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Texas Health Care Fraud Arrests: The Physician Self-Referral Law aka Stark Law, a Criminal Defense Overview

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Health care is an almost incomprehensibly big business in this country.  According to the Centers for Medicare and Medicaid Services (CMS), spending in the U.S. health care industry accounts for almost a fifth (19.7%) of our Gross Domestic Product (GDP) with $4.1 Trillion (yes, trillion) spent in health care during the calendar year 2020 alone.

It’s an American distinction.  Research confirms the United States spends “…significantly more on health care than any other nation,” with health insurance coverage an ongoing political issue (e.g., the Affordable Care Act and the Medicare-for-All campaign.)  Read, Wang, Kevin. “The Stark Law in the Modern Health-Care World.” S. Cal. Rev. L. & Soc. Just. 29 (2019): 273.

The Reality: Referral Marketing

So, it’s not surprising to see successful business enterprises dedicated to facilitating health care services especially as it pertains to physicians through “referral marketing.”  Today, doctors are encouraged to participate in carefully considered business development plans focused upon marketing strategies to keep up with their competition.  This may well include “physician liaisons” to facilitate referrals to the practice.  According to ZipRecruiter, there were over 1452 openings for Physician Liaisons in the Dallas metroplex in February 2022 with over 281 of these positions advertising a starting salary of $220,000.00 or more.

Referrals as a means of building a medical practice isn’t a new concept, of course.  Old school chats over a game of golf, connecting with medical school alumni, even casual conversations in the hospital hallways, are all traditional methods that providers have used to build their practices and find new patients.  Referrals are not bad – they’re an intrinsic part of practicing medicine today.

When Referrals Turn Into Arrests: Criminal Defense Warning to Texas Doctors

The problem, from a criminal defense perspective, is the lucrative medical marketing industry coupled with the astronomical profitability of health care creates tremendous pressure on providers to find referrals and boost their practice’s bottom line.  In the pressure to maintain or surpass others in their practice or business niche, that physician may violate serious federal fraud law that outlaws a wide range of physician referrals.

Even if the doctor had no intent or understanding that the referral was illegal, he or she can face the horror of becoming the subject of a federal investigation.  Becoming the subject of a federal inquiry alone, even if those allegations are later dismissed, can be devastating to both their personal and professional reputations.

The defense lawyer’s warning:  an unadvised referral can end up doing the exact opposite of what was intended.  Instead of building a practice, it can dismantle it should federal authorities merely perceive it to be against a specific federal law, known as the “Physician Self-Referral Law.”

What is the Physician Self-Referral Law?

Distinct from the federal Anti-Kickback Law is the Physician Self-Referral Law found in 42 U.S.C. § 1395nn, which is also known as the “Stark Law.”  It applies to federal medical insurance coverage (Medicare, Medicaid) claim payments received by a health care provider.

The Stark Law makes it illegal for physicians in Texas and the rest of the country to refer a patient who is eligible for Medicare or Medicaid to any entity with which that doctor has a financial relationship.  The Stark Law is filled with limitations, exceptions, and exclusions.  Its provisions also get amended or altered by Congress periodically (with the latest amendments to the Stark Law becoming effective in February 2018).

Strict Liability:  What About the Physician’s Intent?

Alleging a violation of the Stark Law is a powerful charge available to federal prosecutors dedicated to combating health care fraud for many reasons, not the least of which is that the Stark Law has been written to help the Justice Department get convictions against doctors with less evidence than might be required in other fraud cases.

How? Congress decided the federal government does not have to find admissible evidence of intent on the part of the doctor to violate federal law in order for the government to get a conviction for health care fraud based upon the Stark Law.  The Stark Law, in legal terms, is a “strict liability statute.”

What Referrals Are Illegal Under the Stark Law?

In general, the Stark Law contains the following “prohibition of certain referrals” as follows, with numerous statutory exceptions, limiting definitions, etc.:

If a physician (or an immediate family member of such physician) has a financial relationship with certain entities listed in the statute (detailed below) then:

  1. the physician may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made under this subchapter, and
  2. the entity may not present or cause to be presented a claim under this subchapter or bill to any individual, third party payor, or other entity for designated health services furnished pursuant to a referral prohibited under subparagraph (A).

For purposes of this federal law, “designated health services” (DHS) is defined as:

(A) Clinical laboratory services;

(B) Physical therapy services;

(C) Occupational therapy services;

(D) Radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services;

(E) Radiation therapy services and supplies;

(F) Durable medical equipment and supplies;

(G) Parenteral and enteral nutrients, equipment, and supplies;

(H) Prosthetics, orthotics, and prosthetic devices and supplies;

(I) Home health services;

(J) Outpatient prescription drugs;

(K) Inpatient and outpatient hospital services; and

(L) Outpatient speech-language pathology services.

See, 42 USC § 1395nn(h)(6).

Who are Prohibited Relationships Under the Illegal Physician Referral Law?

