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Stark Realities: How the Physician Self-Referral Act Affects Group Practices

Though the Physician Self-Referral Act (Often called the Stark Law or Stark II) was enacted in 1993, few Physicians truly understand the law or its application to Physician Practices. The Stark Laws directly effect physician group practices and other health care providers.

In a nutshell, the Stark Law includes two basic prohibitions:

  1. Physician cannot refer Medicare or Medicaid patients to an entity providing designated health services if the physician has a financial relationship with the entity.
  2. An entity cannot bill Medicare or Medicaid for services provided pursuant to an illegal referral.

Penalties can include fines of up to $15,000 per illegal referral, exclusion from the Medicare and Medicaid programs, and restitution of illegally billed claims.

Obviously, these very broad prohibitions cover a multitude of relationships between physicians and other health care providers. Fortunately, the law includes specific exceptions designed to allow legitimate and beneficial business relationships. Compliance with the precise requirements of a statutory exception is mandatory; close enough is not an option.


For a physician group practice, the most important Stark exception is the in-office ancillary services exception. This exception allows members of the group to refer patients for designated health services using facilities owned or operated by the group practice.

For example, many physicians group practices have their own labs and equipment to provide designated health services. Without the in-office ancillary exception, members of the group would be prohibited from using their own lab or facilities for their patients.

To qualify for the in-office ancillary services exception, the following requirements regarding location and performance must be met:

Location: The designated health service must be performed in either: 1) the same building where the referring physician or another member of the physician's group practice has his or her office, or; (2) a location used by the group practice for the centralized provision of the designated health service.

Performance: The designated health service must be personally performed by the physician or another member of the group practice, or by individuals employed or directly supervised by a member of the group practice. According to the OIG, "directly supervised" means the supervising physician must be in the same office suite and readily available, in case of emergency, when the service is performed.


The in-office ancillary service exception makes numerous references to services provided by other members of the same group practice. Under Stark, group practice is a term that includes very specific requirements. To qualify as a group practice, all of the following must apply:

  • The group must consist of two or more physicians legally organized as a partnership, professional corporation, foundation, not-for-profit corporation, faculty practice plan, or similar association.
  • Each physician member must provide substantially the full range of his or her normal services through the joint use of shared office space, facilities, equipment and personnel.
  • Substantially all of the services of physician members are provided through the group and are billed under the group's name and billing number.
  • Group overhead expenses and income are distributed in accordance with predetermined methods.
  • No physician member of the group receives compensation that is directly or indirectly based on the volume or value of referrals by the physician. (The law goes on to state, however, that physicians in group practices are entitled to profit and productivity bonuses based on: a share of the overall profits of the group; services personally performed by the physician; or services performed incidental to the physician's services. The bonus may not be directly related to the volume or value of referrals by such physicians.)
  • Group members personally conduct no less than 75% of the physician/patient encounters of the group practice.
  • The group must meet any other standards established by the Secretary of the Department of Health and Human Services.

A loosely integrated group of physicians, such as a "clinic without walls" or an independent practice association, is unlikely to qualify as a group practice under Stark. Often, the biggest stumbling blocks for such organizations are the requirements that substantially all of the members' services be billed in the group name using a group provider number and that group members personally conduct at least 75 percent of physician/patient encounters for the group.

Even those groups that have operated as unified practices for years have occasionally discovered—to the horror of the lawyers—that they were not in full compliance with these requirements.

Note: This article is intended for general information only. It is not intended to give legal advice for specific situations. As always, readers should consult an attorney for specific legal guidance.

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