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Introduction to the in-office ancillary exception

The Stark law generally prohibits physicians from making designated health service referrals to organizations with which those physicians (or an immediate family member) have a financial relationship, unless an exception under the law applies. This includes physician referrals to his/her own medical practice where the following circumstances are present:

  • A physician delivers services through the medical practice;
  • The medical practice furnishes designated health services that may be payable by Medicare making the medical practice a Designated Health Services (DHS) entity; 
  • The physician has a financial relationship with the medical practice; and 
  • The physician makes referrals to the medical practice for the furnishing of DHS.

Physicians and medical practices rely on the Stark law’s in-office ancillary services exception and physician services exceptions to allow "within-practice" DHS referrals. Of these, the in-office ancillary services exception is used most frequently as it allows physicians in medical practices to:

  • Make referrals for certain DHS within the medical practice;
  • Furnish those DHS to practice patients;
  • Bill Medicare and Medicaid for the services; and
  • Retain and use the revenues earned from providing the services within the group for payment of practice expenses and physician compensation

These exceptions are therefore of significant importance to a medical practice’s internal activities.

Finding and complying with an appropriate exception

Where the Stark law applies to a medical practice’s internal relationships and activities, a number of exceptions to the Stark law permit the physician to make DHS referrals to the medical practice without violating the law. 

The Stark law’s in-office ancillary services exception has particular value to physicians and medical practices. This exception generally allows medical practices to provide laboratory, radiology, outpatient prescription drugs and other DHS without violating the law.

For the in-office ancillary services exception to the Stark law to apply to any medical practice other than a true solo physician practice, the DHS referral must take place in a medical practice that constitutes a bona fide "group practice," according to the Stark law definition. Complying with the requirements of the group practice definition is also relevant to the physician services exception to the Stark law – although this exception is generally used by medical practices on an infrequent basis.

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