First, the Stark Law points to financial relationships as the cornerstone of the alleged illegal activity.  It explains that an ownership or investment interest may be through equity, debt, or other means.  It includes an interest in an entity that holds an ownership.  It also includes an investment interest in any entity providing the designated health service.

The prohibited activity, according to the Stark Law, consists of a financial relationship of a physician (or an immediate family member of such physician) with an entity that involves:

  1. an ownership or investment interest in the entity, unless a statutory exception applies (e., subsections (c), (d)); or
  2. compensation arrangementbetween the physician (or an immediate family member of such physician) and the entity, unless the statutory exception applies (i.e., subsection (e)).

See, 42 U.S.C. § 1395nn (a)(2).

Penalties Facing Doctors Convicted of Violating the Federal Physician Self-Referral Law

Under the Stark Law, upon conviction of each violation involving a referral or claim faces a $15,000 civil money penalty.  If the facts support the existence of an overpayment, then there can be a $100,000 civil monetary penalty.  See, 42 U.S.C. § 1395nn.

Of critical importance from a criminal defense standpoint, for each allegation of a violation of the Stark Law that is proven by the AUSA, there likely will be an analogous charge that the federal Anti-Kickback Law has been violated, as well.  This is where the felony criminal case is based. 

With conviction of violation of the Anti-Kickback Law, the provider faces a criminal conviction of up to five (5) years in jail for each violation as well as significant monetary fines.  For details, read our earlier discussion of the Anti-Kickback Statute.

The criminal charges will be controlled by the United States Sentencing Guidelines.  For more on health care fraud convictions and the sentencing guidelines, read our discussion in Federal Crimes and Sentencing Guidelines: Health Care Fraud.

Defenses to Stark Law Charges

In preparing to counter an allegation of a violation of the Stark Law, the experienced health care fraud defense lawyer will first delve into the evidence compiled by the AUSA to determine its authenticity and admissibility.  An independent investigation of the circumstances surrounding the federal charges will also be undertaken.

Challenging the Prima Facie Case

Once all these facts are gathered, the defense must compare them with the statutory complexities of the Stark Law.  To prevail, there must be authenticated and admissible evidence of the following:

  1. Federal insurance
  • the patient is a valid and covered Medicare patient; or
  • the patient is a valid and covered Medicaid patient.
  1. The target of the alleged referral, as that term is defined in the statute:
  • involves the physician-defendant; or
  • involves an immediate family member of the physician-defendant.
  1. The existence of a referral as defined by the statute.
  2. The referral involves a “designated health service” as defined by the statute.
  3. The existence of a financial relationship between the target of the alleged referral and the entity receiving the referral, as that term is defined in the statute.

Defense: Statutory Exceptions

The Stark Law also includes a litany of exceptions to its application. To date, there are almost twenty (20) distinct exceptions listed.  Accordingly, a clear defense to allegations that a provider has violated the statute is to provide admissible evidence that one of these statutory exceptions applies.

These include:

  • The referral is for preventative services (including vaccines)
  • The referral is for in-office ancillary services (e.g., radiology tests)
  • The referral is between two physicians in the same practice
  • The referral is to a health maintenance organization (HMO) (or other type of pre-paid organized health service)
  • The financial relationship involves physician recruitment.

Texas Physician Self-Referral and Anti-Kickback Law Criminal Defense

Texas physicians, as health care providers, perform their work in one of the most lucrative and competitive marketplaces in the country.  Doctors must practice medicine and run a business, a duality of purpose that entices the federal government to consider the possibility of fraudulent activity in a growing number of scenarios.

Even an innocent marketing activity of a Texas doctor can be investigated as a possible violation of the Physician Self-Referral Law – and with it, a corresponding criminal charge based upon the federal Anti-Kickback statute.

Referrals are a vital component to the practice of medicine.  Referral marketing is big business today as a service industry targeting the health care provider.

It is critical that all health care providers understand that any action, no matter how innocent the doctor believes it to be, may be seen by federal agents as a possibly illegal referral and a reason to begin further investigation into the practice.

Of course, this focus has its limits.  The clearest demarcation is that federal monies must be involved before the federal agents have jurisdiction or the federal statutes can apply.

Federal health care fraud defense lawyers advocate for highly intelligent and sophisticated professionals who are disgusted and demoralized at even the hint of federal inquiries being leveled at them and their business.

Nevertheless, these federal queries happen more and more often.  Prosecutors can expand the smallest case into a complicated complaint filled with an assortment of charges.  Not only allegations of the Stark Law being violated in tandem with the AKS can result, but a zealous AUSA may add other serious felony charges such as money laundering, conspiracy, and more. 

Read:

It is advantageous for any Texas health care provider who suspects they may have come into the sights of a federal health care fraud investigation to seek experience criminal defense counsel as soon as possible.

For more on Texas health care fraud defense, read:

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For more information, check out our web resources, read Michael Lowe’s Case Results, and read his in-depth articles,” Pre-Arrest Criminal Investigations”  and 10 Questions to Ask Before You Hire a Criminal Defense Lawyer.

 


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