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General Healthcare

What Does Referral Mean Under Stark?

December 5, 2016

AMARILLO, TX – The federal Stark physician self-referral statute states: “Except as provided in subsection (b) of this section, if a physician (or an immediate family member of such physician) has a financial relationship with an entity specified in paragraph (2), then (A) the physician may not make a referral to the entity for the furnishing of designated health services for which payment may be made under this subchapter, and (B) the entity may not present or cause to be presented a claim under this subchapter or bill to any individual, third party payor, or other entity for designated health services furnished pursuant to a referral prohibited under subparagraph (A).” 42 U.S.C. 1395nn(a)(1). A “financial relationship” includes both an ownership interest and a compensation arrangement. A DME supplier falls under Stark.

According to Stark regulations, “Immediate family member or member of a physician’s immediate family means husband or wife; birth or adoptive parent, child or sibling; stepparent; stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law; grandparent or grandchild; or spouse of a grandparent or grandchild.” 42 CFR 411.351.

But what does “referral” mean? A common understanding of “referral” or “refer” is that a person takes an affirmative action to see to it that a person or duty moves from “Point A” to “Point B.” Most people look at “refer” as a term of action … as a verb. This understanding is consistent with Black’s Law Dictionary and Webster’s Dictionary.

• Black’s Law Dictionary – Black’s uses the word “refer” in the following context: “When a case or action involves matters of account or other intricate details which require minute examination, and for that reason are not fit to be brought before a jury, it is usual to refer the whole case, or some part of it, to the decision of an auditor or referee, and the case is then said to be referred.” Black’s uses the term “refer” as an action word and uses the word “referred” as the object that is referred. Black’s uses the word “referral” in the following context: “This term refers to the recommendation by a patient’s primary care doctor that [the patient] see an additional doctor, usually a specialist.” Again, “refer” is an action word that results from the action of a primary care physician to send a patient to another physician (in other words, the primary care physician is taking affirmative steps to move the person from “Point A” to “Point B”).

• Webster’s Dictionary – Webster’s is consistent with Black’s. Webster’s defines “referral” as follows: “to send or direct for treatment, aid, information, or decision [refer a patient to a specialist or refer a bill back to a committee].” Webster’s defines “referral” as “the act, action, or an instance of referring [gave the patient a referral to a specialist].” “Refer” is an action word … moving something or someone from “Point A” to “Point B.”

Now let’s look at “refer” in the context of Stark. Assume that John Smith owns ABC Medical Equipment, Inc. Assume that Smith’s wife, Susan, is a physician with her own practice. Clearly, John Smith is an “immediate family member” of Dr. Smith. Therefore, Dr. Smith cannot “refer” Medicare/Medicaid patients to ABC. But what if all that Dr. Smith does is hand a physician’s order to a Medicare patient and makes no mention of which DME supplier the patient should go to get the order filled? And then what if the patient, through no prompting by Dr. Smith, has the order filled by ABC? Under the common understanding of “refer,” as shown by Black’s and Webster’s, one can reasonably conclude that Dr. Smith has not referred the patient to ABC.

It appears that Medicare takes a much broader view of “refer.” It appears to be Medicare’s position that simply writing the order constitutes a “referral” and if the patient just happens to walk through ABC’s front door and has the order filled, then a “referral” has occurred. Under 42 CFR 411.351, Medicare defines “referral” as:

• “[T]he 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 … ”

• “[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 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 … ”

The Preamble to the regulations states: “[A] ‘referral’ means a request by a physician for an item or service for which payment may be made under Medicare Part B … In the January 1998 proposed rule, we interpreted ‘referral’ to mean any request by a physician for a service, including services subsequently performed by the physician. We proposed defining a ‘request’ as any step taken after a physician performs an initial examination or a physician service on a patient that indicates that the physician believes the service is necessary. Under this broad definition, a referral could be either written or oral, made on medical charts or records, indicated by a prescription or written order.”

To recap, if a physician (or “immediate family member” of the physician) has an ownership interest in a DME supplier, then the physician cannot “refer” Medicare/Medicaid patients to the supplier. The message to the DME supplier is that its view of “referral” may be different from the broad view that Medicare has of “referral.”

Denise Leard will be presenting the following webinar:

Compliance Program: Your Most Important “Profit Center”
Presented by: Denise M. Leard, Esq., Brown & Fortunato, P.C.
Monday, December 5, 2016
2:30-4:00 p.m. EASTERN TIME
The OIG has stressed the importance of compliance programs for DME suppliers by issuing guidance on how the programs should be structured and implemented.  Congress has also weighed in through the Affordable Care Act, which makes compliance programs mandatory for DME suppliers at a date to be set in the future.  This program will discuss how an effective compliance program helps create financial success, customer loyalty, community support and employee satisfaction.  Topics covered will include primary compliance program objectives, the role of management in overcoming implementation obstacles, and identifying and addressing risk areas.  Topics will further include changing behaviors, balancing multiple roles, integration with other parts of the organization, education and training, and finding qualified staff.  The program will review the elements of an effective compliance program, and the need to regularly review and update the program. Specific risk areas arising from marketing of DME will be discussed, as well as how to identify and address risk areas particular to DME suppliers.

Register for Compliance Program: Your Most Important “Profit Center” on Monday, December 5, 2016, 2:30-4:00 pm ET, with Denise M. Leard, Esq., of  Brown & Fortunato, PC.

Contact Ika Sukh at if you experience any difficulties registering.

Member:  $99.00    
Non-Member:  $129.00

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or