Defenses to Stark Law Violations
Stark law violations are very fact driven so that a proper defense can turn the tide in favor of the defendant.
Stark Law violations carry significant consequences for physicians and healthcare entities, including civil penalties, potential False Claims Act liability, and exclusion from Medicare participation. Enacted as the Physician Self-Referral Law (42 U.S.C. § 1395nn), Stark operates under strict liability—meaning intent isn’t required to establish a violation, only the existence of a prohibited referral tied to a financial relationship. However, the law is not an impenetrable fortress; it contains technical, statutory, and procedural defenses that can be leveraged effectively. Below is a detailed examination of just some of the possible strategies to challenge Stark Law charges. allegations.
1. Statutory Exceptions: Mapping Compliance with Precision
Stark Law’s prohibitions on referrals for designated health services (DHS) payable by Medicare when a financial relationship exists are tempered by exceptions outlined in 42 C.F.R. § 411.355-357. Successfully invoking an exception can nullify a violation. For instance, the In-Office Ancillary Services Exception (§ 411.355(b)) permits DHS (e.g., imaging, labs) performed within a practice if it meets group practice requirements (§ 411.352), including direct supervision and in-house delivery to established patients. Compliance hinges on meticulous documentation—patient charts, supervision records, and ownership details.
Another critical exception is the Fair Market Value (FMV) Exception (§ 411.357(l)), which allows compensation arrangements provided they reflect FMV and aren’t tied to referral volume or value. This requires robust evidence—market comparables, independent appraisals, and written agreements—to demonstrate legitimacy. Any deviation risks scrutiny, but a well-documented arrangement aligned with regulatory standards can withstand challenge.
2. Absence of a Financial Relationship: Breaking the Nexus
Stark Law applies only where a “financial relationship”—direct or indirect ownership, investment, or compensation—exists (§ 411.354). If no such link can be proven, the case collapses. For example, an indirect relationship (e.g., a family member’s ownership in a referred entity) requires an unbroken chain of financial ties and a causal connection to referrals (§ 411.354(c)(2)). Scrutiny of corporate records, equity distributions, and referral patterns can reveal the absence of a tangible link. The burden rests with the government or relator to establish this nexus; a lack of clear evidence dismantles the allegation.
3. Technical Noncompliance: Leveraging Procedural Flexibility
Stark Law demands precision—unsigned contracts, expired leases, or missing FMV documentation can trigger violations. However, CMS provides a 90-day grace period under the Temporary Noncompliance Rule (42 C.F.R. § 411.353(g)) to correct clerical errors, such as an undated agreement, as long as the arrangement substantively complies with an exception. Retroactive fixes—e.g., signing a previously unsigned contract—can be validated with supporting evidence like payment histories or email correspondence demonstrating intent. Beyond 90 days, a “course of conduct” argument—using prior audits or consistent practices—may mitigate technical lapses, as seen in judicial interpretations post-U.S. ex rel. Drakeford v. Tuomey (2015).
4. Self-Disclosure Protocol: Strategic Preemption
The CMS Stark Self-Referral Disclosure Protocol (SRDP), authorized under § 6409 of the Affordable Care Act, offers a voluntary mechanism to report actual or potential violations. Submitting within 60 days of identifying an overpayment (42 U.S.C. § 1320a-7k(d))—e.g., a minor lease overpayment—can significantly reduce penalties. The SRDP requires a detailed submission: a narrative of the violation, financial calculations, and corrective steps. Successful disclosures have lowered settlements from millions to nominal amounts, though the process carries risks of further investigation if not executed with precision.
5. No Referral or DHS: Definitional Boundaries
Stark Law applies only to “referrals” for “designated health services” (§ 411.351). Services performed in-house—e.g., a physician prescribing durable medical equipment (DME) within their practice—do not constitute referrals. Electronic health records (EHR) and billing data (e.g., CPT 99213) can confirm the absence of an external handoff. Additionally, not all services qualify as DHS; Stark enumerates 10 categories (e.g., clinical labs, radiology), excluding others like chiropractic adjustments. A thorough analysis of HCPCS and ICD-10 codes can exclude a service from Stark’s scope, nullifying the violation.
6. Scienter and FCA Separation: Containing the Damage
While Stark is strict liability, False Claims Act (FCA) liability (31 U.S.C. § 3729) tied to Stark violations requires scienter—knowing submission of false claims. Demonstrating good faith—e.g., reliance on legal counsel or flawed but reasonable FMV assessments—can sever the FCA link, limiting exposure to Stark’s civil penalties ($15,000 per claim, triple overpayments; § 1395nn(g)(1)) rather than FCA’s treble damages and $23,000-per-claim maximum. Case law like U.S. v. Halifax Hospital (2014) underscores intent’s role in FCA escalation; compliance efforts evidenced by audits or memos bolster this defense.
Technical Mastery in a High-Stakes Arena
Stark Law violations threaten severe repercussions—$15,000 per prohibited referral, triple overpayment recovery, and potential Medicare exclusion (§ 1395nn(g)). Yet, its complexity offers defensive avenues: statutory exceptions, definitional limits, and procedural safeguards. Each requires exacting analysis—regulatory cross-references (e.g., CMS Pub 100-20), financial forensics, and evidentiary rigor. Whether facing an Office of Inspector General investigation, Department of Justice probe, or Qui Tam action, these strategies demand expertise in healthcare law, valuation, and litigation.
For healthcare providers caught in Stark’s web, these defenses aren’t theoretical—they’re actionable. Properly deployed, they can neutralize allegations and preserve a practice’s viability.
Daniel Horowitz is an experienced medical fraud defense lawyer with successful defense throughout the United States.