15 things to know about Stark Law

Enacted more than two decades ago with the simple purpose of curbing physician self-referral, Stark Law has evolved into a complex set of regulations, which some argue impede efforts to transition away from a fee-for-service system.

Here are 15 things to know about Stark Law.

1. In 1989, Congress passed the Ethics in Patient Referrals Act, which was dubbed Stark I after Rep. Pete Stark, a Democrat from California, who sponsored the initial bill.

2. The original statute was quite simple. It sought to ban physician self-referral for designated services when a patient was covered by Medicare or another government payer. Self-referral occurs when physicians refer patients for designated health services to hospitals, labs and other entities from which they or an immediate family member benefit financially.

3. Stark Law applies to the following designated health services:

  • Clinical laboratory services
  • Physical therapy services
  • Occupational therapy services
  • Outpatient speech-language pathology services
  • Radiology and certain other imaging services
  • Radiation therapy services and supplies
  • Durable medical equipment and supplies
  • Parenteral and enteral nutrients, equipment and supplies
  • Prosthetics, orthotics and prosthetic devices and supplies
  • Home health services
  • Outpatient prescription drugs
  • Inpatient and outpatient hospital services

4. The intention behind the original statute was to eliminate any financial motivation for physicians to send patients for unnecessary testing that could raise overall healthcare costs.

5. The original statute was expanded in January 1995, when Stark II went into effect. Over the next decade, CMS published a series of regulations implementing the physician self-referral law. Today, there is a sprawling group of regulations and statutes collectively named Stark Law.

6. Stark Law has numerous exceptions, each of which carries its own detailed requirements. Many of the exceptions require compensation paid to a physician to not take into account the value or volume of a physician's referrals or other business generated between the parties to a gainsharing agreement. Many exceptions also require the arrangement to be commercially reasonable and compensation to be at fair market value. 

7. Any provider organization that violates Stark must repay all Medicare funds paid under the improper arrangement, which could total tens of millions of dollars. The organization could face Medicare exclusion and False Claims Act liability as well.

8. If claims are submitted to government payers through an arrangement that violates Stark Law, the claims are rendered false or fraudulent, creating liability under the False Claims Act, according to the American Bar Association. Most of these cases are filed by whistle-blowers under the qui tam provision of the False Claims Act.

9. Whistle-blowers have a lucrative incentive to pursue these actions, as they are entitled to up to 30 percent of the government's recovery in False Claims Act cases. The penalties authorized under the False Claims Act were raised in 2016 to a range of $10,781 to $21,563 per claim.

10. The complexity of Stark Law has left hospital executives, Congress and CMS struggling with the boundaries of the legislation — especially as the healthcare industry replaces traditional fee-for-service medicine with value-based care.

11. Stark Law requires physicians receive only fair-market prices for their services, and the serious costs associated with technical violations of the law have made hospitals hesitant to move forward with pay-for-performance initiatives.

12. Common technical violations of Stark Law include lack of documentation to support fair market value, failure to accurately describe services rendered and failure to change the terms in writing when compensation or duties change.

13. In early February, HHS released a report that provides observations on the effects of Stark Law and the Anti-Kickback Statute on the industry's transition to value-based payment models. In the report, HHS said some gainsharing and similar arrangements can be structured in a way that does not violate the Anti-Kickback Statute and meets the requirements of Stark Law. However, HHS noted the current fraud and abuse laws "may serve as an impediment to robust, innovative programs that align providers by using financial incentives to achieve quality standards, generate cost savings and reduce waste."

14. Legislators and hospital leaders have expressed concerns about Stark Law in recent years. For instance, during a Senate Finance Committee hearing last July, Chairman Orrin Hatch (R-Utah) said Stark Law has become too complex, creating obstacles in the transition from the antiquated fee-for-service model.

15. Sen. Hatch's views were echoed by several healthcare leaders during the hearing, including Ronald Paulus, MD, CEO of Asheville, N.C.-based Mission Health. Dr. Paulus said problems with the physician self-referral law can't be fixed by tinkering around the edges. He believes a full repeal is necessary to allow health systems to move forward with population heath efforts.

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