Presentation by Sarah E. Coyne and Leah M. McNeely for Health Care Compliance Association © 2016 Quarles & Brady LLP - This document provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular circumstances before acting on any of this information because it may not be applicable to you or your situation.

2. The Stark Law: A
Proactive Practical
Approach to
Internal Audit
January 25, 2017

3. The Plan for Today
• Stark Law Refresher
– Overview on the Stark law
– Recent changes to the Stark law
• Internal audits
– Tips for identifying potential Stark law
violations
– Discussion of Stark audit checklist
• What to do if an audit identifies potential
Stark law violations?

4. Stark Law Refresher
4

5. Stark Physician Self-Referral Law
• 42 U.S.C. § 1395nn; 42 C.F.R. § 411.350 et
seq.
• Basic Prohibition: Physicians may not make
referrals for certain designated health services
(DHS) payable by Medicare to an entity with
which the physician or an immediate family
member has a financial relationship….
UNLESS AN EXCEPTION APPLIES!!
• Strict liability – no bad intent needed

6. Four Part Analysis
• There is a four part analysis to determine
whether an arrangement violates the
Stark Law.
• If the answer to each of the four
questions is "yes," the Stark law is
violated, unless an exception applies.

7. Four Part Analysis
1) Is there a financial relationship
between the referring physician and DHS
Entity?
– Financial Relationships:
• Ownership (stock, LLC membership, secured
debt, etc.)
• Compensation (any form of remuneration or
value)
– Direct or indirect

8. Examples of Financial Relationships
• Professional Courtesy
• Perks to Medical Staff
Physicians
• Equipment Rentals
• Discounts or Freebies
to Physicians
• EHR Arrangements
• Employment or
Independent
Contractor
Agreements
• Medical Director
Agreements
• Leases
• Call Coverage
Payments
• Recruitment Packages
• CME Offerings
• Physician/Hospital
Joint Ventures

9. Four Part Analysis
1) Is there a financial relationship between the
referring physician and DHS Entity?
(continued)
– Physician:
• Doctor of Medicine or Osteopathy
• Doctor of Dental Surgery (DDS) or Dental Medicine (DMD)
• Podiatrist
• Doctor of Optometry
• Chiropractor

10. Four Part Analysis
1) Is there a financial relationship between the
referring physician and DHS Entity?
(continued)
– Relationship with physician's immediate family
members also count:
• husband or wife (including same-sex spouse)
• birth or adoptive parent
• child or sibling
• step relative (parent, child, brother, sister)
• in-laws (father/mother, son/daughter, brother/ sister)
• grandparent or grandchild and spouse of a grandparent or
grandchild

11. Four Part Analysis
1) Is there a financial relationship between the
referring physician and DHS Entity?
(continued)
• An “entity” is the person or organization that
“furnishes” DHS Entity means:
– A physician’s medical practice
– A practice of multiple physicians
– Any organization (or person) furnishing DHS
• Furnishing DHS – performing the DHS or presenting
the claim to Medicare for DHS even if the right to
payment has been reassigned
• Examples: Hospitals, Group Practices, Clinical Labs

12. Four Part Analysis
2) Did the physician make a referral for DHS?
– Broadly defined
– Request, Order, Plan of Care, Cert, Recert, Consult
– Includes anticipated referrals
– The physician cannot ask another physician to refer
for him/her
– A referral by a physician for DHS that is performed
or provided by the referring physician is NOT a
referral

13. Four Part Analysis
3) Is the referral for DHS?
– 11 categories (next slide)
– Remember that everything billed by a
hospital = DHS

14. Designated Health Services
(DHS)
1. clinical laboratory services
2. occupational therapy
services
3. radiation therapy services
and supplies
4. parenteral and enteral
nutrients
5. equipment and supplies,
home health services
6. inpatient and outpatient
hospital services
7. physical therapy services
8. radiology services
9. durable medical
equipment and supplies
10. prosthetics, orthotics and
prosthetic devices and
supplies
11. outpatient prescription
drugs

15. Four Part Analysis
4) Is the DHS payable by Medicare?

16. What About Medicaid?
• There is room for argument about whether violation of
the Stark Law directly renders claims to Medicaid
illegal.
• There were once CMS proposed rules to cause Stark
to apply to Medicaid payment but they were never
finalized.
• Many states have a “mini-Stark Law” that mimics the
Stark Law for Medicaid.
• DOJ and several courts have taken the position that
the Stark Law does apply to Medicaid for the purpose
of False Claims Act allegations.
− In other words, billing Medicaid pursuant to an arrangement that is
illegal under Stark is a false claim to Medicaid.

