The “Stark” statute, 42 U.S.C. §1395nn, is also known as the Physician Self-Referral Law or Section 1877 of the Social Security Act. The Stark law was intended to prevent physicians from profiting (actually or potentially) from their own referrals. The Stark statute acts prospectively, i.e., it prohibits relationships that have been demonstrated to encourage over-utilization. Because it is a strict liability statute, there is no need to show knowledge or intent.

Medicare and Medicaid programs depend on physicians and other health care professionals to exercise independent judgment in the best interests of patients. Financial incentives tied to referrals have a tendency to corrupt the healthcare delivery system in ways that harm the federal programs and their beneficiaries. Corruption of medical decision-making can result when a physician refers a patient to a provider on the basis of the physician’s financial self-interest instead of the patient’s best interests. Restrictions on the practice of self-referral exist at both the state and federal levels.

Medical directorships, interest free loans/forgiveness of debts, illegal recruitment arrangements and improper discounts in the form of professional courtesy, may represent additional financial windfalls to physicians, resulting in hospital referrals and a violation of the “Stark” statute. A Stark scenario may also be present when a hospital circumvents potentially compliant contracts by providing outside of what appear to be legitimate contracts, office space, renovations, equipment, furniture, housekeeping services, office supplies, copy and fax machines, telephone, utility and transcription services to referring physicians for free or less than fair market value.