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Quick Changes for Big Impact: Compliance Tips You Can Use Today

March 2015

No compliance professional wants to be blindsided by Stark, Anti-Kickback (AKS), or False Claims Act violations. However, getting a handle on your physician contracting compliance program is a daunting task. While making significant changes or implementing new policies requires time and slow approval processes, there are some tactical improvements you can make today.

Do the right people in your organization know the details and penalties of Stark Law and Anti-Kickback Statutes, as well as the fines and penalties for non-compliance?

If the administrators who are negotiating physician contracts or any member of your compliance team is not fully aware of the penalties for violating Stark and AKS, familiarize yourself now.

The Physician Self Referral Law, commonly referred to as "Stark Law" is Section 1877 of the Social Security Act, 42 U.S.C. 1395.nn and was first enacted in 1989. The law restricts physician self-referrals. A physician (or a physician's immediate family member) who has a direct or indirect financial relationship with an entity that provides "Designated Health Services" (DHS, i.e. a hospital, surgery center, imaging center, etc., cannot refer patients (Medicare/Medicaid) to that entity for DHS, and the entity cannot submit a claim for services unless the financial relationship is within a Stark exception.

Violating Stark Law comes with serious penalties:

  • Stark is a strict liability statute, so intent to violate the law doesn't have to be proven.
  • Technical violations of the law are still violations.
  • No payment will be made for claims involving a violation.
  • Civil monetary penalties for each service ($15,000) plus an assessment of up to three times the claim.
  • Penalties up to $100,000 for "circumvention schemes".
  • Organizations and physicians could be excluded from participating in CMS programs.

Violating AKS is a serious crime:

  • Criminal penalties are up to $25,000 plus up to a five-year prison term per kickback violation. Hospital administrators have gone to jail for these violations.
  • Additional civil penalties are as much as $50,000 per kickback violation in addition to three times the amount of damages sustained by the government.
  • Providers can be excluded from all federal healthcare programs.

There are numerous examples of violations, in 2014, Halifax Health settled for $85 million regarding allegations they had violated Stark Law and the False Claims Act. King's Daughter's Medical Center paid $40.9 million, with allegations including Stark Law violations. Saint Joseph Health System agreed to pay $16.5 million regarding allegations of Stark Law, Anti-Kickback Statute, and False Claims Act violations.

Does your organization have contracts for all paid services/positions?

It's essential to document all financial arrangements with physicians, with payment terms set in advance and unrelated to volume of services. Work with administrators and chiefs of staff to ensure that all contracted positions have signed agreements that include payment rates, defined services and time requirements and expiration date. Remember: it's a violation of the law to pay a physician for services without a contract in place.

Do you track or automate contract expiration dates?

Because the law requires physician contract rates to be set in advance, identify all expired contracts within your organization and prioritize them for renewal. If your organization doesn't have a contract management system, consider building or purchasing such a system. The contracting department should be automatically notified of upcoming contract expirations with ample time to review and negotiate the contract or sign an extension. Allow at least 3-6 months for the renewal process (sometimes longer for complex arrangements like hospital-based service agreements).

Identify and segment your high-risk contracts.

Simply reviewing your contracts doesn't take highly sophisticated policies, nor does it take a lot of resources. Annually reviewing contract terms against published benchmarks can be a simple way to identify potential areas of concern.

The typical call coverage or medical direction agreement will attract little attention unless it is significantly outside the bounds of fair market value. However, if your organization has negotiated contracts that are risky or high profile in your community, these deals may require more stringent documentation, especially if services are paid above the 75th percentile of market ranges or hours are excessive. Other risk indices include multiple contracts with the same physician or for similar services. If your organization flags such contracts and creates strict guidelines around negotiation and renewal, you can protect your organization from potential pitfalls.

If you have access to payment rate benchmarks, familiarize yourself with them. Learn about how the data are collected, how the benchmarks are broken down, and what categories apply to your facility or facilities. Examine where each contract falls on the range and flag those that are above the 75th or the 90th percentile.

Does your organization have a system for handling exceptions that fall at the high end of the market data?

When your organization decides to compensate a physician above or below fair market value for whatever reason, do you have a process for granting and documenting the reasons for such exceptions? Stark doesn't prohibit paying physicians above a certain threshold, but organizations must have justifications for additional compensation. Research whether your organization has developed a process to review and address exceptions. If you find no guidelines for exceptions, make a note that the upcoming revision or creation of a compliance program should include a process for handling these situations.

Do you know how many physician contracts your organization currently has?

On average, MD Ranger has found that community hospitals have between 50-60 physician contracts. For larger organizations or health systems, physician arrangements can spiral to hundreds or even thousands. Understanding the scope and market position of your physician contracts and payment rates will help you identify potentially risky contracts before they become a problem. Knowledge of total physician contract expenditures and how that compares to like organizations can help with budgeting, planning, and other financial activities down the road.


Being aware of the federal regulations that affect physician contracting is vital to compliance and strong management. While creating and implementing a physician contracting approval and compliance process may seem daunting, it is crucial to avoid possible multi-million dollar fines down the road with the OIG. There are many steps that can be taken today to begin to get your physician contracts in tip-top shape.

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