Stark Under the Microscope: Congress and HHS Examine Reform of the Stark Law for a Value-Based System

Bass, Berry & Sims PLC

On July 17, 2018, the U.S. House of Representatives' Ways and Means Committee Subcommittee on Health ("Subcommittee") expressed its commitment to modernizing the Stark Law1 during a hearing in which industry and government witnesses shared concerns about the inhibiting effect of the Stark Law on innovative payment models and value-based care.2 Although the Subcommittee members and witnesses expressed varying concerns and options for reform, the hearing reflected a largely bipartisan consensus that the Stark Law must be carefully revised to accommodate changes in healthcare delivery and a shift toward value-based payments since its passage nearly 30 years ago. Providers may want to consider responding to CMS's Request for Information (RFI)3 issued on June 20, 2018, regarding improvements to the Stark Law, and also should monitor efforts to reform the Stark Law and the possible impact on their industry sectors.

Congressional Interest in Modernizing the Stark Law

Although many congressional debates involving healthcare are deeply entrenched along partisan lines, the Subcommittee's recent hearing revealed bipartisan agreement that the Stark Law requires modification to support the goal of shifting Medicare reimbursement from the traditional fee-for-service model to value-based care. Congressman Adrian Smith delivered remarks on behalf of Subcommittee Chairman Peter Roskam that noted the Stark Law's important role in safeguarding taxpayer dollars and emphasized the Subcommittee's goal of ensuring quality care is provided to all Medicare beneficiaries. Roskam explained the Stark Law must be revisited to alleviate burdens on providers and allow CMS more flexibility to support value-based care arrangements.

Eric Hargan, Deputy Secretary of the Department of Health and Human Services (HHS), provided HHS's perspective on Stark Law reform.4 Hargan stated that instituting a system in which valuable and seamless care coordination and clinical outcomes are prioritized above the volume of procedures is one of four key focus areas for HHS. HHS's other priority areas include reforming the individual health insurance market, lowering prescription drug prices, and tackling the opioid crisis. Comparing the Stark Law's numerous and complicated exceptions to "swiss cheese," Hargan recognized the law can present an obstacle to providers desiring to provide quality care to patients through innovative care delivery models. Hargan is spearheading the recent launch of HHS's Regulatory Sprint to Coordinated Care, a program striving to remove regulatory inhibitors to coordinated care and decrease the regulatory processes that burden providers. Hargan acknowledged the Stark Law's original 1989 passage was well-intentioned and appropriately addressed concerns for overutilization and quality of care based on physicians' financial motives in a fee-for-service system. Noting the president's budget calls for modernizing the Stark Law, Hargan observed the Stark Law was designed for, and still works well in, a fee-for-service system, but is not suited for the transition to value-based care. Specifically, physicians and healthcare providers may be limited in how they collaborate and coordinate care through integrated delivery models, alternative payment models or other innovative arrangements designed to improve clinical outcomes and reduce costs. This scenario often means patients are left to grapple with healthcare issues as they simultaneously coordinate their own care and also prevents providers from achieving better patient outcomes through integrated care. Hargan recognized that Stark Law considerations may be driving the consolidation of providers and cautioned that any changes to the Stark Law must be mindful of the need to maintain competition in the healthcare marketplace to preserve quality of care and control costs.

Hargan reported that HHS, in consultation with the HHS Office of Inspector General (OIG) and the Department of Justice (DOJ), is also analyzing the Anti-Kickback Statute and its relationship to the Stark Law, an issue upon which certain Subcommittee members and other witnesses placed significant importance. Hargan indicated an RFI regarding suggestions for the Anti-Kickback Statute may be forthcoming. In explaining the differences and overlap between the two laws, Hargan acknowledged that providers face numerous challenges in navigating these laws, which are enforced by different entities and operate differently for the same conduct.