17. Basic Stark Law Analysis
• If the answers to all four questions are
YES, then Stark is violated.
• Unless the financial relationship between
the referring physician and DHS entity
meets one of Stark’s exceptions.

18. Stark Exceptions
• Need to meet the right “category” of exception
• Compensation exceptions (e.g., FMV, PSA, Lease)
generally require:
– FMV, flat-rate payments
– Signed, written arrangement (2016 update - no formal
contract needed)
– At least one year term (2016 update – does not have to be
express)
– Commercially reasonable deal
– Terms that are “set in advance” (no retroactive deals)
• Ownership and Combo exceptions
– In-office ancillary service exception is main one used by
groups
– Rural provider exception for non-metro areas

19. Common Stark Exceptions
• Fair Market Value Compensation
• Bona Fide Employment Arrangement*
• Physician Recruitment
• Nonmonetary Comp/ MS Incidental Benefits*
• In Office Ancillary Services
• Rental of Office Space or Equipment
• Personal Services Arrangement
• Payments by a Physician*
• Isolated Transactions*
• EHR Donations
* No need for signed, written documents

20. Stark Penalties
• Good News: No Criminal Penalties
• Bad News: Substantial Civil Penalties
– Denial/Repayment of Prohibited Claims
during Period of Disallowance (see next
slide)
– Civil Monetary Penalties ($15,000/claim for
knowing; $100,000 for circumvention)
– False Claims Act (treble damages)
– Monetary and exclusion for physicians
(knowing violations)

21. The Period of Disallowance
• The period during which a compensation
arrangement is out of compliance with Stark.
• The period of disallowance begins at the time
the relationship fails to satisfy the requirements
of an exception.
• Period of disallowance continues until:
– The arrangement is brought into compliance.
– Any excess compensation is repaid by physician(s).
– The hospital repays Medicare or discloses under
SRDP.

22. Recent Changes
to the Stark Law –
Good Ones!
22

23. Writing Requirement (Softened)
• Most Stark exceptions require the
arrangement to be in a signed writing.
• In 2016, CMS loosened up this
requirement such that lack of a "formal
contract" will not be a problem provided
that there are contemporaneous
documents evidencing the course of
conduct.
• A collection of documents is okay.

24. Examples of Appropriate
Documents Evidencing a Writing
• Board minutes
• Time sheets
• Emails or handwritten communications between the
parties.
• Fee schedules for specified services.
• Check requests or invoices identifying services, dates
and compensation.
• Call coverage schedules (or similar) evidencing
service coverage.
• Accounts payable or check records for specified items
or services.

25. Writing - Signature Requirements
• Signature is required on a contemporaneous
writing documenting the arrangement.
• A signed writing must clearly relate to the other
documents in a collection and to the underlying
arrangement.
• Lack of signature okay for 90 days now,
regardless of whether it was "inadvertent"
(every 3 years – per physician).

26. Writing - Timing
• A document generated or produced after
a referral is made does not provide a
basis for that (previous) referral.
• If the only documents in existence were
created after an arrangement was
created, the parties will not be able to
show that the compensation was "set in
advance."

27. One Year Term (Softened)
• Used to be required to be in the contract
for certain exceptions (space/ equipment
lease, personal services).
• Now if there is a collection of documents
evidencing that it did last at least one
year, that is sufficient.

28. Holdovers
• Indefinite holdovers are permitted
– Used to be limited to 6 months
– PSA, Lease, and FMV arrangements
– Terms and conditions cannot change
– Express holdover provision is not required,
but helpful
– Holdover arrangement must continue to
meet all elements of exception, including
FMV

29. Split Bill Arrangements
• Split bill arrangements do not implicate
Stark
– Hospital’s provision of space, equipment,
etc. to physician is not “remuneration” if
hospital bills TC and physician bills PC
– Global billing does trigger the Stark law

