Stark Law: The 27-year-old act killing healthcare reform before it can begin?

Enacted more than two decades ago to curb physician self-referral, Stark Law has evolved to become so complex that health system CEOs and even the law's namesake are calling for its repeal.

In 1989, Congress passed the Ethics in Patient Referrals Act, which was dubbed Stark I after Congressman Pete Stark, who sponsored the initial bill. 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 to hospitals, labs and other entities from which they benefit financially. The intention was to eliminate any financial motivation for physicians to send patients for unnecessary testing that could raise overall healthcare costs.

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.  

Fast forward to 2016, and there is a sprawling group of regulations and statutes collectively named Stark Law. Today, the physician self-referral law has numerous exceptions, each of which carries its own detailed requirements. The complexity of Stark 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.

Call for repeal
During a Senate Finance Committee hearing in 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.

His views were echoed by several healthcare leaders, 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.

"As a physician executive, I am absolutely convinced that it is simply not possible to transform healthcare without a strong partnership between health systems and physicians. The Stark Law makes this remarkably difficult," said Dr. Paulus. 

Like many of his colleagues, Dr. Paulus believes Stark Law has created unnecessary red tape. During his testimony before the Senate committee, he discussed how health systems are at constant risk of violating Stark because it is a strict liability law, meaning proof of specific intent to violate it isn't required. Therefore, systems can violate Stark even when there are no motives involved.

Stark 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. 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.

If claims are submitted to government payers through an arrangement that violates Stark, the claims are rendered false or fraudulent, creating liability under the False Claims Act. Most of these cases are filed by whistle-blowers under the qui tam provision of the False Claims Act. 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 recently raised to a range of $10,781 to $21,563 per claim.

"The feeling across the country is hospitals and health systems are nervous," says Colin H. Luke, a partner at Waller who assists health systems, hospitals and other providers with regulatory compliance matters involving Stark, Anti-Kickback Statute and various other regulations.

Before the Senate Finance Committee, Dr. Paulus said Stark Law has impeded Mission's efforts to transition to pay-for-performance. He said that under Stark, the system has to reward a physician who saw a dramatic increase in his infection rate exactly the same as a physician who eliminated all infections. "In most industries shareholders and watchdogs are demanding outcome-based pay for performance. In healthcare, Stark specifically prohibits it," said Dr. Paulus.

He also provided a specific example of how it negatively affects patient care.

Dr. Paulus said that for a number of years Mission genetic counselors have met with expectant mothers who are carrying a child who will die shortly after birth to discuss what to expect before and after delivery. Genetic counselors want to have these conversations at no charge to the parents at the OB/GYN office.  

However, Dr. Paulus said Mission's lawyers advised that the meetings could be seen as interactions that could lead to financial gain for the OB/GYN's practice. "Unfortunately, Stark strict liability makes it so we cannot take that risk even during this difficult time in these families' lives," he said.

Like Dr. Paulus, longtime Congressman Pete Stark has called for a repeal of his landmark law. Mr. Stark believes some type of self-referral statute should be in its place, one much simpler than the law that exists today.

The need for modernization
Short of a full repeal, many in the industry believe Stark Law at least needs to be updated to accommodate for the broad reimbursement changes taking place in healthcare.

There has been a strong push for Stark Law reform in recent years, and the enactment of the Medicare Access and CHIP Reauthorization Act and other health reforms has made an even stronger case for updates.  

"Because medicine and medical reimbursement is evolving so rapidly, it's essential that Stark is at least tweaked," says Mr. Luke. As is, he says Stark is an impediment to more innovative payment models.

A wholesale rewrite of Stark would be preferable, but that may not be attainable, according to Mr. Luke. At a minimum, new exceptions that relate globally to value-based pay need to be added, he says.

Before the Senate Finance Committee, Peter Mancino, deputy general counsel of The Johns Hopkins Health System in Baltimore, urged lawmakers to reform Stark to allow for innovative payment models.

The Affordable Care Act allowed HHS to issue broad Stark waivers, and HHS has taken advantage of that authority by issuing waivers from fraud and abuse laws for participants in the Medicare Shared Savings Program, the Bundled Payments for Care Improvement Initiative, the Comprehensive Care for Joint Replacement model and other ACO programs.

However, CMS doesn't have the legislative authority to go further, requiring Congress to act to remove any barriers to alternative payment models under Stark Law.

The physician self-referral law prohibits any financial arrangement with a physician that does not fit within an established exception. "This inflexibility is underscored as providers attempt to implement alternative payment models like ACOs, pay-for-performance, shared savings and bundled payments, which do not always fit into existing exceptions," stated a June report from Sen. Hatch.  

Sen. Hatch summarized comments made during a December roundtable hosted by the Senate Finance Committee and the House Ways and Means Committee where subject-matter experts discussed issues related to Stark Law.

Roundtable participants generally agreed that the physician self-referral law does not have a place in the pay-for-value world, as it was created to address overutilization that occurs in a fee-for-service environment.

Veteran healthcare advisor, Joe Lupica, chairman of Newpoint Healthcare Advisors, agrees that Stark's usefulness is diminished as the industry transitions to value-based payment models. "Many of the abuses of Stark come from the fee-for-service system itself," he says. "The closer we move to value-based payment, value-based payment itself will start to wipe out foul-smelling incentives."

Specific updates
At the Senate Finance Committee hearing in July, Mr. Mancino from Johns Hopkins said linguistic ambiguities in the physician self-referral law need to be eliminated and penalties under the law need to be more reasonable. Troy Barsky, a lawyer with Crowell & Moring, agreed. He urged lawmakers to change the proportionality of the penalty to the nature of the violation. This would allow provider organizations to avoid astronomical penalties for technical violations void of motive or intent. Mr. Barsky proposed imposing a fixed monetary penalty for such technical violations of Stark, rather than requiring a full refund of all Medicare payments related to prohibited referrals.

Although modernizing Stark Law would involve new exceptions and clarifications, it could also entail removing at least one existing exception: the in-office ancillary services exception.

Physicians and medical practices rely on this exception, as it allows "within-practice" referrals for designated health services. Mr. Barsky said this exception is contrary to healthcare reform efforts and "continues to incentivize in-office referrals and overutilization, making it less likely that these self-referring physicians will move to an integrated delivery model." Closing this loophole would incentivize physicians to move toward value-based models of care, he said.  

Time to examine the issue
Discussing the complexity of the physician self-referral law in 2014, Mr. Stark told The Wall Street Journal that lawyers are the one group of people who are satisfied with how the law played out. "I have every lawyer in town bowing gratitude to me for the work they got out of that law," Mr. Stark said. From a standpoint of self-interest and for the sake of their professions, few practicing lawyers would rally behind a full repeal, but most would say an update would be good for the system, says Mr. Luke.

That view is shared across the industry. Whether calling for a full repeal or just an amendment to bring the law up to date, now is the perfect time to examine whether healthcare law demands the same intensity of reform as healthcare payment and quality.  



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