CODING Q&A: Designated Health Services: What You Need to Know

The Stark Law prohibits physician self-referrals. Here’s what that means for you in daily practice.


In 1988, Rep. Fortney H. Stark of California introduced the Ethics in Patient Referrals Act, a set of US federal laws prohibiting physician self-referral, specifically a referral by a physician of a Medicare or Medicaid patient to an entity providing designated health services (DHS) if the physician (or an immediate family member) has a financial relationship with that entity. The bill was enacted in 1989 and is now commonly known as the Stark Law. This month, we explore how the Stark Law affects retina practices.

Suzanne L. Corcoran, COE, is executive vice president and founder of Corcoran Consulting Group (CCG), San Bernardino, California, which specializes in coding and reimbursement issues for ophthalmic practices.

Q. What is the Stark Law?

A. The Stark Law was initially designed to prevent physicians from referring patients for clinical laboratory services under the Medicare program to entities in which the physician or a relative had a financial interest. The concern was that physicians were more likely to order these services if they had a financial stake in the provision of such services.

The law and its corresponding regulations have expanded significantly in the past quarter century thanks to passage of an amendment to the law in 1993 and the addition of a substantial number of regulations between 1992 and 2007 (commonly referred to as Stark I, Stark II, and Stark III). It now applies to both Medicare and Medicaid and encompasses a number of categories of services, including radiology and certain other imaging services, as well as some drugs.1

CMS publishes a list of DHS that are implicated by the law. Of particular interest to ophthalmology are ultrasound (76510-76536), scanning computerized ophthalmic diagnostic imaging (92132-92134), and remote retinal imaging (92227-92228).2 There are numerous other legal and regulatory considerations related to referrals that are beyond the scope of this article, and require the assistance of a knowledgeable health care attorney.

Q. How does this affect my practice?

A. The Stark law may affect how you pay your physicians in a group practice as that term is defined in the Medicare regulations. Under the Stark law and associated regulations, there are limits to the DHS that may be compensated based on personal productivity or a share of the overall profits of the group.

If your practice does not fall within one of the exceptions to the Stark law, then excluding DHS from the physician compensation agreement and shareholder agreement is the way to go.

Q. Does the Stark law apply to drugs?

A. DHS includes outpatient prescription drugs covered by Medicare Part B or Part D, except for those reimbursed in an ambulatory surgery center.3 For example, anti-VEGF agents for AMD are most commonly administered in-office and consequently fall within the Stark law and its regulations.

As a practical matter, the cost of the drug and the reimbursement are nearly the same and can be reasonably excluded from physician compensation agreements. The additional 6% over average sale price is intended to pay for shipping, handling, inventory management, and other administrative considerations.

Q. Does this apply to all revenues?

A. No. The Stark law applies to services provided to Medicare and Medicaid beneficiaries only, unless there is a comparable state law expanding the prohibition to other payers.

Q. What penalties apply if we get this wrong?

A. While the Stark Law is not a criminal statute, the civil penalties for violating the law can be severe. Penalties can include the following:

  • Denial of payment for the service billed,
  • A $15,000 civil penalty for each claim submitted as a result of an improper referral,
  • Refunding every payment received for services that were referred in violation of the law,
  • A $100,000 civil penalty for entering into a scheme designed to circumvent the law, and
  • Exclusion from federal health care programs and possible additional liability under the Federal False Claims Act.

Q. How should we proceed if we find we have been in violation?

A. First, establish the scope of the problem. Determine whether the problem affects one physician in the group, or multiple, and how long the problem has been going on. You should self-report as soon as practically possible. The look-back period is 6 years and, as noted above, the penalties are serious.

Self-reporting is more important than ever. A modification to the Stark law in the Affordable Care Act specifically allows violations to be pursued by whistleblowers. If you fail to repay money received for noncompliant Stark transactions within 60 days, your erroneous claims become false claims.

CMS has established a special protocol for reporting violations of the self-referral law. This is the CMS Voluntary Self-Referral Disclosure Protocol. CMS provides special forms for reporting; you must use one form for each physician.4

If you find that you have a long-standing or large violation, we recommend you engage a competent health law attorney to help. Sometimes a compromise can be reached that might reduce your penalty. RP


  1. US Centers for Medicare and Medicaid Services. Physician self referral. Current law and regulations. Available at .
  2. US Centers for Medicare and Medicaid Services. Physician self referral. Code list for certain designated health services (DHS). Available at .
  3. US Government Publishing Office. 42 CFR 411.351 Accessed Sept. 29, 2017.
  4. US Centers for Medicare and Medicaid Services. Self-referral disclosure protocol. Available at .