Pathology/Lab Coding Alert

Scrutinize your referrals to avoid inadvertent violations.

Every lab has seen news headlines trumpeting multimillion dollar settlements due to Stark law violations, but in reality, it may be hard for some laboratories to completely understand what these laws mean and how easy it is to violate them.

The unfortunate news that is violations may be more common than you think. But the good news is, if you follow these key strategies, you’ll ensure your lab is vigilant and will be able to spot an illegal arrangement.

Restrict Your Practice from These Referrals

Although the law is formally known as the Physician Self-Referral Law, it’s known colloquially as the Stark Law due to the name of California Congressman Pete Stark, who originally introduced it to Congress in 1989. The law “prohibits physicians from referring patients to receive ‘designated health services’ payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies.”

Data from the Centers for Medicare & Medicaid Services (CMS) shows that just 17 Stark law settlements occurred in 2019, but that number skyrocketed to a record 176 in 2023. In other words, the government is on the hunt for these violations, and is increasingly finding more of them (www.cms.gov/medicare/regulations-guidance/physician-self-referral/self-referral-disclosure-protocol-settlements).

Know the Stark Realities

If you or an immediate family member has a full or partial interest (investment, compensation, or ownership) in another healthcare company or service, that healthcare service or company cannot exclusively refer patients to your lab unless you have a documented exception.

Exceptions include an “in-office” anatomic pathology lab, certain employment arrangements, space and equipment leases, and many others. It’s a good idea to consult with your healthcare legal counsel about whether your arrangements meet all the requirements of an exception before you assume that you’ve successfully qualified for a Stark exception.

For those who get caught making a prohibited referral, you can expect a civil suit to follow with punishments ranging from fines, forced refunds, Civil Monetary Penalties (CMPs) up to $15,000 for each service, and program exclusions.

Avoid Violations by Asking These Questions

If you’re unsure of what might constitute a Stark law violation, it’s important to ask yourself three specific questions:

1. Has your physician made a referral for a designated health service, such as a lab service?

If the answer is yes, move on to question 2.

2. Does the physician or his immediate family member have a financial relationship with the entity providing the designated health service?

If the answer to this question is yes, move on to question 3.

3. Does the financial relationship fit into a Stark law exception?

If the answer to this question is yes, then you may not be in violation of the Stark law. However, if you don’t fall under an exception, you’re likely in violation.

Check These Lab-Focused Violation Examples

Stark Law violations aren’t always black and white. Check out two potential Stark law violations to see if you can determine if a violation of the law has taken place.

Example 1: Suppose your lab receives a patient referral from a practice in the next town over. The owner of the practice has an investment stake in the lab, but does not work there and is not even in the medical field.

This may not seem like a Stark violation, but it likely is, since the practice is referring patients to a lab where they have an investment stake. The practice owner is potentially profiting from the practices’ referrals and may be reaping the benefits from each patient they send to the lab.

Example 2: In 2021, an addiction treatment center paid $4.5 million to the Massachusetts Medicaid program to resolve allegations that it had violated the Stark law. At issue was that the treatment center required patients to take medically unnecessary urine drug tests, and that the same doctor owned the clinic and the laboratory — clearly a Stark Law violation (https://www.mass.gov/news/national-addiction-treatment-center-to-pay-45-million-in-first-of-its-kind-settlement-of-laboratory-self-referral-violations-and-claims-of-unnece­ssary-drug-tests).

Know the Designated Health Services

Laboratories are just one designated health service (DHS) that’s subject to the Stark law, but there are others as well. According to CMS, the following are all DHS examples:

1. Clinical laboratory services.
2. Physical therapy services.
3. Occupational therapy services.
4. Outpatient speech-language pathology services.
5. Radiology and certain other imaging services.
6. Radiation therapy services and supplies.
7. Durable medical equipment and supplies.
8. Parenteral and enteral nutrients, equipment, and supplies.
9. Prosthetics, orthotics, and prosthetic devices and supplies.
10. Home health services. 
11. Outpatient prescription drugs.
12. Inpatient and outpatient hospital services.

So if, for example, your lab evaluates a patient with low vitamin D levels and your pathologist refers to the patient to a parenteral nutrient organization that the pathologist’s spouse owns, that could be a violation of the Stark law and may set your practice up for penalties and violations.

Stay Vigilant

Not every Stark law violation will be obvious, so whenever your lab receives a referral, you should double check whether the referring clinician has performed the referral in the right manner and is not placing your lab in jeopardy of violating of the Stark Law. Keep a list of entities in which your lab owners and their immediate family members have any financial relationships, so you can cross-reference referrals against them and raise a red flag if anything suspicious arises.

Torrey Kim, Contributing Writer, Raleigh, N.C.