Going stark raving mad over Stark II?

Here’s a guide to help you through the maze

For physicians and administrators, just surviving in an era of reduced reimbursements and increased regulation is hard enough. Trying to understand legislation like Stark II is a burden many wish hadn’t been added to their plates.

But if you don’t understand Stark II and its impact on your practice and violate its provisions — even unintentionally — you could face fines, lost Medicare and Medicaid income, or even removal from the program altogether.

According to Sally Barber, Esq., an attorney with Parker, Poe, Adams & Bernstein in Charlotte, NC, many practices are confused about the definition of Stark II. "It’s a federal law that limits certain patient referrals," she explains, noting that it stemmed from a study by the Office of the Inspec tor General (OIG).

The OIG study concluded that when physicians had financial interests in freestanding ventures such as labs or home health agencies, they were more likely to refer patients there. "It wasn’t done as a matter of convenience, either. They didn’t like that."

The financial interest link

The gist of the law is this, Barber explains: Physicians — MDs, DOs, DDSs, DMDs, podiatrists, optometrists, and chiropractors — cannot refer patients to any entity in which the physicians or their immediate family members have a financial interest for a designated health service for which Medicare or Medicaid may pay. (For a list of designated services, see chart, p. 157).

Immediate family members include husband or wife; parent, child, or sibling (natural or adopted); step-parent, step-child, or step-sibling; parents, children, or siblings in-law; and grandparents, grandchildren, and their spouses.

Unlike fraud and abuse laws, which require criminal intent for guilty verdicts, Stark II is a civil law.

"If you go through the hoops and don’t meet one of the exceptions, then you are dead," says Barber. "That’s why you need to understand it."

But most practices will find they meet the requirements through the exceptions, she says. For instance, if you are in a group practice setting that has owner physicians, they will own the radiology equipment, so you don’t violate Stark II if you refer patients to your own radiology department. Office ancillary services — such as imaging or lab — are excepted. If you are an employed physician, you also have an out, Barber says. "But you have to structure it so that it meets the compensation exception."

It is in compensation systems that most practices will feel the impact of Stark II, she says. "Take a cardiology practice. If you have radiology, and you pick up EKGs, and your group lets physicians receive compensation based on the number of EKGs they do per week, that will be in question. You will have to divide that revenue in a way that doesn’t take into account the volume that is done." The only exceptions to that are screening mammography and invasive radiology such as angioplasty. "Those are not designated services," she explains.

In a multispecialty situation, it grows even more complex, she says. For instance, you might have all your radiologists dividing radiology dollars and various specialities sharing lab dollars. "But we still don’t know if you have to split all that revenue among all doctors or just between docs in that department. Stark II doesn’t make that clear."

Under the current proposal, if there is an allocation of profit for a particular specialty or subspecialty only among those members, it is suspect, she says. "The narrower you pool, the more likely HCFA thinks you are getting paid for referrals."

Another issue yet to be decided that could affect practices is how "unified" the businesses have to be. Stark II has introduced a concept that states you must have centralized decision making, pooling of expenses and revenues, and a distribution system that doesn’t treat each office as its own entity, she says.

"If you have three offices that are all their own cost centers, then you may not qualify as a group practice. You would probably have to centralize and create a board for making decisions. If you have all three sites leased, then all the docs at all the offices should pay an equal share of the total of all the rents."

The regulations that will clarify some of these issues were supposed to be ready this year, but the comment period was extended. Barber says the optimists predict they’ll be ready in 1999, while the pessimists figure it will be 2001. Until then, Stark I regulations apply.

Those regulations will include a reporting requirement for practices. "They don’t have a form completed yet, but eventually, physicians will have to report all their financial arrangements," Barber says.

Get professional advice

Those who still have questions can write or call HCFA eventually, Barber says, "but they aren’t answering a whole lot of questions right now." The Jan. 9, 1998, Federal Register published the regulations (p. 1,659), she adds, but there are nearly 100 pages to look through. The Federal Register can be accessed on the World Wide Web at the following address: http://www.access.gpo.gov/su_docs/aces/aces140.html/.

"The main thing to know is that if you offer any designated health service, you need to get some professional advice in terms of making sure you are doing it right," she says.

"You may be able to continue doing exactly what you are doing. But if you have any volume of Medicare/Medicaid business, you need to make sure you can meet one of the exceptions."


The Health Care Group, Plymouth Meeting, PA. Telephone: (800) 473-0032.

Sally Barber, Esq., Parker, Poe, Adams & Bern stein, Charlotte, NC. Telephone: (704) 335-9026.