Phase I Stark II regulations provide some flexibility.

The Centers for Medicare and Medicaid Services (CMS--formerly HCFA) issued Phase I regulations of Stark II in January 2001. The Stark II final rule prohibits physicians from referring Medicare patients for designated health services (DHS) to entities with which the physicians or their immediate family members have a financial relationship. A financial relationship can be either an ownership interest or a compensation arrangement, and can be direct or indirect. The law provides a variety of sanctions, including denial or refund of payment and civil penalties. The final rule generally permits physicians to make referrals to entities with which they have a compensation relationship, as long as the compensation paid to the physician is no more than would be paid to someone who provided the same services but was not in a position to generate business for the entity. The final rule is substantially different from the January 1998 proposed rule. As a result, physicians who refer patients to entities for DHS need to ensure that the referrals do not trigger Stark II prohibitions. To avoid unknowingly violating the law, healthcare providers need to understand what constitutes an entity, how CMS views referrals, and what is and is not a DHS.