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The Future of Stark Law


In the three decades since its passage, Stark Law has become one of the most significant sources of regulatory burden on physicians and, ultimately, for Medicare beneficiaries.

Group of stressed doctors

In the 30 years since its passage, Stark Law has become one of the most significant sources of regulatory burden on physicians and, ultimately, for Medicare beneficiaries, according to experts.

Stark Law, also known as the physician self-referral law, it governs physician self-referral for Medicare and Medicaid patients. It is broken down into three provisions:

  • Prohibits physicians from making referrals for certain designated health services (DHS) payable by Medicare to an entity in which he or she (or an immediate family member) has a financial relationship (ownership, investment, or compensation), unless an exception applies.

  • Prohibits the entity from presenting claims to Medicare (or billing another individual, entity, or third-party payer) for those referred services.

  • Establishes several specific exceptions and grants the HHS secretary the authority to create regulatory exceptions for financial relationships that do not pose a risk of program or patient abuse.

“These restrictions make it more difficult for independent physician practices to coordinate care, creating a competitive advantage for large hospital systems,” says Mara Holton, MD, managing partner of AAUrology, board of directors member of LUGPA, a urology group practice association, and vice chair of the LUGPA Health Policy Committee. “Given that the system is rapidly transitioning away from fee-for-service payment, the law is outdated. There are both regulatory and statutory opportunities to reform Stark.”

Related article: How the Stark Law is an Obstacle to Care Coordination

“Lack of flexibility in cost-sharing arrangements and the complexity of the Stark Law guidance has led healthcare execs to call for reform,” says Jana Kolarik, a partner and healthcare lawyer with Foley & Lardner LLP, an international law firm.

Last summer, CMS issued a request for information looking for recommendations on ways to modernize Stark via reducing regulatory burdens associated with it. 

At the Federation of American Hospitals 2019 Public Policy Conference in March, CMS Administrator Seema Verma hinted that there would be changes coming to the law.

Within Stark Law lies the in-office ancillary services exception (IOASE), which permits referring physicians who are members of a physician group practice to refer a patient for imaging services or other DHS in which he/she has an interest under certain conditions, without violating the law.

“The IOASE is the main way that referring physician practices are able to provide supplementary ancillary services reimbursed by Medicare,” Holton says. “Without this exception, Stark would generally prohibit referring practices, other than practices located in rural areas, from billing Medicare for these essential services. Hospitals have an unfair advantage over independent practices due to exceptions within Stark, via a specific waiver pertaining to ACOs.”

Furthermore, Stark Law as written is one of the principal barriers to the development of advanced payment models (APMs) and the advancement of value-based care. “Modernizing Stark Law is key to the vital transition to the value-based care,” Holton says.

Dean Erhardt, CEO of D2 Consulting, life sciences consulting firm, agrees.

“The industry is being challenged to move from volume-based, rebate-driven reimbursement models to more efficient value-based models,” Erhardt says. “Many times, these value-based models may need to include incentives for physicians to change existing behavior. If such incentives are looked at as violations of the Stark Law, entities are at risk for serious fines, and thereby will not move forward with any type of model that might significantly move forward with potential new payment models. Most experts suggest that value-based care initiatives, such as bundled payment models, the Medicare Shared Savings Program, and capitated payment should be exempted from the Stark Law requirements.”

Cumbersome rules

“Stark Law regulations have grown into a complex collection of unwieldy rules that prevent healthcare providers from delivering patient centered care in the most cost-efficient manner,” Holton says. “Providers can be penalized for violating, even unknowingly, Stark Law, which acts as a disincentive to transitioning to value-based care.”

Related article: CMS Reevaluates Stark Law in Response to Value-Based Care Initiatives

LUGPA has led a coalition of 25 other physician-focused healthcare organizations, representing more than 500,000 physicians, to promote the adoption of the Medicare Care Coordination Improvement Act (H.R. 4206, S. 2051), which modernizes Stark, creating exemptions for independent practices similar to those extended to the hospitals at the inception of the ACA, according to Holton. 

“The way to address Stark’s fundamental flaws requires a two-tiered approach via Congressional action and regulatory reform,” she says.

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