Legal Implications in Pain Medicine: An Overview of the Federal Stark Law and Anti-Kickback Statute

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Legal Implications in Pain Medicine: An Overview of the Federal Stark Law and Anti-Kickback Statute 2016-10-18T10:56:10+00:00

Legal Implications in Pain Medicine

Dear Arizona Pain Specialists,
My partner and I run a busy interventional pain medicine practice which provides a number of ancillary services, including urine drug screens, back braces, x-ray, magnetic resonance imaging (MRI) and physical therapy. Because of our growth, we are now looking to hire a new physician. In a recent interview, a physician asked if he could receive bonuses based on his referrals for ancillary services. How do we accommodate the physician’s request without violating federal laws and jeopardizing our practice?
Thank you, Legally Unsure

Dear Legally Unsure:

This is an excellent question and one that all pain management practices with ancillary services should be asking themselves. Because of the complex nature of pain and its comorbidities, many practices offer a variety of services to treat all of a patient’s pain symptoms. Most multidisciplinary pain practices use ancillary services. The types of ancillary services commonly provided by pain management facilities include urine drug screens, prothrombin time–international normalized ratio tests, outpatient prescriptions (e.g., opioids, nonsteroidal anti-inflammatory drugs), MRIs, x-rays and various types of therapies (e.g., physical, occupational, behavioral). The utilization of these services often can be to internal ancillary services or to outside entities. However, when making internal referrals (and especially when discussing the potential for bonuses in regard to these referrals), there are a number of issues of which pain physicians need to be cognizant.

Certain risks are inherent to the practice of medicine. For instance, most physicians comprehend the legal implications that relate to malpractice, but many of them fail to understand the myriad federal and state laws that relate directly to how they manage their practice. Physicians often naively assume that if they practice good medicine, everything else will “take care of itself.” This fallacy can lead to both civil and criminal penalties. Health care is a highly regulated industry, and the federal government actively and aggressively enforces health care laws. Physicians must make a dedicated effort to learn these laws and operate within them if they wish to have long- term successful careers in health care.

There are two federal laws that specifically relate to your question: the Ethics in Patient Referral Act (aka, the “Stark Law”) and the Anti-Kickback Statute (AKS). Depending on where you practice, there likely are state laws that also apply to your question. However, because state laws vary, our discussion is limited to the Stark and Anti-Kickback laws.

The Stark Law

The Stark Law (42 U.S.C. §1395nn) is named after the congressman who sponsored the law, Rep. Pete Stark (R-Calif.). The original version of the law (Stark I) went into effect in 1992 and applied only to clinical laboratory services. In 1995, the law was expanded (Stark II) to apply to 10 different categories of “designated health services” (DHS). Fundamentally, the Stark Law is intended to minimize or prohibit financial incentives for physicians who self-refer Medicare or Medicaid patients for certain DHS. To this end, the Stark Law prohibits physicians from referring Medicare and Medicaid patients to an entity with which the physicians (or their immediate family members) have a financial relationship where the referral is for DHS, unless the relationship falls under an exception to the Stark Law.

Two types of financial relationships are covered under the Stark Law: investment interests and compensation arrangements. Financial relationships may be either direct (i.e., relationships between a physician and an entity providing DHS) or indirect (i.e., when there are intervening entities between a physician and a DHS entity). Investment interests are fairly self-explanatory: Compensation arrangements may take many forms, including employment relationships, independent contractor relationships, leases, gifts and discounts. As owners of your practice, you and your partners have an investment interest in the practice; however, if you also receive W2 income or guaranteed payments from the practice, you also may have a compensation arrangement with the practice. Physician-employees or contractors will have a compensation arrangement with the practice.

The 10 categories of DHS are:

  • clinical laboratory services (e.g., urine drug screens);
  • outpatient prescriptions (i.e., all drugs reimbursable under Part B or D of Medicare);
  • radiology and certain other imaging services (e.g., x-ray, MRI, computed tomography scans, positron emission tomography scans, ultrasound, etc.);
  • radiation therapy services and supplies;
  • physical therapy, occupational therapy and speech-language pathology; parenteral and enteral nutrients, equipment and supplies;
  • durable medical equipment and supplies;
  • prosthetics, orthotics and prosthetic devices and supplies;
  • home health services; and
  • inpatient and outpatient hospital services.

DHS are diverse and include most ancillary services provided by pain medicine practices. Consequently, unless each financial relationship with a practice falls under an exception, each of the DHS for Medicare and Medicaid patients that you, your partner and your new physician order will violate the Stark Law.

The Stark Law is a strict liability statute, which means you can violate the law even if the violation was unintentional; know, too, that the penalties are harsh. For example, claims submitted for DHS in violation of the Stark Law may result in 1) Medicare not paying the claim or your refunding the amount received; 2) civil monetary penalties of up to $15,000 per referral to DHS, plus up to three times the amount of the claim; 3) liability under the Federal False Claims Act; and 4) exclusion from participation in federal health care programs.

Although physicians would like to believe that enforcement of the Stark Law is rare, the number of cases against doctors and hospitals is daunting. From 2001 to 2010, there were almost 100 different settlements with the Office of Inspector General (OIG) based on alleged violations of the Stark Law and/or the AKS.

A few recent settlements illustrate how serious these violations can be. In April 2010, Tuomey Hospital in Sumter, S.C., was found to have violated the Stark Law and was ordered to pay more than $49 million to the government. The violations were based on employment contracts between Tuomey Hospital and community physicians at Tuomey’s outpatient surgery center. Another recent case involving Detroit Medical Center (DMC) resulted in a $30-million settlement with the government. This case was particularly troubling to legal watchdogs because of the largely technical aspects of the violations in question. For example, it has been reported that DMC provided meals to several physicians that exceeded the annual monetary limits permitted by the Stark Law ($355); some physicians were given tickets to sporting events; and some physicians’ contracts with DMC were not signed.

