS and the rate of compensation, and the compensation must be set in advance, consistent with fair market value, and commercially reasonable. Additionally, the group practice must perform at least 75% of the covered DHS furnished by the hospital to patients.
Payments by a Physician: Physicians may pay fair market value for services provided by a DHS entity without implicating the Stark Law.
Charitable Donations by a Physician: If the charity is tax exempt and the donation does not take volume or value of referrals into account, the Stark Law will not apply.
Non-Monetary Compensation: A physician may annually receive up to $300 worth of non-monetary benefits from a DHS entity without invoking the Stark Law as long as the benefits are unsolicited and are not based on the volume or value of referrals.
Fair Market Value Compensation: This exception applies to compensation arrangements for items or services between DHS providers and hospitals, including payments to or by a physician, but expressly excluding office space rental agreements. The arrangement must be memorialized in a written agreement that specifies the covered items or services, the timeframe of the agreement, and the rate of compensation. Additionally, the arrangement must be commercially reasonable, the compensation must be set in advance, reflect fair market value, and not relate to the volume or value of referrals, and the covered services cannot be for counseling or promotion of a business arrangement. While the arrangement may cover a timeframe of less than one year, the parties cannot enter into another arrangement for the same services/items within one year
Medical Staff Incidental Benefits: This exception allows DHS entities to provide low value (worth less than $25 each) nonmonetary items or services for medical staff members to be used onsite. The benefits must be available to all staff members within the same specialty and they cannot be related to the volume or value of referrals.
Risk-Sharing Arrangements: Compensation paid pursuant to a risk-sharing arrangement between a physician and an independent practice association (IPA) or a managed care organization (MCO) will not implicate the Stark Law assuming the arrangement complies with all other healthcare regulations.
Compliance Training: The Stark Law is not implicated where an entity provides compliance training to a local physician and the training takes place in the local community.
Indirect Compensation: An indirect compensation arrangement occurs where a physician and a DHS entity are linked through a chain of financial relationships involving at least one intermediary; as a result of the financial relationships, the physician’s aggregate compensation is affected by the volume or value of the physician’s referrals or business generated; and the DHS entity knows or should know that the physician’s compensation varies based on the referrals or business generated. An indirect compensation arrangement may be excluded from the purview of the Stark Law if the physician’s compensation reflects the fair market value of the items or services provided without reference to the value of referrals or business generated and the arrangement is set out in a written agreement that specifies the covered services.
Referral Services: This exclusion incorporates by reference the Anti-Kickback Statute’s safe harbor for entities acting as “referral services,” as defined in 42 CFR §1001.952(f).
Obstetrical Malpractice Insurance Subsidies: This exclusion incorporates by reference the Anti-Kickback Statute’s safe harbor for such subsidies (42 CFR §1001.952(o) and also provides an additional exception for physicians practicing obstetrics in rural or underserved communities. Among other numerous requirements, the arrangement must be detailed in a written agreement that specifies the amount and terms of the payment and the payment must be made directly from the DHS entity to a bona fide malpractice insurance provider.
Professional Courtesy: “Professional courtesy” refers to the provision of free or discounted items or services to physicians, their office staff, and immediate family members. Only DHS entities with formal medical staffs may exercise this exclusion, and the services must be available to all physicians regardless of their volume or value of referrals, the services must be of the type routinely provided by the DHS entity, the DHS entity must have a written professional courtesy policy, and the services cannot be provided to a federal healthcare program beneficiary absent a good faith showing of financial need.
Retention Payments in Underserved Areas: This exclusion allows hospitals in underserved areas to offer compensation to physicians to entice them to forego other tangible opportunities outside of the hospital’s geographic region. To qualify, the physician must provide proof of the outside opportunity either through a written offer letter or a certification of a bona fide employment opportunity. The retention payment cannot exceed the lesser of 1) the difference in pay between the current and proposed position, or 25% of current salary in the case of certifying physicians; or 2) the hospital’s reasonable costs to replace the physicians. Additionally, there must be a written retention agreement that cannot be altered based on the physician’s referrals and cannot restrict physician from practicing at other hospitals or referring patients to other entities, and the hospital cannot enter into more than one retention agreement with a particular physician within 5 years.
Community-Wide Health Information Systems: This exception allows DHS entities to provide physicians with information technology services or items for the purpose of allowing the physician to access and share electronic healthcare records and other electronic information. The information system must be available to all physicians, providers, and residents of the community, the items or services provided must be primarily used to access the information system, and the provision of the items or services cannot be based on the volume or value of the physician’s referrals.
Electronic Prescribing Items & Services: Without invoking the Stark Law, DHS provider may provide the equipment, software, and training necessary for the physician to transmit and receive electronic prescription information, on the condition that the items are given pursuant to a written agreement, the items are not contingent on the physician making referrals to the donor, and the items do not have restricted compatibility.
Electronic Health Records Items & Services: Under this exclusion, DHS providers, other than laboratories, may provide the equipment, software, and training necessary for a physician to maintain, transmit or receive electronic health records. However, this exception has numerous limitations, including that the items be nationally certified, interoperable, and non-restrictive, the donation not be contingent on patient referrals, and the physician must compensate the donor for 15% of the value of the items.
Few things in the organization of a medical practice are as complicated as making sure that a physician and a practice comply with all Stark Law aspects. Instead of interpreting and applying Stark Law incorrectly, physician practices should contact experienced attorneys that can safely advise on all nuances of this complex area of law. The attorneys of Oberheiden, P.C. dedicate a great portion of their practice to advising clients on Stark Law and general regulatory compliance. Oberheiden, P.C. consist of former federal healthcare prosecutors and experienced attorneys that have helped a great number of clients avoid Stark Law penalties when under federal investigation. Our consultations are free and confidential and conducted by senior attorneys only.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.