Is the Stark Law a Criminal Statute? Clarifying the Legal Boundaries
The Stark Law Explained
The Stark Law, often simply referred to as "Stark," is a set of federal laws that regulate physician self-referral practices in federal healthcare programs. Originating in the early 1980s with the Ethics in Patient Referrals Act (EPRA), Stark prohibits both physicians and referring physicians from making referrals in which the physician has a financial relationship with the entity receiving the referral. Initially, the law only applied to the above referrals where the products or services were not reimbursed by either the Medicare or Medicaid programs, but this would later change due to major amendments over the years. The original EPRA prohibited self-referrals to clinical laboratory services only. The law would begin to take its actual shape with the passage of the Omnibus Budget Reconciliation Act (OBRA) of 1989. OBRA required the Department of Health and Human Services (HHS) to study the effects of physician self-referrals on the costs of federal healthcare programs and the volume of testing services. Upon the conclusion of the study, HHS would report its findings to Congress and recommend whether or not the definition of "clinical laboratory services" should be expanded, as well as any changes to the law that might be appropriate (such as revision of the safe harbors). Less than a decade after the OBRA report, the Health Care Financing Administration, now known as the Centers for Medicare & Medicaid Services (CMS), proposed the first of several comprehensive regulations concerning the referral of patients for DHS (designated health services) by physician owners and investors (the final regulations would be adopted October 1, 1991) . In 1993, Congress passed OBRA 1993, establishing prohibitions on physician self-referrals for DHS other than clinical laboratory services. OBRA 1993 also extended the effective date of the physician self-referral laws to January 1, 1995. In 1993, CMS also issued a final rule on the physician self-referral regulations effective January 1995. That rule imposed an uncompensated services exception to the prohibition on physician self-referrals and amended the definition of "entity" so that it included lessors and providers of a physician’s referral services. It also clarified that "remuneration" does not include rental charges consistent with fair market value, and clarified the definition of the "entity" to include any person or entity that receives payment for the provision of a designated health service, and also specified that indirect compensation relationships must be direct compensation relationships. Throughout the 1990s, further refinements and expansions of the law took place in response to the passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Balanced Budget Act of 1997. The Social Security Prescriptions Drug, Improvement, and Modernization Act (MMA), passed in 2003, established new exceptions to the Stark Law that would take effect in 2005. While the law has evolved in many ways over the decades, the general statutory provision prohibiting self-referral for physician services remains the same since its passage: a physician may not make a referral for the furnishing of DHS to a person if the physician has "financial relationship," unless an exception applies.
What Are Criminal Statutes?
A criminal statute is a penal law which forbids conduct regarded as injurious to the public welfare, and forbids the conduct and provides for its punishment. A criminal statute prohibits or commands an action (or omission of an action) and, upon conviction, lays out either an imprisonment or a fine. For non-capital crimes, the statute will also lay out the maximum sentence. A criminal statute is one "which defines a crime, prohibits it, and prescribes a punishment therefor." Black’s Law Dictionary.
There is a major distinction between a civil law and a criminal law. The linchpin that categorizes a law as a criminal law is its punitive nature. A criminal law allows the government to punish the offender. In contrast, a civil law may impose liability upon the offender, but not punishment per se. Rather, it allows for the government or private parties (plaintiffs) to obtain damages or equitable relief from the offender (defendant). In this way, regardless of whether the person who suffered the alleged wrongful act is the government or a private party, it is not "the State vs. Defendant," but rather, it is "Plaintiff vs. Defendant."
The Stark Law: Civil vs. Criminal Code
One of the most important things to keep in mind with the Stark Law is that it is a civil law, not a criminal law. Although the penalties for violating the Stark Law can be significant, violations are treated as regulatory – subject to fines and return of overpayment – rather than criminal – which could result in jail time.
The reasoning behind this is simple. The Stark Law is more of a regulatory law than a criminal law – the penalties are more akin to regulatory penalties than criminal penalties. However, there are criminal consequences for violating the Anti-Kickback Statute and the False Claims Act. To the extent that the Stark Law and the Anti-Kickback Statute or the False Claims Act both regulate behavior, a violation of one can have an impact on the violation of the other. Potentially, civil penalties under the Stark Law could have a ripple effect and expand into criminal liabilities under the Anti-Kickback Statute and/or the False Claims Act.
The bottom line is that the Stark Law is designed to prevent self-referrals. Violations can lead to hefty fines, return of overpaid money by providers, and bans from Medicare and other federally funded programs.
Stark Law Penalties
Unlike the anti-kickback statute, which is a criminal statute, there are no criminal penalties under the Stark Law, although the two laws are often confused with one another as being two sides of the same coin. The anti-kickback statute provides a much heftier hammer to whack anyone accused of violating it because it is a criminal statute and a violation of the anti-kickback statute can result in imprisonment and significant fines. The only penalties for violating the Stark Law are civil monetary penalties.
