Did I violate the Stark Statute?

David J. Goldberg, M.D., J.D.Dr. Money is the senior member and managing partner of a six-partner dermatology practice-all members of Skin Money, LLC. Fifty percent of their practice patients are insured by Medicare. One of his partners owns his own separate and distinct dermatopathology lab that is located two miles away. Because he is a partner, Skin Money, LLC has a simple deal with that lab to get $25 back from any biopsy submission to the lab. This amount is less than what they would pay the dermatopathologist if he were paid his customary percentage commission for working in the practice. All the partners are comfortable with this arrangement.

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Ten years after this arrangement was put in place, Dr. Money and Skin Money, LLC are named as defendants in a $15 million Stark violation lawsuit. What did they do wrong?   

Designated health services

The essence of the Stark statute is a prohibition on a physician (or immediate family member) referring a Medicare patient to an entity with which the physician or family member has a financial relationship, when the referral is for any of a targeted list of “designated health services” (DHS), unless the financial relationship meets one of a host of exceptions. For dermatology, the primary impact of this law is on relationships between dermatology practices and dermatopathologists. Because clinical laboratory services are on the DHS list, the complexities are considerable.

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A “referral” under Stark is any request for a service, item, or good payable by Medicare. This definition includes referrals within a group practice. In order to refer to another physician for the professional portion of a pathology service, or to ancillary personnel to perform the technical portion, the relationship of the physicians must meet the definition of a group practice.

To qualify as a group practice, there must be at least two “members” of the group. A member is a shareholder, W-2 employee, or a partner. Independent contractors do not count as members.

Each member of the group must provide the full range of services-medical care, consultation, diagnosis, or treatment-that he or she routinely provides. Services must be provided through the joint use of shared office space, facilities, equipment, and personnel. Substantially all of the services of members of the group must be provided through the group and be billed under a billing number assigned to the group. The monies received must be considered the group’s receipts.

NEXT: Stark rule and exceptions

The primary Stark rule is that no physician may be compensated for the volume or value of his referrals of DHS. A physician may always be compensated dollar-for-dollar for the services he or she performs, and he or she may be paid a productivity bonus for his or her own work. In addition, within a group practice, compensation may include profit sharing.

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One of the exceptions under Stark allows referrals to a physician who is “in the group.” This includes an independent contractor when he or she is performing services on the premises of the group. Dermatology groups that are engaging with dermatopathologists often do so on an independent contractor basis. However, the group may not bill for that physician’s Medicare services unless when he or she performs them, he or she utilizes the group’s premises.

There have been numerous situations where a larger group of dermatologists compensate themselves for the volume of specimens referred to the dermatopathologist for whose services they bill. This is also not consistent with the compensation rules associated with the definition of a group practice. Yet another permutation involves dermatologists in separate practices who want to own a slide preparation facility which their preferred dermatopathologist will use for their specimens. This would also violate the law.

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The Stark laws must be complied with since claims submitted in violation of Stark not only are overpayments and subject to a $15,000 civil money penalty, but also can be false claims. A recent settlement, amounting to over $3 million, between the United States Department of Justice and Family Dermatology of Pennsylvania, PC is testament to how severe the penalties can be.

The relationship between dermatology and dermatopathology is one that offers some significant financial benefit to practices that include dermatologists. However, the maze is intricate and should be entered with caution. Despite the intentions of Skin Money, LLC, they have violated the Stark Laws.