An Often Misunderstood Stark Law Exception: Ownership Exception

Stark Law violations can result in significant financial penalties for hospitals in addition to reputational damage, which is why it is crucial for hospitals to understand the restrictions and exceptions detailed under Stark Law. Here Bob Wade, an attorney at Baker & Daniels who specializes in healthcare law, clarifies the ownership exception under Stark Law.

Under Stark Law, there are many restrictions that do not allow physicians to make referrals based on ownership arrangements of separate entities, such as laboratories or another facility that offers medical services. The restriction on referrals based on ownership arrangements specifically means a physician owning a separate entity, such as a laboratory, cannot refer patients to that entity.

"For example, if I was a manufacturer of ice cream, I can own subsidiaries that distribute ice cream, and that's normal business," Mr. Wade says. "In an equivalent situation in the healthcare industry, I couldn't do that. If I manufactured ice cream and distributed it, I couldn't refer people to go to my shops and eat it if Stark applied to my ice cream business."

Understanding the granular details and exceptions under Stark Law begins with knowing the definition of a "physician group practice." Mr. Wade explains that although a physician cannot refer patients to an entity he or she owns, the same restriction does not apply for group practices. The definition of a group practice is a group of two or more physicians that provide most of their medical services through a single legal entity. Also important to note is the definition of a "member of the group practice," as opposed to independent contractors, who are deemed to be "physicians in a group practice." A member of a group practice, by definition, is directly employed by or is an owner of the practice and provides 75 percent of their medical services under that practice's billing identification number and can be paid share of the group practice's profit. An independent contractor cannot share in the group practice's profit.

Only under these exceptions can a physician make referrals that are not in violation of Stark within a group practice and share in the practice's profit, even profit from Stark covered "designated health services." There are other detailed requirements with the group practice definition and the in-office ancillary services exception, but the bottom line is if the physicians can meet the nuances of the group practice definition and the in-office ancillary services exception, they can cross-refer services even if they are an owner of the group practice.

"That is basically how Stark Law was started. Congressman Pete Stark found that physicians that owned laboratory entities had a high propensity to refer lab tests than those that did not own labs or utilize those services to the same extent," Mr. Wade says.

Read more about Baker & Daniels.

Copyright © 2023 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars