Ketamine Clinics and the Stark Law – Part I

The Physician Self-Referral Law, commonly referred to as the Stark law (42 U.S.C. § 1395nn), is one of several federal fraud and abuse laws. We have previously written about the federal anti-kickback statute (“AKS”) (click here to review). While the two laws may seem similar at first, they have very different rules and penalties. The Stark law has civil penalties, while the AKS has civil and criminal penalties. Moreover, the Stark law is a “strict liability” statute, which means no intent is required for those who violate Stark.

While Stark can apply to a ketamine clinic, it is especially prominent in the states that have no, or very loose, corporate practice of medicine doctrines. In those instances, a layperson or entity can have a direct ownership interest in a ketamine clinic that is owned in whole or part by a physician. Moreover, when ketamine is just one of the treatments provided by a clinic in those states, Stark can play a very important role in structuring transactions, compensation for the physicians, etc.

The Law

Stark prohibits physicians from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a direct or indirect financial relationship unless an exception (or safe harbor) applies. Financial relationships include both ownership and investment interests and compensation arrangements. For example, if a physician invests in an imaging center, the Stark law requires the resulting financial relationship to fit within an exception or the physician may not refer patients to the facility and the entity may not bill for the referred imaging services.

Designated Health Services

“Designated health services” are:

clinical laboratory services;
physical therapy, occupational therapy, and outpatient speech-language pathology services;
radiology and certain other imaging services;
radiation therapy services and supplies;
DME and supplies;
parenteral and enteral nutrients, equipment, and supplies;
prosthetics, orthotics, and prosthetic devices and supplies;
home health services;
outpatient prescription drugs; and
inpatient and outpatient hospital services.

For the purposes of a ketamine clinic, there are two designated health services that may apply; namely, clinical laboratory services and outpatient prescription drugs. For the clinical laboratory services, if a ketamine clinic holds a CLIA-waiver, then in all likelihood, the clinic is providing “clinical laboratory services”.

The Code of Federal Regulations defines “outpatient prescription drugs” as “all drugs covered by Medicare Part B or D”. 42 CFR § 411.351. Medicare Part B is generally those services provided by a physician in an outpatient setting. Medicare Part D is coverage for certain prescription drugs. Medicare Part A generally covers inpatient services. Whether a drug will be covered by Medicare is often determined by the Medicare Administrative Contractors (“MACs”). The MACs are private entities (e.g., Noridian Healthcare Solutions, LLC) that help administer the Medicare program. Since there are many MACs, there are not always consistent coverage decisions. However, Esketamine (the nasal version of ketamine that has been approved by the FDA for certain mental health disorders) is likely a covered drug under Part B and/or Part D.

Referral

The last important term to define is a “referral” under the Stark law. As the regulations state (42 CFR § 411.351), in relevant part:

Referral means either of the following:

(i) …the request by a physician for, or ordering of, or the certifying or recertifying of the need for, any designated health service for which payment may be made under Medicare Part B, including a request for a consultation with another physician and any test or procedure ordered by or to be performed by (or under the supervision of) that other physician, but not including any designated health service personally performed or provided by the referring physician. A designated health service is not personally performed or provided by the referring physician if it is performed or provided by any other person, including, but not limited to, the referring physician’s employees, independent contractors, or group practice members.

(ii) …a request by a physician that includes the provision of any designated health service for which payment may be made under Medicare, the establishment of a plan of care by a physician that includes the provision of such a designated health service, or the certifying or recertifying of the need for such a designated health service, but not including any designated health service personally performed or provided by the referring physician. A designated health service is not personally performed or provided by the referring physician if it is performed or provided by any other person including, but not limited to, the referring physician’s employees, independent contractors, or group practice members.

Your head is probably starting to spin now! Like all of the federal fraud and abuse laws, Stark is complex. There are other important defined terms, but the foregoing are some of the more important terms you need to understand to analyze possible Stark issues.

Penalties

As noted above, the Stark law has civil penalties. Those penalties can include: (1) refunding any prohibited payments, (2) potential False Claims Act liability, (3) civil monetary penalties and exclusion from Medicare, Medicaid, and other federal payor programs (primarily for “knowing violations”), (4) up to $15,000 in penalties for each prohibited service provided, and (5) civil assessment of up to three times the amount of the prohibited claim submitted. Thus, Stark violations can be very expensive to remedy.

Conclusion

In future posts, we will explore some of the safe harbors under the Stark law as well as other definitions that play a part in understanding this law. If you are entertaining an acquisition of a ketamine clinic or a clinic that provides ketamine treatments in addition to other healthcare services, you would be wise to explore potential Stark issues.

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