30. Commentary on Stark vs.
Health Reform
• CMS acknowledged disharmony between new
integrated payment/delivery structures (e.g.,
ACOs) and Stark
• Acknowledges industry’s concern that the
Stark law prohibits relationships necessary to
carry out integration necessary for health
reform
• Government is studying issue

31. New Exceptions
• Assistance To Compensate a Nonphysician
Practitioner
– For FQHCs, RHCs, and hospitals, there is a Stark
law exception for payment to a physician to assist
the physician with compensating a non-physician
practitioner.
• Timeshare Arrangements
– Physicians and hospitals may share space,
equipment and services, e.g., to visiting specialists
on a non-exclusive "as-needed" basis without
violating Stark (rather than traditional formal fixed
lease where "leasehold interest" is conveyed).

32. Internal Audits for
Potential Stark Law
Violations
32

33. Conducting Internal Audits
• Issues to consider prior to beginning
an audit
–e.g., attorney involvement, internal
communication/education

34. Conducting Internal Audits
• Stark Audit Checklist
– How to prioritize
contracts/arrangements/invoices to review
– Discuss list of items to look for when
performing audit
• E.g., does written agreement exist – has it
expired? Or fallen out of fair market value? Are
services / is space still accurately described?

35. Stark Traps
• Physicians with multiple relationships:
each must meet an exception
• All elements of exception must be met
• No exception for patient convenience or
de minimis payments
• “I didn’t know” or “I didn’t mean to” is not
a defense (strict liability)

36. Stark Traps
• Watch out for “exclusive use” requirements in
space and equipment lease exceptions
• Anything billed by hospital becomes DHS
• Contracts with no auto-renewal clause
• Long term contracts that do not adjust for FMV
changing over time

37. Common Stark Violations
• Above FMV transactions - windfalls to physician
• Commercially unreasonable deals
• Undocumented arrangements
• Expired or unsigned contracts (but now certain
holdovers are permitted)
• Compensation tied to referrals (per-click deals; %
compensation)
• Excessive recruitment deals to existing groups
• Deals/payments that do not match paperwork
• Expensive gifts and perks to medical staff physicians
• Retroactive contracts or price adjustments

38. Steps to Take if You
Identify a Potential
Stark Law Violation
38

39. Two Basic Response Options to
Suspected Stark Violation
1) Do nothing if no clear violation is found
– Bona fide arguments of compliance?
2) Self report and repay if violation is found
– Directly to Medicare contractor
– To CMS under Stark Self-Referral Disclosure
Protocol
• 60-day “clock” starts once violation is
“identified”

40. Self-Referral Disclosure Protocol
• The SRDP was established by the ACA.
• The SRDP is essentially a process to enable providers
to self-disclose actual or potential violations of Stark
(only).
• SRDP lists factors that CMS may consider in reducing
the amounts owed by a disclosing party, but states:
“CMS is not obligated to reduce any amounts due and
owing.”
• Benefits of self-disclosure:
– Possibility of reduced penalties.
– Avoidance of exclusion as part of a settlement.
– Potential protection from a viable qui tam whistleblower action.

41. Self-Referral Disclosure Protocol
– Four year look back (may be changing to 6
years).
– Detailed submission required – with
compliant contracts and estimated
overpayment.
– CMS calculates repayment amount.
– No appeal; open house to regulators.
– Hope, but no promise of reduced
repayment.
– Clearly stops 60 day clock.

42. After Settlement, You Still Have
More To Do!
– Deal with patient copayments
– Assess Medicaid repayment
– Think about AKS violations
– Think about IRS implications
– Get everything compliant going forward (the
contracts already should be there by the
time of SRDP)
– Communicate with accountants relating to
audited financials/ cost report

43. Questions?
Sarah E. Coyne
Quarles & Brady LLP
33 E. Main Street
Madison, WI 53703-3095
(608) 283-2435
sarah.coyne@quarles.com
Leah M. McNeely
Quarles & Brady LLP
33 E. Main Street
Madison, WI 53703-3095
(608) 283-2412
leah.mcneely@quarles.com

44. © 2015 Quarles & Brady LLP - This document provides information of a general nature. None of the
information contained herein is intended as legal advice or opinion relative to specific matters, facts,
situations or issues. Additional facts and information or future developments may affect the subjects
addressed in this document. You should consult with a lawyer about your particular circumstances
before acting on any of this information because it may not be applicable to you or your situation.