URMC Compliance Program Policy Manual:
Patient Referrals

Patient referrals are important to the delivery of appropriate health care services. Patients are admitted, or referred, to hospitals by their physicians. Patients leaving a hospital may be referred to other facilities, such as skilled nursing or rehabilitation facilities. Patients may also need durable medical equipment, home care, pharmaceuticals, or oxygen, and may be referred to qualified suppliers of these items and services. URMC policy is that patients, or their legal representatives, are free to select their health care providers and suppliers subject to the requirements of their health insurance plans. The choice of a hospital, a physician, a diagnostic facility, a supplier or any other healthcare provider should be made by the patient, with guidance from his or her physician as to which providers are qualified and medically appropriate.

Physicians and other health care providers may have financial relationships with the URMC affiliates. These relationships may include compensation for administrative or management services, income guarantees, loans of certain types, or free or subsidized administrative services. In some cases, a physician may have invested as a part owner in a piece of diagnostic equipment or a health care facility.

A federal law known as the "Stark law" applies to any physician who has, or whose immediate family member has, a "financial relationship" with an entity, and prohibits referrals by that physician to the entity for the provision of certain designated health services that are reimbursed by Medicare and Medicaid. If a financial relationship exists, referrals are prohibited unless one of the specific exceptions defined by the law is met. The System entities require that each financial relationship with a referring physician or his or her family member fit within one of the exceptions to the Stark law. All employees are expected to monitor financial relationships and report any irregularities to the Department Chair or other senior supervisors who shall report to the Compliance Officer.

The Stark law applies to the following types of services:

  • Clinical laboratory
  • Physical therapy
  • Occupational therapy
  • Radiology (including MRI, CT, ultrasound, and certain types of mammography)
  • Durable medical equipment, parenteral and enteral nutrients
  • Equipment and supplies
  • Prosthetics and orthotics
  • Home health services
  • Outpatient prescription drugs
  • Inpatient and outpatient services
  • Radiation therapy services and supplies

The exceptions under the Stark law are complex, and several general rules must be followed. Both leases for physician office space and personal services contracts with physicians must be in writing, and signed by the parties. Any premises leases must be specified and must not exceed the space reasonably needed for the physician's legitimate purposes. Rental charges must be set in advance, at fair market value, without regard to the volume or value of referrals by the physician. A lease must be commercially reasonable even if no referrals were made between parties. Similarly, a personal service contract must specify the services to be provided by the physician, which must be reasonable and necessary for legitimate purposes, and must be for at least one year. Compensation paid to physicians must also be set in advance at fair market value, be unrelated to the volume or value of referrals, and be commercially reasonable. Contract services may not involve the counseling or promotion of an illegal business arrangement. Physician incentive plans, which may include volume-based compensation, will be acceptable if certain requirements are met.

Physicians purchasing clinical laboratory services or other items or services from a facility must pay fair market value. An arrangement whereby a facility bills for a group practice may be acceptable if it was in place prior to December 19, 1989 and meets certain other requirements. A pathologist, radiologist, or radiation oncologist may provide laboratory, pathology, diagnostic radiology, or radiation oncology services on his own order or on a consultation request from another physician.

Penalties for violating the Stark law include

  1. no Medicare or Medicaid payment for the service referred illegally;
  2. a refund to the beneficiary of any amounts collected;
  3. fines of up to $15,000 levied on both the physicians and the entity of each service referred illegally, plus additional fines based on the amounts billed;
  4. civil monetary penalties of up to $100,000 plus other assessments; and
  5. exclusions from the Medicare or Medicaid programs.