Physician Compensation Stark Law

Communication Around Stark Law Allegations & Physician Compensation

Screen Shot 2016-03-28 at 12.33.18 PMToday, an increasing number of hospitals and health systems across America are finding themselves in the middle of investigations regarding Stark Law violations. Industry publications are filled with articles about hospitals who have reached large legal settlements with the government to resolve alleged violations of the Stark Law.

Fundamentally, the law places limits on physician self-referrals:

“Physician self-referral is the practice of a physician referring a patient to a medical facility in which he has a financial interest, be it ownership, investment, or a structured compensation arrangement. Critics of the practice allege an inherent conflict of interest, given the physician’s position to benefit from the referral. They suggest that such arrangements may encourage over-utilization of services, in turn driving up health care costs. In addition, they believe that it would create a captive referral system, which limits competition by other providers.” (Source:

Physician compensation is directly related to the Stark Law. For example, if a physician is heavily compensated beyond fair market value, it may give the appearance of an incentive to stimulate referrals. Stark was primarily developed to limit improper financial incentives that are seen to drive medically unnecessary procedures that thereby increase healthcare costs.

“Specifically, a hospital may not base any part of a physician’s compensation on the expected value of business the physician will refer to the hospital. Rather, the compensation must be consistent with fair market value for the actual services provided by the physician on behalf of the hospital. It is generally permissible to pay a physician fair market value for his or her own personal productivity.” (Becker’s Hospital Review, August 2013)

It is recommended that any entity hiring physicians engage an independent valuation firm to perform a compensation evaluation to determine compliance with provisions of the Stark Law. Hospitals should also use industry surveys to determine fair market value. Overall, hospitals entering into compensation agreements with referring physicians must have well-documented processes in place to ensure that the compensation arrangements are in compliance with the Stark Law.

“In its commentary to the Stark Law, CMS recommends the use of multiple, objective, independent published surveys for evaluating the FMV of physician compensation. Commonly used surveys to determine the FMV of a physician’s compensation are the (i) Medical Group Management Association compensation survey, (ii) the Group Practice Compensation Trends survey published by the American Medical Group Association and (iii) the Physician Marketplace Statistics survey published by the American Medical Association.” (Becker’s Hospital Review, August 2013)

The Department of Justice does not mince its words when it releases information about these cases. That’s true even in the case of settlements with alleged violators of the Stark Law. Here are some quotes I pulled from Department of Justice press releases, so you know what you may be up against:

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If and when your hospital is investigated for possible violations of the Stark Law, will you be ready to advise your organization’s leadership on related communication strategies?

If you’re not up-to-speed on Stark Law issues and how they may impact your hospital, here are some resources:

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