Do Stark Rules Inhibit Sales to Hospitals?

Medical Economics, January 29, 1996 | Go to article overview

Do Stark Rules Inhibit Sales to Hospitals?


Hospitals often purchase practices in installments--typically, the payments are spread over five years. However, language in the Stark I and Stark II self-referral laws hints broadly that such sales can be regarded as an inducement to refer patients to the acquiring institutions. Moreover, one of the 1991 "safe harbor" guidelines to the Medicare anti-kickback law specifies that a hospital's practice purchase is on safe legal ground only if completed within a year of the closing date.

Up to now, hospitals have interpreted these restrictions very loosely. "You could make the argument that the up-front payment was a one-time sale," with the payments trailing over time, notes Philadelphia health-care attorney Alice Gosfield. As long as the amount of the installments was fixed and not tied to the volume or value of admissions generated by the practice, she says, hospitals felt they were within the law.

But hospitals received a rude shock in August, when the government published final regulations implementing Stark I. The rules, which also apply to Stark II until its own final regulations are issued, prohibit hospitals from placing practice sellers at financial risk by making payments over time.

"Anything that puts the seller in a position to continue caring about his practice's financial health violates the Stark rules," explains Neil B. Caesar, president of the Health Law Center in Greenville, S.C. "Hospitals can borrow from banks," he adds. "No one says they can't finance a purchase; they just can't use doctors as the banks. …

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Do Stark Rules Inhibit Sales to Hospitals?
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