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Stark vs. Contract Law

In its recent decision in Braun v. Promise Regional Medical Center-Hutchinson, Inc., a federal court in Kansas held that the Social Security Act's physician self-referral prohibition, better known as Stark, did not bar a physician medical director from suing his hospital for compensation for work performed outside of a written contract.

In general, Stark bans a physician and a health care provider from entering into a "compensation relationship" if the physician refers Medicare or Medicaid patients to the provider, except, if among other requirements, the agreement is in writing.

Here, the hospital argued that Stark prohibited it from paying compensation to its medical director for services he performed after the lapse of the original written agreement between him and the hospital.

The court ruled that Stark did not bar the lawsuit. The court relied on the concept of "unjust enrichment" - a traditional legal concept that entitles a person to recover money for work performed in the absence of an agreement, if it would be unjust for the other party to keep the benefit of the work without paying. The court said that federal law in general does not overrule traditional legal doctrines such as unjust enrichment, unless the doctrine and the law directly conflict.

This precedent lowers the bargaining power of health care providers seeking a way out of service contracts that arguably violate Stark or other self-referral laws. Previously, providers had a stronger argument that a court would not enforce the contract. Nevertheless, it remains to be seen whether this precedent catches on elsewhere.


June 25, 2012




Rosen, Barry F.


Health Care