How the Stark Law is an Obstacle to Care Coordination


The 30-year old regulation is in desperate need of modernization to fall in line with the changing needs of healthcare.



CMS has been engaging with the provider community regarding regulatory burden issues, and one of the top concerns identified was compliance with the Physician Self-Referral Law (commonly known as “Stark Law”) and its accompanying regulations. In response, CMS undertook a review of existing regulations to determine where it could consider potential areas for burden reduction. CMS is now soliciting specific feedback on a variety of issues identified in Stark Law to better understand provider concerns and effectively address those concerns.

The Stark Law was enacted in 1989 with an objective to protect Medicare, Medicaid, and their beneficiaries from unnecessary costs and other harms that may occur when a physician has a financial relationship with a healthcare entity that he/she refers patients to. There are certain statutory and regulatory exceptions; however Stark Law prohibits a physician from making patient referrals to any service or provider in which they (or an immediate family member) have a direct or indirect financial interest. Stark Law also prohibits the entity from filing claims with Medicare for services resulting from a prohibited referral, and Medicare will deny the claims if they are submitted.

The Stark Law, and closely-related Anti-Kickback Statute, were important regulations 30 years ago designed to protect the patient community from fraud and abuse. However, given the changing landscape of today’s healthcare system, and specifically the transition from fee-for-service to value-based reimbursement, Stark Law is now an obstacle to advancing care coordination. 

The objectives of value-based reimbursements are to provide better quality of care at a lower cost, and this includes several innovative models that reward coordination and value. In order to achieve better quality of care at a lower cost, providers are making the transition to patient-centered healthcare systems. In a patient-centered healthcare system, it is critical that doctors and other providers are able to forge innovative partnerships or relationships in order to ensure optimal coordination of care. Providers must also be incentivized to control costs while providing quality outcomes-such as keeping patients healthy, reducing hospitalizations, and providing preventative services. These objectives are the cornerstone of value-based reimbursement. The Stark Law may prevent these very relationships and incentives that are designed to improve quality, and reduce waste under a modern healthcare system.

Current Stark Law restrictions

For example, Stark Law prevents hospitals from paying incentives to providers when they meet certain quality measures, and from penalizing other providers who don’t meet certain agreed upon goals. These types of arrangement are key components of value-based care. 

The Stark Law is almost 30 years old, and the healthcare system has evolved tremendously during this time. In order to meet the objectives of value-based reimbursement and to provide efficient services to their patients, the Stark Law needs to be amended. Physicians must be permitted to coordinate patient care and refer their patients to other health care providers if it best meets their healthcare need, and providers must be incentivized for quality measures that keep their patients healthy and control costs.

There will still need to be safeguards in place to meet the objectives of the Anti-Kickback Statute. Regulators will need to evaluate an alternative to the Fair Market Value Assessment requirement in the Stark Law. The primary question is, how do you determine Fair Market Value for services performed today that add value which will save the healthcare system money down the road?

The healthcare industry has myriad rules and regulations, and today’s providers are navigating significant changes in the way they conduct business and care for their patients. The changes are driving improvements to the delivery of care, and as medical reimbursements evolve, it’s essential that Stark modernize as well. The current law is too restrictive and does not meet the law’s objective to control costs and reduce waste.

Matthew Hutt, CPA, CGMA, is partner, AAFCPAs, a New England CPA and consultancy firm.

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