Question and Answer: Self-Referral/Stark Law And Anti-Kickback Regulations

Under Medicare and Medicaid

The following information is not intended as legal advice. It is a general description of prohibitions and permissions. For rulings on specific circumstances, individual legal counsel should be sought. (ASHA does not offer legal counsel. Professional associations that do typically charge a fee to members for the service.)

For additional information, see ASHA's Summary of Self-Referral and Anti-Kickback Regulations.

Self-Referral is referral by a physician to an entity with which the physician or a member of the physician's family has a financial relationship. The relationship is such that the physician would earn a financial return based on the success of, for example, a speech and hearing clinic in which the physician invested. The Stark II law (introduced by Rep. Pete Stark, D-CA) designates ten categories of Medicare and Medicaid health services for which self-referral is prohibited. Speech-language pathology services, durable medical equipment, orthotics and prosthetics are included in the designated health services.

Kickbacks are anything of value presented to a practitioner or supplier that may induce that entity to refer health services back to the source of remuneration. Adherence to business relationships based on fair market value transactions will usually negate accusations of the acceptance of kickbacks.

What prompted enactment of the self-referral laws?

The Stark I amendments, introduced by Representative Fortney (Pete) Stark (D-CA), in OBRA 1989 [1], were prompted by evidence showing the volume of clinical laboratory tests greatly increased if referring physicians had some degree of ownership in the lab. The Stark II amendments in OBRA 1993 [2] were driven by studies revealing soaring incidence of radiology procedures and physical therapy when the physician had ownership interest in the radiology or rehabilitation facility.

Do the self-referral and anti-kickback laws apply to me if my relationship with the physician does not involve services covered by Medicare or Medicaid?

Yes and No. The Stark law prohibits a physician with a financial relationship in an entity from making a referral for designated health services covered by Medicare and Medicaid to that entity even if the services are billed to an individual or other third party payer. The anti-kickback regulations apply only to services reimbursed by Medicare or Medicaid. See regulatory references.

  • Self-referral law
  • Anti-kickback law: Social Security Act, section 1128B(b)(1) (Medicare and Medicaid)

Did the self-referral and kickback regulations become effective simultaneously?

No. Anti-kickback provisions were included in the Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977 and enhanced in 1987. "Safe harbor" regulations became effective in 1992; they specify business practices that are guaranteed to not be considered kickbacks. Self-referral regulations for rehabilitation and other services become effective January 4, 2002 even though this expansion was included in1993 legislation (OBRA 1993).

Where can I find the "safe harbor" regulations mentioned above?

The actual regulations, 42 CFR 1001.951 & .952, are found at HHS Office of the Inspector General Web site.

I do not see speech-language pathology or audiology in the list of designated health services in the Stark II law, so why do the regulations apply to us?

HCFA interpreted "physical therapy" in the law to include speech-language pathology because of a misleading phrase in the Medicare statute. This was the same problem ASHA encountered when the therapy cap was interpreted as being shared between physical therapy and speech-language pathology.

Regarding services by audiologists:

  • While Medicare does not cover hearing aids, a Medicaid program that defines hearing aids as durable medical equipment or a prosthetic device (Stark designated health services) could link the audiology services to the self-referral law. This issue is subject to further legal interpretation.
  • Cochlear implants are defined as prosthetic devices under Medicare. The definition includes the services necessary to measure, fit and align the device, as well as instructions to the patient in its proper usage. Therefore, the device, as well as related audiologist services, are subject to the physician self-referral restrictions.

Do these laws apply to me as an employee or contractor of a physician or physician group?

No. Physician employees are exempt from the anti-kickback laws. For self-referral, the exemption holds as long as the services are

  1. supervised by the referring physician or by another physician in the group practice;
  2. rendered in a building where the referring or group physician also furnishes non-designated services (or in a centralized site used exclusively by the group for providing designated health services); and
  3. billed by the physician supervising the services, by a group practice of which the physician is a member, or by an entity that is wholly owned by such physician or group practice.

I rent office space from an otolaryngologist. Are they allowed to refer patients to me?

Yes, as long as the physician is not an investor in your practice. The self-referral law does not apply if the physician has no investment interest in your practice (i.e., the financial success of your practice does not result in a share of the profits going to the physician).

I rent office space from an otolaryngologist. May we refer patients to each other?

Yes. And if your rental is at fair market value, you are protected from kickback accusations. If you pay monthly office rent that is, let's say, one-third less than the normal/usual rate, you are, in essence, receiving a "gift" from the physician. Remuneration of any kind, except in reasonable exchange for goods and services, places you in danger of violating the kickback law because the remuneration could become an incentive for you to refer patients to that physician.

Kickbacks unrelated to Medicare or Medicaid covered services are not governed by federal regulations, however, many states have enacted their own kickback laws.

I rent office space from an otolaryngologist. As part of our rental agreement, I pay $25 for every hearing aid I fit. I receive referrals from many sources. Is this allowable, since Medicare does not cover hearing aids and we have no Medicaid clients?

This issue is subject to further legal interpretation. Audiologic testing referred by the physician, but unrelated to hearing loss and covered by Medicare, may be considered a sufficient link to the subsequently fitted hearing aid. In such case, the rental agreement is an illegal kickback arrangement because the physician is monetarily rewarded for referring patients.

I understand that rentals, purchases, and other dealings must be at fair market value when transacted with a practitioner or supplier that may induce referrals. How do I determine fair market value?

There are three descriptions of fair market value in the Stark law, and can be applied to kickback laws as well:

  • An arms length transaction that involves good faith bargaining between willing, well-informed parties;
  • The transaction has to be commercially reasonable, with evidence that the compensation is comparable to what is ordinarily paid for an item or service in the location at issue;
  • For leases, the value must be for general commercial purposes. It may not take into account, the intended use or any value attributed to proximity to a source of referrals.

Is cochlear implant programming subject to the Stark self-referral prohibitions?

Yes. Under Medicare, the cochlear device is defined as a prosthetic device and is, therefore, subject to self-referral restrictions. The definition includes the services necessary to measure, fit and align the device, as well as instructions to the patient in its proper usage. Therefore, the device, as well as related audiologist services, are subject to the physician self-referral restrictions.

The current regulations incorrectly classify cochlear implant programming as a service rendered by a speech-language pathologist and ASHA has taken issue with HCFA on that incorrect classification. However, that error is a moot topic regarding self-referral because the device type (prosthetic) establishes its inclusion under the law, not the type of practitioner. ( See related discussion)

My speech-language pathology contract with a Medicaid managed care organization gives a 10 percent discount in my per hour rate after the first 100 hours of services rendered per month. Is this legal?

Yes. Safe harbor 1001.952(m)(1) specifies that a reduction in a provider's payment amount is allowed if the payment is from a health plan that has contracted with a Medicaid program. The contract between you and the health plan must be for not less than one year. Your discount will not be considered an inducement for the health plan to refer more business to you.

For additional information, please contact

[1] Omnibus Budget Reconciliation Act of 1989

[2] Omnibus Budget Reconciliation Act of 1993, Sec. 13562 (Medicare), Sec. 13624 (Medicaid)

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