In contrast, there is an exception to the Stark Law that permits your practice to provide DHS to Medicare and Medicaid patients pursuant to referrals from you, your partner, and physician- employees and contractors: It’s called the “in-office ancillary services” (IOAS) exception. Generally speaking, the IOAS exception has four requirements: 1) a physician supervision requirement; 2) a site of service requirement; 3) a billing requirement; and 4) a “group practice” requirement. Strict compliance with each requirement is mandatory. Because the requirements are extremely technical and fact-intensive, we are not able to discuss each requirement in detail; however, we will briefly discuss the one that is directly related to your question.

The Stark Law’s “group practice” definition prohibits physicians from receiving compensation from a group practice that is based directly on the volume or value of the physician’s referrals for DHS. The definition permits physicians to receive compensation that includes DHS revenues as part of the group’s overall profits or a productivity bonus that is based on the physician’s personally performed services or services incident to such personally performed services. Because of the law’s strict liability and draconian penalties, the Centers for Medicare & Medicaid Services (CMS) has identified certain profit-share and productivity-bonus methodologies that, if strictly adhered to, are deemed compliant with the group practice definition. However, other indirect compensation methodologies are permitted.

Anti-Kickback Statute

The Anti-Kickback Statute (42 U.S.C. §1320a-7b

[b]) went into effect in 1972 and makes it a felony for anyone to “knowingly and willfully” solicit, receive, offer or pay anything of value as an inducement for referrals. The AKS’s language is extremely broad and it could be deemed to apply to providers involved in legitimate business ventures. In fact, the AKS has been interpreted to cover any arrangement where “one purpose” of the remuneration was to obtain money for the referral of services or to induce further referrals.

In response to concerns that the AKS might be applied to punish providers engaged in legitimate business activities, Congress directed the Department of Health and Human Services (DHHS) to create “safe harbors” that define practices that are not subject to the AKS because the practices would be unlikely to result in fraud and abuse. Conduct that strictly complies with all of a safe harbor’s conditions is deemed by DHHS to comply with the AKS. Unlike the Stark Law, however, conduct that does not fit within a safe harbor does not necessarily violate the AKS.

Although the Stark Law and the AKS are similar in that both of them contain broad prohibitions to prevent perceived fraud and abuse of federal health care programs, the laws differ in several aspects. For example, the AKS is much broader than the Stark Law; the AKS applies to all items and services that are reimbursable by a federal health care program, not just DHS payable by Medicare or Medicaid. Moreover, the AKS applies to referrals from any type of individual or entity, whereas the Stark Law applies only to physician referrals. Furthermore, the Stark Law is a strict- liability statute that requires no level of intent to violate the law, in contrast to the AKS which requires a knowing and willful intent to induce referrals. Lastly, the Stark Law is a civil statute, violations of which may result in exclusion from participation in federal health care programs; the AKS is a criminal statute, violations of which require mandatory exclusion.

There have been numerous judgments and settlements involving the AKS over the past few years. One example is a settlement in May 2010, involving a hospital in Mount Auburn, Ohio. The hospital agreed to pay $108 million to settle accusations that they violated the AKS and the False Claims Act. The violations involved illegally paying physicians in exchange for referring cardiac patients to the hospital.

There are statutory and regulatory employee safe harbors to the AKS that permit group practices to compensate physicians based directly on their referrals for items and services payable by a federal health care program; there also is an “investments in group practices” safe harbor that applies to profit distributions to the group’s owners. The employee safe harbors offer broad protection to compensation paid to a group’s legitimate W2 employees. The group-practice safe harbor is nearly identical to the IOAS exception.

So What Can You Do?

You’ve probably already figured out that, yes, the physician can receive bonuses that include ancillary service revenues, but no, the bonuses may not be based directly on the volume or the value of the physician’s referrals to the ancillary services. However, be smart about how you approach the situation. Before you agree to any bonus terms, you should first consult with an experienced health care attorney to ensure that the bonus structure complies with the Stark Law and AKS, and that the allocation of ancillary service profits between you and your partner complies with these laws. Additionally, you will want to make sure the bonuses and profit allocations comply with all applicable state laws.

The rules governing the practice of medicine are vast and constantly changing. Physicians on the wrong side of these laws may face fines, penalties, expulsion from federal health care programs and even prison time. Therefore, it is absolutely essential to have some knowledge of the laws that govern your practice.
The CMS and the OIG for DHHS have a number of online educational resources, as do most local, state and national medical societies and organizations. Although it is important to maintain your own knowledge base of the law through resources such as these, it also is crucial to have expert guidance. For this reason, we highly recommend having an attorney in your state, with a thorough knowledge of these laws, on your team. An attorney can provide career-saving input and guidance, as well as serve as a source of thorough knowledge of the laws that you may not have time to stay current with by yourself.

—Paul Lynch, MD, Tory McJunkin, MD, Bryan Bailey, JD, Ryan Tapscott, MS, and Christi Makas, MD

Dr. Lynch and Dr. McJunkin own and operate Arizona Pain Specialists, a comprehensive pain management practice that provides minimally invasive, clinically proven treatments, with three locations in the greater Phoenix area. Dr. Lynch and Dr. McJunkin also provide consulting services to other pain doctors around the country through their partner company, Boost Medical. For more information, visit and