Congress enacted a physician self-referral law in 1993 after learning the incidence of radiology procedures and physical therapy greatly increased when the patient's physician had an ownership interest in the facility or clinic. This law is the result of legislation introduced by Representative Fortney (Pete) Stark (D-CA), then Chairman of the U.S. House Ways and Means Health Subcommittee. An earlier self-referral law ("Stark I") had been enacted for clinical laboratory services only. The self-referral amendments of the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) went into effect January 1, 1995. However, enforcement has been limited because the final regulations (for Medicare only) were not issued until January 4, 2001, and not effective until January 4, 2002.
The self-referral law prohibits Medicare and Medicaid payments when a physician refers any of ten "designated health services" (DHS) to an entity where the physician has a financial relationship. Employees or contractors of physicians are exempt from this law when providing in-office ancillary services (see further discussion below). CMS interpreted the "physical therapy" DHS as including speech-language pathology services, based on parenthetical wording in the longstanding Medicare statute, despite ASHA's detailed rebuttal.
The effect of speech-language pathology services as a DHS is that physicians will be reluctant to financially assist speech-language pathologists in establishing a practice (and creating an investment interest) because the physician would be forbidden to refer Medicare or Medicaid patients. In ASHA's regulatory comments to CMS, we supported the freedom for physicians to have an investment interest in our members' practices without the creation of a non-referral barrier.
While audiology services are not mentioned in the law's DHS list, hearing aids may be included under the durable medical equipment (DME) DHS where a state Medicaid program defines hearing aids as DME. For such states, ASHA has not seen a definitive legal opinion that would require the sale of hearing aids to be independent of a physician's practice. The hearing aid/DME implications are not clear at this time. As of July, 2005, self-referral regulations applicable to state Medicaid programs have not yet been issued.
For additional information, see Question & Answer: Self-Referral/Stark Law and Anti-Kickback Regulations Under Medicare & Medicaid.
Certain financial relationships between the audiologist or speech-language pathologist and physician are protected (i.e., are "safe") as long as rules described in the "safe harbor" regulations are adhered to.
Self-referral is enforced separately from the Medicare and Medicaid anti-kickback laws. While the self-referral law must involve physicians, anti-kickback regulations apply to anyone who "knowingly and willfully offers, pays, solicits, or receives remuneration in order to induce business reimbursed under the Medicare or Medicaid programs." 
The safe harbor regulations define payment and business practices that will not be considered kickbacks, bribes, or rebates that unlawfully induce payment by Medicare or Medicaid programs. The regulations specify allowable financial and referral relationships between physicians or other providers and suppliers.
A basic rule dominant in the safe harbor regulations is that financial transactions between potential referring parties be conducted at fair market value. For example, if an audiologist pays a physician monthly rent for office space that is one-half the going rate or fair market value, that low rate represents remuneration to the audiologist. Such sweetheart deals are likely to induce the audiologist to refer a patient to the physician landlord rather than any other physician. The law does not care that the audiologist knows and trusts the physician and the referral is convenient for the patient. The law was passed because a practitioner can be financially motivated to refer a patient to a specific practitioner rather than selecting the most expert practitioner for that particular patient.
Employees of physicians, as in the self-referral law, are exempt from anti-kickback laws [(see regulation section 1001.952(i)]
Authorized by the Anti-Kickback Provisions of the Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977 and the Medicare and Medicaid Patient and Program Protection Act of 1987.
Certain financial relationships between referring providers of services and supplies can be defined as kickbacks, i.e., some type of financial reward in exchange for giving or receiving referrals. The Centers for Medicare and Medicaid Services (CMS) developed regulations that describe financial relationships that would clearly be safe from prosecution under the anti-kickback laws. Thus, the regulations are known as "safe harbors." They specify payment and business practices that are guaranteed to not be considered as kickbacks, bribes, or rebates under the Medicare and Medicaid programs.
The safe harbor regulations [42 CFR 1001.952 (a)-(u)] describe protected business relationships in the following areas
(a) investments in other practices and businesses
(b) rental of space
(c) rental of equipment
(d) personal services and management contracts
(e) sale of practices
(f) referral services
(g) warranties of equipment
(i) remuneration to employees
(j) group purchasing organizations
(k) waiver of beneficiary coinsurance and deductible amounts
(l) increased coverage, reduced cost-sharing or reduced premium amounts offered by HMOs or other prepaid health plans
(m) price reductions offered to health plans
(n) practitioner recruitment
(p) investment in group practices
[(o) and (q)-(s) impact medical specialties or hospital cooperatives]
(t) price reductions offered to eligible managed care organizations (MCOs)
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 42 CFR 411.355(b)(1), (b)(2)
 Section 1128B(b) of the Social Security Act