Volume XXX, Number 1, 
January 2015

Stark Law Concerns with Skilled Nursing Facility Medical Directors
by Richard Y. Cheng,
Anderson Kill

Skilled nursing facilities (SNFs) regularly enter into compensation arrangements with physicians to obtain medical director services. Depending on the structure and practices involved with such an arrangement, SNFs could be at risk for violating Section 1877 of the Social Security Act (aka “Stark Law”). Stark Law is a strict liability law, so intent is not needed for such a violation.

Stark Law prohibits a physician (or a physician’s immediate family member) from referring Medicare and Medicaid patients to SNFs he or she has a direct or indirect “financial relationship” for designated health services (DHS), unless an exception applies. Physician SNF activities that would constitute a referral include establishing or approving plans of care, certifying and recertifying medical necessity or any physician orders for services paid by Medicare Part B and Medicare Part D – specifically for medications. Other referral activities may include consultation with another physician, tests or procedures ordered by or to be performed by that other physician or under the physician’s supervision. It does not include services personally performed by the referring physician.

It is important to understand that in a SNF, services or items paid by Medicare Part A on a per diem basis under the RUG rate system is a DHS exclusion. As such, if a service listed as a DHS is provided as part of the SNF per diem RUG rate, then Stark Law is not triggered because it is not a DHS for the purposes of Stark Law. If the same service is provided but is not included in the per diem rate, such as physical or occupational therapy furnished under Medicare Part B, then the service or item is considered a DHS and Stark Law may be an issue. Because SNFs provide both per diem and non-per-diem services, it is highly possible that a financial relationship exists between a physician and the SNF. Thus, look for an applicable exception for the DHS provided.

While there are over 34 exceptions to the Stark Law, there are certain applicable exceptions that are more prevalent in long term care. Exceptions usually apply to ownership or investment, compensation arrangements or both. SNFs should be clear on which exception is relied upon when establishing a medical director arrangement. Is it an actual investment or simply a compensation for services? These are questions that a SNF should consider if an exception is relied upon. The most common exception used by SNFs is the Personal Services Exception. To meet this exception, an agreement for a physician’s services must:
 

NOTE: Phase II of Stark modified the one-year requirement to permit a termination clause. If the agreement is terminated within the first year of the original term, the parties are precluded from entering into another same or similar agreement for the remainder of the first year.

If a medical director also has an ownership interest in the SNF, the relationship must meet a Stark Law exception for both the medical director arrangement and the physician’s ownership in the facility itself, which are few in number (e.g. rural provider exception, publicly traded securities exception, etc.).