The penalties are: 1) exclusion from participation in any federal health care program; 2) a civil money penalty of up to $15,000 for each service provided in violation of the Stark Law; 3) an assessment of up to three times the amount claimed for each service; and 4) the ability to sue for damages for violations of the Stark Law. Federal authorities may impose either civil or administrative penalties, but not both for the same conduct.
A hospital or health system that is excluded from participation in a federal health care program based on Stark Law violations is also prohibited from providing items or services to beneficiaries of those programs. Similarly, physicians who are found to have violated the Stark Law are subject to exclusion.
Currently, CMS has published no Stark Law penalty provisions, so the various Stark Law penalty provisions are found in the Federal Register, 42 U.S.C. ยง 1395nn(g), and the Federal Code of Regulations.
Stark Law vs. Healthcare Fraud and Abuse Laws
Stark Law is sometimes compared to the Anti-Kickback Statute and the False Claims Act, both of which contain criminal provisions. However, those two statutes are much different from the Stark Law in intent and scope. In fact, the False Claims Act does not even contain an explicit healthcare fraud provision – the criminal provisions of the Anti-Kickback Statute and Stark Law are for anti-fraud purposes only. They are in part designed for fraud deterrence. While the Anti-Kickback Statute and the False Claims Act pertain to fraud committed against health care programs, the Stark Law is designed to prevent doctors who have a financial relationship with a health care organization from referring patients to that organization regardless of whether they knowingly intended to cheat the program.
In particular , the Stark Law and the False Claims Act differ in both intent and scope. The False Claims Act includes criminal provisions prohibiting knowingly submitting false claims and billing Medicare for services that were not medically necessary or that were provided to beneficiaries who were not eligible. The Anti-Kickback Statute in contrast prohibits giving or receiving anything of value in return for the referral of federal health care program business. The Stark Law prohibits an entity from billing on a claim submitted to a federal health care program when the physician who made the referral has specific financial relationships with the organization.
The Significance of the Stark Law under Healthcare Law
The Stark Law is a crucial element in healthcare compliance and conflict of interest prevention, particularly as it relates to medical practices. Here are some points to consider regarding the importance of the Stark Law:
1. Promotion of Compliance Program
The Stark Law is one of the most effective tools healthcare attorneys have when operating a law practice focused on conflict of interest, healthcare compliance, and all things HIPAA. Many of our healthcare clients don’t have compliance programs. That’s fine given that the Stark Law for physicians and medical facilities is a strict liability statute. In other words, there’s no need to show intent. However, when it does appear that there may be "intent," the situation only gets worse. Moreover, the professional fee expectation after disclosure of a Stark Law violation can often generate hundreds of thousands of in legal fees.
2. Conflict of Interest Prevention
Contrary to some who say that the Stark Law encourages hospitals to become the "overlords" of their physicians, our law firm believes that the Stark Law is a powerful conflict of interest prevention tool. The Stark Law statute itself was inspired by the 1980s Medicare malfeasance. It does not want Doctors who treat Medicare patients to have conflicting incentives that encourage more treatment without regard to the patient’s needs. This isn’t to say that the Stark Law cannot go too far, or that there needs to be at least some exceptions that recognize that "conflicts of interest" can occur at many different levels within a hospital or health system.
3. Impact on Providers and Health Systems
Like any alleged violation of the Stark Law, Stark Law for hospitals and health systems tends to escalate quickly. We have seen hospitals clawing back large amounts of money from physicians based on alleged "co-management" violations. Hospital administrators and boards are strongly encouraged to seek legal counsel before large reimbursement decisions or doing anything that could be construed as violating the Stark Law set forth in 42 U.S.C. 1395nn.
Conclusion: The Stark Law in Healthcare Law
In sum, the key points to take away here are that the Stark Law is not a federal criminal statute. It would be a mischaracterization to treat it as such, at least without some sort of express Congressional amendment. So this affects compliance obligations, and prudent practice in responding to investigations. A failure to comply with the Stark Law can certainly give rise to liability – there have been no shortage of settlements involving improper physician compensation arrangements, after all . But the specter of criminal liability is notably absent from the case law intended to, in theory at least, raise compliance standards among health care providers. Of course, regardless of whether criminal liability could alter Stark Law implementation as we know it, going forward, compliance with the law, and a misunderstanding of its civil nature, is arguably a matter of competitive interest. In short, providers and other stakeholders may be careful to be reminded – that Stark Law compliance is the law of the land, and that those who seek to bend the rules are at risk, and will suffer the consequences.