Stark law due diligence in clinic acquisitions must include meticulous evaluation of physician ownership and compensation to prevent self-referrals, according to a blog post from attorney Aaron Hall.
Here are 10 things to know about Stark law compliance and clinic acquisitions:
1. Determine whether the clinic provides DHS, such as clinical lab testing, radiology or physical therapy. This is the first step in identifying potential Stark law implications, according to the post. Only services that fall under the DHS definition trigger the law’s referral prohibitions.
2. Examine all direct and indirect physician ownership interests, including joint ventures, shell entities or stock holdings, as even minimal or indirect equity can implicate Stark law. Full financial disclosure, including side agreements, equity distributions or contingent payments, is essential to uncover potential referral-based incentives.
3. Physician compensation must reflect fair market value, be commercially reasonable and not be tied to the volume or value of referrals. Compensation models that create incentive structures for referrals are high risk and likely noncompliant if not structured under specific Stark law exceptions.
4. Review historical referral data, particularly for physician-owners, to identify patterns that may indicate self-referrals. Disproportionate referrals to the target clinic from certain physicians can be a red flag and require closer scrutiny.
5. Service contracts, such as lease arrangements, consulting agreements and medical directorships, must describe legitimate services, be consistent with fair market value, and be appropriately documented. Maintain thorough records of these agreements to demonstrate compliance during audits.
6. Prior to finalizing any deal, structured audits should be performed to examine financial arrangements, contract terms and referral behavior. All layers of ownership, including indirect and joint structures, should be mapped out to identify any hidden Stark law-triggering relationships.
7. Be alert to ownership structures or compensation models that lead to abnormal referral volumes from physician-owners. These patterns may violate Stark law if not protected under an applicable exception and properly documented.
8. Acquisition terms must be carefully designed to meet Stark law safe harbors and exceptions. This includes ensuring payments are appropriately timed, contracts are in writing and financial arrangements are not contingent on referral volume or value.
9. Legal counsel with expertise in Stark law should be involved throughout the transaction process. They can help vet ownership interests, design compliant compensation models, draft appropriate agreements,and ensure all statutory exceptions are met.
10. After the deal closes, establish ongoing compliance measures including periodic audits, documentation updates, and staff training. Also monitor state self-referral laws, which may impose additional requirements beyond federal Stark law provisions.
