Recent Changes in Stark Law Enforcement

May 4, 2012 | Health Services

The federal government has recently begun targeting physicians practice groups that have relationships with hospitals for Stark Law enforcement.

Bristol Hospital and Bristol Gastroenterology Associates recently agreed to pay $157,830 to settle allegations that they violated the Stark Law and other federal law due to improper leasing arrangements between the hospital and the practice group.  The group occupied a suite at the hospital but did not enter into a written lease.  After almost two years, a written lease was signed, but the hospital did not collect any rent for almost another two years.  During the period of time that the practice group occupied space in the hospital, the practice group referred their patients to the hospital. 

The Stark Law prohibits providers from referring patients to providers with whom they have certain kinds of financial arrangements, unless an exception applies. 

Leases between a hospital and a practice group can implicate the Stark Law if referrals are made by the practice group to the hospital, unless all the elements of the Stark Law lease exception are met.  The elements or the exception are:

  1. The lease must be set out in writing, signed by the parties, and specify the premises covered  by the lease;
  2. The term of the lease must be at least one year;
  3. The space leased must be reasonable and necessary for the legitimate business purposes of the lease;
  4. The space leased must be used exclusively by the lessee when being used by the lessee;
  5. The rental charges must be set in advance, consistent with fair market value, and cannot be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties; and
  6. The lease agreement would be commercially reasonable even if no referrals were made between parties.

What is unique about this case is that the government pursued both the hospital and the practice group for the Stark Law violations.  Typically, the hospital is the target, as it is the entity that bills and submits claims to Medicare.  However, under the Stark Law, a practice group is also liable, as it is the entity that makes the referrals for services that are billed to and paid by Medicare. 

Given the risks associated with non-compliance with the Stark Law coupled with the changing enforcement strategies of the government, now would be a good time for practice groups to review any lease arrangements they may have with hospitals or other providers of designated health services to ensure that they are compliant with the Stark Law. 

Reprinted with permission.  All rights reserved.

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