What if you, a medical professional, want to sell your practice? Or rather, maybe you want to expand your dental practice by acquiring another? Regardless of whether you are a dentist or a family practitioner, there is a chance that Stark Law could come into play in both transactions. The general rule is as follows: if the purchasing entity, regardless of the type of health practice, plans on providing designated health services for any Medicare or Medicaid patients, then it should ensure the transaction falls under the isolated transaction exception provided for under Stark Law. You may not understand what this rule means right now, but that is why you must continue reading.[i] 

What is Stark Law?

Stark Law refers to a set of statues enacted in the late-1980s and 1990s that have subsequently been rewritten and revised. Generally, Stark Law prevents doctors from referring Medicare and Medicaid patients for designated health services if the referring physician (or immediate relative of the physician) has a financial relationship with the referred health practice. The term “designated health services” (“DHS”) is practically all-inclusive, with inpatient and outpatient hospital services, clinical laboratory services, and outpatient prescription drugs all falling under its umbrella (along with many, many more).[ii] A financial relationship is created between a referring physician and an entity when the physician has an ownership or investment interest in the entity, or is compensated in some way for the referral to the entity.

An important aspect of this law is that a physician’s prohibited financial relationship with an entity that furnishes DHS is not imputed to his or her group practice or its members or staff. This is not the case, however, for the inverse, as a referral made by a physician’s group practice, its members, or its staff may be imputed to the physician if the physician directs the group practice to make the referral or if the physician controls the referrals made by his or her group practice. For you dentists out there, please note that “physicians” do include doctors of dental surgery or dental medicine – sorry.

Are There Any Applicable Exceptions?

Exceptions to Stark Law do exist, and one such exception is for isolated transactions. An isolated transaction means one involving a single payment between two or more persons or entities or a transaction that involves integrally related installment payments. These types of transactions are allowed only if thesale amount of the entity is consistent with its fair market value and not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals.

Furthermore, the transaction must be seen as commercially reasonable even if no referrals were provided to the entity. Finally, there must be no additional transactions between the parties for 6 months after the isolated transaction (with exceptions, such as post-closing adjustments).

What Does This Mean For My Practice?

The application of Stark Law to your decision to purchase or sell your medical practice boils down to one question: does the purchasing entity plan on furnishing any DHS to Medicare or Medicaid patients? If so, then Stark Law would apply.

For example, in the context of a sale of a dental practice to another entity, the selling dentists (or immediate family members) must not have a financial relationshipwith the purchasing entity under Stark Law. If they do, the question then becomes: will the purchasing entity be providing DHS to Medicare or Medicaid patients? If there is no chance of that happening, feel free to include the value of your patient list in the purchase price (I know you want to). Otherwise, the transaction would need to fall under the isolated transaction exception mentioned above. As long it meets the isolated transaction requirements, the sale would be allowed under Stark Law.[iii]

Source List:

42 U.S.C. §1395nn

42 C.F.R. §411.351

42 C.F.R. §411.353

42 C.F.R. §411.357(f)

Endnotes:

[i] Please note that a criminal Anti-Kickback Statute (42 U.S §1320a-7b(b)) does exist that similarly bans the referral of patients for remuneration. However, unlike Stark Law, AKS expands upon the “Medicare and Medicaid” patient requirement to any Federal health care program.

[ii] Full list includes the following: (i) clinical laboratory services; (ii) physical therapy services; (iii) occupational therapy services; (iv) radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; (v) radiation therapy services and supplies; (vi) durable medical equipment and supplies; (vii) parenteral and enteral nutrients, equipment, and supplies; (viii) prosthetics, orthotics, and prosthetic devices and supplies; (ix) home health services; (x) outpatient prescription drugs; (xi) inpatient and outpatient hospital services; and (xii) outpatient speech-language pathology services.

[iii] A colleague of mine, Anahita Anvari, wrote a fantastic article regarding Stark Law/Anti-Kickback Statutes. Please see her post for more information: https://sites.psu.edu/entrepreneurshiplaw/2018/11/05/health-care-entrepreneurs-guide-to-important-laws/.