How Your Medi-Spa May Be Inadvertently Violating Stark Law

Physician referrals are great for business, but they can also bring prohibited conflicts of interest. Get to know Stark Law and learn how to avoid putting your medi-spa at risk.

An essential legal concern while operating, or first establishing, medical spas or integrative medicine facilities entails anti-kickbacks, self-referring clients, and fee-sharing with outside parties. Laws forbidding ill-gotten financial gains by physicians and physical therapists can be easily violated without willful intent.

Section 1877 of the Social Security Act (42 U.S.C. § 1395nn), also known as Stark Law, is widely known as the ‘conflict of interest’ statute.  Broadly, it prohibits conflicts of interest between cash remuneration and services rendered. As medi-spas are primarily cash operations, and physicians are prohibited from referring Medicare and Medicaid patients to facilities in which they have financial interests, the quandary medi-spa owners face is ubiquitous. 

This post examines three areas of Stark Law that medi-spa owners should be cognizant of when growing or establishing their practices.

Level of Physician Ownership

Physicians are obligated to comport themselves with equanimity in all manners of public concern, not just when finances are involved. Medi-spas need physician referrals to sustain operations, much like physicians require a steady infusion of patients to maintain private practices. Stark Law does not question the depth of ownership, but punishes physicians who leverage referrals for financial benefit.

To avert potential violations, medi-spas may entertain using group practices rather than individual physicians for referral streams. Although strict adherence to Stark’s group practice provision must be followed, deeper involvement and more creative ways to compensate groups for their infusion of referrals are attractive incentives to consider this route.

Certain Compensation Arrangements May Raise a Red Flag

Prohibited compensation arrangements may trigger Start Law violations, especially those involving an outside entity exclusive to whatever arrangement the medi-spa and physician have established – for example, two physicians from separate practices, or a physician and hospital.

One provision to OBRA 1989, Stark I, rolled out exceptions that foster appropriate business arrangements between medi-spas and physicians referring patients. Through this addendum, physicians are empowered to create healthy relationships with outside service providers so long as the sole concentration of these partnerships is not financially motivated.

Stark II, or OBRA 1993, added additional bans and provisions to rebuke unhealthy financial arrangements involving Medicare and Medicaid patients. Many argued that Stark II was an invasion of legitimate medical practice, which President Clinton’s Balanced Budget Act addressed.

Stark Law, as written, does not forbid internal referrals within physician groups. It simply punishes compensation arrangements which interfere with the establishment of patient-doctor relationships, primarily those deemed to hinder the ethical practice of medicine.

Ancillary Services May Implicate Stark

To accurately diagnose and treat a variety of patient illnesses, ancillary services are often required. These services include, but are not limited to, radiation therapy, radiological testing, occupational or physical therapy, and lab testing. Because medi-spas offer ancillary medical services in an atmosphere that mirrors traditional day spas, and Stark Law includes outpatient ancillary services, it is easy to unintentionally violate Stark.

Structuring relationships between physicians and medi-spas that include equipment and office leasing, along with establishing how transactions will occur when ancillary services are requested from medi-spas, could establish a law-abiding yet mutually beneficial partnership that provides referrals and compensation.

Jackson LLP can help with your Stark Law compliance.

The undeniable complexities of Stark Law may unintentionally place medi-spas and physicians in compromising legal positions, which also puts you at risk of heavy fines and penalties.

Our skilled healthcare law attorneys can navigate the often confusing provisions of Stark Law, allowing you to concentrate on your practice while remaining compliant. Schedule a consultation below to discuss your concerns with one of our attorneys.

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