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The Stark Law and Self-Referring

Stark Law has three provisions that govern how Medicare and Medicaid patients can be referred by a physician to a facility in which the physician has financial interest. The Stark Law history is based in concerns over physicians self-referring. The law is named after Pete Stark, the US congressman who initially sponsored the bill. When doctors have financial interest in patients, blurring the line between patient and customer, the Stark Law governs interactions and behavior to protect the interests of the patient from intrinsically powerful life sciences companies and medical organizations.


Whether a physician owns a facility to which she is referring a patient, or whether she has an investment or compensation relationship with the facility, there is a concern about conflict of interest. The question is asked, did the doctor refer this particular patient to this facility because this is the best place to meet the patient’s needs, or was the doctor motivated by potential financial gain?

A problem arises because while the potential conflict in interest is clear, it is also clear why a medical professional may want to establish or invest in a healthcare facility. A doctor may see a need that she believes can be uniquely met by a business model she comes up with and controls. If a physical therapist, for instance, devises a place to further the therapeutic plans prescribed for her patients, should she be prevented from referring them there because she will financially benefit from profits?

Critics worry that this behavior creates an inherent conflict of interest, in which the physician will believe her own business or the organization in which she is invested is better than other places, even if those other facilities may actually meet the patient’s needs better.

Physicians in such a situation may over refer services or refer to their own facilities when others may be better or when no services are really needed. This will drive up the cost of healthcare overall when considered on a massive scale. Facilities not run by or invested in by physicians may also suffer by lack of referral to the point of failing. Over time this will reduce competition by other medical providers.

While these concerns are merited, it is difficult to combat such issues since so often physicians invest in or start companies that meet a need that was otherwise not being met, either by providing a service not currently available in the area or creating a new service. To carefully monitor your aggregate spending you can click here.

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