July 22, 2019

July 22, 2019

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Under Stark, “Value” Doesn’t Mean “Expensive”: Healthcare

The federal Stark law prohibits physician referrals of “designated health services” payable by Medicare to entities with which the physician or an immediate family member has a financial relationship, unless the arrangement meets an exception.  Enforcement initiatives aim at extending the reach of Stark to Medicaid as well. Various types of arrangements create financial relationships and, subject to certain defined exceptions and among other types of arrangements, a financial relationship will exist when a referring physician or an immediate family member receives “remuneration.”  The Centers for Medicare & Medicaid Services (“CMS”) has interpreted remuneration as including items of limited value.  For that reason, the provision of anything of value, no matter how little, must be carefully considered, as the consequences of having a financial relationship that does not meet an applicable Stark exception, if any, can have catastrophic legal and financial consequences.  Guidance from CMS and one enforcement case reveal just how expansive the reach of Stark can be.

In a 2013 CMS Advisory Opinion, a provider of clinical laboratory services wanted to give free Pap smear specimen collection kits to physicians for use in collecting and submitting samples to the lab.  According to one commentator, the kits had limited value.  The lab would ensure that the number of kits provided to a physician was consistent with the physician’s practice needs.  In addition, the free devices were disposable, were not reusable, and had no practical use other than the intended specimen collection.  CMS determined that the devices fell within an exception to the definition of remuneration because they were “used solely to collect, transport, process or store specimens.” The arrangement therefore did not violate the Stark law, but the agency cautioned that an arrangement for items other than “single use” devices may result in a different conclusion.

As an example of just how fine that distinction may be, in another 2013 opinion, CMS determined that a different single use device resulted in remuneration and constituted a financial relationship under the Stark law.  In that scenario, a laboratory services corporation wanted to provide physicians with free devices used in obtaining abnormal cervical biopsies.  According to a pathology blog, one such possible device may have been valued at approximately $10.80.  As with the prior scenario, the device was single use.  In this case, however, CMS determined that the biopsy of abnormal cells, rather than a routine Pap smear, constituted a surgical procedure, making the device at issue a “surgical device” (i.e., not “used solely to collect, transport, process or store specimens”), resulting in an exchange of value to the recipient and causing the arrangement to fall within the Stark law.  (The opinion did not address whether the arrangement met any exception to the self-referral prohibition.)

A 2014 Florida case also highlights the potential liability an entity faces when it crosses this delicate line. In Ameritox, LTD v. Millennium Laboratories, Inc., Millennium Lab provided free urine collection cups to physicians for use in urine analysis. The cups were relatively inexpensive (valued at approximately $11.00 according to one commentator and approximately $5.00 by another) but included testing strips for immediate sample analysis.  Because the cups included testing strips, the government took the position that they did not fall within the laboratory supplies exception and constituted remuneration for Stark purposes, even though the physicians had agreed not to bill for the cups. A jury subsequently imposed $2.755 million in actual damages for violation of the Stark law and Anti-Kickback statute and over $8.5 million in punitive damages based on unfair competition and tortious interference.

These examples underscore the importance of ensuring that any arrangement with a referring physician or immediate family member involving any item of value, however small, falls within an enumerated Stark exception and/or does not fit within the definition of “remuneration.”  Failure to do so, even for seemingly inexpensive items, can lead to significant penalties.

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About this Author

Walter L. Williams, Steptoe Johnson, Healthcare, Confidentiality Issues Lawyer,

Walter Williams concentrates his practice in health care and business transactions involving health care providers, both for-profit and tax-exempt, confidentiality issues (including HIPAA), medical staff and bylaws issues, medical records, licensure, Medicare and Medicaid fraud and abuse, Stark self-referral limitations, health care contracting, including physician recruitment and employment agreements, managed care, compliance, recovery audit contractor advice, and general health care issues. Additionally, Mr. Williams' has had significant involvement in real estate...

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