Texas News


Date ArticleType
1/9/2015 Member News
THCA Membership Contribution: Stark Law Concerns with Skilled Nursing Facility Medical Directors by Richard Y. Cheng, Anderson Kill

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:


President's Report

84th Legislative Session
     has arrived 

Legislative Update

     Budget Outlook is Mixed
for New Legislature

     New Leaders Taking the
     Reins of Texas Government

     THCA Members Gearing Up
     for Busy Legislative Session

State News

     Effective February 1, 2015, 
Institutional Claims 
Submitted Via -- EDI Must 
Have All Required Field 

     HHSC Issues Information 
Letter on Minimum 
Payment Amount Program 

     Important: Physician Last 
Name Must Match Last 
Name on Associated
     License on Assessments

     Distribution of Resident  
     Days by RUG Level 

     Analysis of Survey Activity, 
Deficiencies Enclosed – 4th 
Quarter FY 2014 

Announcements & Recognitions

     2015 THCA Membership 

     AHCA/NCAL 7th Annual 
Quality Symposium

THCA Membership Contribution 

     Stark Law Concerns with 
     Skilled Nursing Facility
     Medical Directors


     THCAPAC "$500 Club" 

Region News

     Fighting the Flu Requires
     Constant Vigilance!

     SAVE THE DATE! Provider 
trainings are coming to an 
area near you – please help 
spread the word

     Upcoming Region Meetings


Medicaid Managed Care
     Institute - 
January 26-28, 2015

THCA Spring Conference
     and Resource Fair 
April 20 - 22, 2015, 
Barton Creek Conference 
Center - Austin, TX

     THCA 65th Annual 
Convention and Trade Show
     September 21 - 24, 2015
     The Gaylord Texas
     Grapevine, Texas

     DADS and DSHS 
Conference:  Infection 
     Control in Long-term Care 

     The Health and Human 
Services Commission 
(HHSC) Provider Training

     If you have suggestions for
     education sessions or questions
     about THCA education, please
     contact Sue Wilson at the THCA


     January, 2015 

February 2015
  outline the obligations of each party a written and signed agreement for at least one year.
  • physician duties and services must be specifically described. 
  • the agreement must be commercially reasonable.
  • the services must be reasonable and necessary for legitimate business purposes.
  •  the amount paid must be consistent with fair market value (FMV).
  • the amount paid must be set in advance and have no direct or indirect relationship to volume or referrals by the physician. 
  • the agreement must not involve counseling or promotion of any business arrangement or other activity that violates any state or federal law.

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.).