Ronnen Isakov Jan 29, 2024 9:31:01 AM 5 min read

Stark Law and its Impact on Fair Market Value

Welcome back to our five-part series on Fair Market Value in the healthcare industry! If you have not yet read part one of the series – Understanding Fair Market Value and Commercial Reasonableness – you can find it here. Part two of our series, below, focuses on The Stark Law, Anti-Kickback Statutes and their impact on Fair Market Value.

The Physician Self-Referral Law — more commonly known as Stark Law — prohibits physicians from referring patients for certain Designated Health Services (DHS) to entities with which they have a financial relationship, unless an exception applies.

By setting restrictions on how physicians refer designated health services, Stark Law ensures physicians act in the patient’s best interest by removing any incentive for financial gain from the equation. It eliminates conflicts of interest that could otherwise influence healthcare decision-making and, above all, aims to promote transparency and fair healthcare practices. 

So how exactly does Stark Law work? 

The Stark Law prohibits a physician from referring patients to receive Designated Health Services (DHS) payable by Medicare or Medicaid from entities with which the physician has a “financial relationship.” The term “financial relationship” is defined in the Stark Law to include both compensation arrangements and interests in investment and/or ownership. In addition, the term “referral” is defined more broadly than merely recommending a vendor of DHS to a patient. Instead, the term “referral,” as defined in the Stark Law, means “the request by a physician for the item or service” and, for all other services, “the request or establishment of a plan of care by a physician which includes the provision of the designated health service.”

The Anti-Kickback Statute (AKS), similar to Stark Law, is designed to block the influence of potential monetary gain in medical decision making. AKS forbids making or receiving kickbacks for items or services covered by Medicare, Medicaid, and other federal and healthcare programs. Specifically, a kickback is remuneration paid to induce a patient referral. AKS prohibits offering, paying, soliciting or receiving kickbacks, bribes, or rebates in cash or in-kind, directly or indirectly, for referring patients to providers in return for an item of service and from buying, leasing or ordering any item, service or facility that is covered by Medicare, Medicaid, or other federal healthcare programs. 

The exception to the ban on remuneration services is when an arrangement meets defined payment practices called “safe harbors.”

Compensation arrangements that are required to be representative of Fair Market Value under both Stark and AKS include employment, independent contractor, medical directorships, physician service agreements, on-call coverage agreements, medical staff officer/director stipends, etc. 

Compliance with Stark and AKS allows healthcare entities to better align with actual practices without restricting innovative relationships between the providers and entities providing designated health services to their patients. 

Stay tuned for part three of our Fair Market Value series, in which we’ll go more in-depth on Designated Health Services and the impact they have on Stark Law.

Have questions about Fair Market Value, Stark Law or Anti-Kickback Statutes? Please contact Ronnen Isakov, Managing Director Advisory Service of Medic Management Group.  

Ronnen Isakov is Managing Director Advisory Service of Medic Management Group. His background includes extensive work in areas including business advisory, valuation, network optimization, transaction support, and project management.