Stark Law – A Flawed Solution to a Flawed Program

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As early as 1982, Paul Starr zeroed in on the fundamental flaw in the Medicare program, in his seminal work, "The Transformation of American Medicine". Simply put, as an insurance program, Medicare violates the cardinal rule of insurance. The risk covered — a patient's utilization of benefits — lies wholly within the control of the insured. That's a big problem. In insurance parlance, a moral hazard exists any time the presence of insurance coverage provides a motive for its use. While a properly designed policy of insurance merely puts the insured in the same position as he would have been before the loss, the use of Medicare benefits actually places the insured in a better position, thus dooming the program.

Realizing this, Congress sought to formulate a plan to limit the utilization of Medicare benefits. What if there was a theory which was both highly effective in curbing the use of benefits, which could divert attention from the fundamental flaw in Medicare's scheme, and which carried the added benefit of shifting blame from Congress to the medical community at large? And that is exactly what we did.

Someone, no one is sure who, seems to have picked up a copy of the AMA Code of Medical Ethics, and began thumbing through its pages, looking for a way to outlaw the utilization of benefits. It didn't take long for attention to land on ethics Opinion 8.032, Titled "Conflicts of Interest." In 1989, Congressman Pete Stark introduced a bill that became the eponymous 'Stark Law,' an almost verbatim adaptation of AMA Ethics Opinion 8.032.

At first blush, it would seem perfectly reasonable for Congress to exclude from the Medicare program any charge for services which results from the violation of long-standing medical ethics. Yet for any problem, there is a solution which is both quick and easy — and perfectly wrong. In order to understand this point, one must consider that AMA medical ethics opinions, such as Opinion 8.032, were never intended to prevent actual harm. Instead, many of the ethics rules were designed to prevent the appearance of impropriety. The rules contemplated that an errant physician would receive a letter from the appropriate licensing board admonishing, for lack of a more appropriate phrase — to simply "cut it out." Under no circumstances, were ethics rules designed to create a tort-law type of a cause of action against a physician.

As any first year law student is able to recite, a cause of action for damages should fairly fit the interest protected. In the area of law known as "Medicare Fraud and Abuse," the interest protected is the prevention of the excessive use of benefits, and the prescribing of unnecessary treatment — something which should be, and is already illegal. Nowhere in the annals of English Common Law, nor the American system of jurisprudence is there a cause of action for damages for the mere potential for harm.

Occam's Razor, or the rule of parsimony, holds that one should not outlaw more than is necessary to accomplish the stated goal. If the governmental interest protected is the prevention of the prescription of unnecessary treatment, then a rule preventing unnecessary treatment should be sufficient. Stark law, as written, is nothing more than a flawed attempt to patch the fundamental defect in Medicare coverage — namely, the insurance of an uninsurable risk.

Mr. Merritt is a health lawyer in Dallas, Texas, specializing in Stark Law and Medicare fraud and abuse. Mr. Merritt's full profile and health law blog may be found at

More Articles on Stark Law:

10 Recent Stark, False Claims and Kickback Lawsuits Involving Hospitals and Health Systems
A Review of OIG Self Referral and Antikickback Cases: 6 Categories of Non-Compliant Physician Relationships and 8 Recent Cases

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