Several Subcommittee members and witnesses cited waivers provided to accountable care organizations (ACOs) under the Affordable Care Act (ACA) as a previous acknowledgement that the Stark Law could be an obstacle to innovative care. Others debated the merits of the ACA's ban on physician-owned hospitals, given the move to modernize the Stark Law. The impact of the Stark Law and the Anti-Kickback Statute on new technologies, particularly for rural communities, was also addressed and Hargan acknowledged that these laws can disproportionately and negatively impact rural providers. Hargan explained that HHS intends to address the concerns regarding the Stark Law's burdens through its administrative jurisdiction, but noted that HHS welcomes the opportunity to work with Congress in its legislative efforts to reform the Stark Law.

A selection of industry stakeholders also testified and argued the Stark Law imposes burdens on providers that result in a chilling effect on innovative care models. Dr. Gary Kirsh, President of The Urology Group, highlighted that only five percent of physicians are participating in alternative payment models and almost no alternative payment models reviewed by the Physician-Focused Payment Model Technical Advisory Committee (PTAC) established under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) are in process. Kirsh attributed this dearth to the Stark Law's long shadow.5 Michael Lappin, Chief Integration Officer of Advocate Aurora Health, echoed the concerns that regulatory obstacles, such as the Stark Law, are impeding the value-based goals of MACRA and the ACA.6 Lappin contended the risk of overutilization inherent in the fee-for-service system is substantially removed in the value-based context where physicians are compensated based on outcomes. Dr. Brian DeBusk, Chief Executive Officer and President of DeRoyal, concurred, emphasizing that alternative payment models with downside risk involving financial penalties for failure to meet specific care goals naturally remove the risks the Stark Law was designed to combat. Industry witnesses also testified that the specter caused by strict liability and large penalties under the Stark Law hinder providers from embarking on innovative value-based arrangements.

Several suggestions for improvements to the Stark Law raised by witnesses include:

  • Providing exemptions for value-based arrangements
  • Addressing strict liability and substantive versus technical violations
  • Clarifying "fair market value" and other definitions
  • Providing the administration rulemaking authority to create a unified regulatory framework
  • Allowing OIG to grant waivers to test proposed alternative payment models when submitted in writing and approved by the Secretary of HHS
  • Removing "volume or value" from the Stark Law prohibition for testing of alternative payment models
  • Codifying certain waivers into law

Only one witness expressed concern about the push to modernize the Stark Law. Claire Sylvia, a partner with Phillips and Cohen, a law firm that represents whistleblowers under the federal and state False Claims Acts, argued the Stark Law is crucial to ensuring medical decisions are not motivated by improper financial purposes and to protecting patients.7 Sylvia argued that value-based models do not eliminate the concerns addressed by the Stark Law, and that the Stark Law does not impede the transition to value-based care. Sylvia's statement emphasized the numerous exceptions to the Stark Law and the ability of providers to receive advisory opinions from HHS. To support her arguments, Sylvia referenced large settlements for Stark Law violations and the resulting deterrent effect of enforcement efforts. Congressman Wenstrup, a physician himself, decried the perceived characterization of physicians as bad actors intent on exploiting people and argued that data analysis can be used to target problematic behavior. Sylvia retorted that the DOJ can provide many examples of physicians who have engaged in abusive practices. Subcommittee Chairman Roskam pushed back on Sylvia, noting that he believes the Stark Law's strict liability is outdated and positing a move toward an intent-based law. Subcommittee members did not appear dissuaded by Sylvia's arguments and remained poised to revise the Stark Law.

CMS Request for Information on Stark Law Recommendations

During the past year, CMS has engaged industry stakeholders on the issue of regulatory burdens and received numerous comments regarding the hurdles caused by the Stark Law. As mentioned earlier, CMS issued an RFI on June 20, 2018, in parallel to congressional interest in reforming the Stark Law, soliciting input from industry stakeholders regarding suggestions for decreasing the undue regulatory burdens of the Stark Law.8 The RFI seeks information regarding the structure of arrangements between parties in alternative payment models or arrangements, the need for revisions to existing exceptions or additional exceptions, and terminology related to alternative payment models and the Stark Law.9 As described in the attached Appendix, CMS provided 20 possible request areas, ranging from the ways the Stark Law is impacting alternative payment models to the role of transparency in the context of the Stark Law. Responses are due by August 24, 2018. HHS will review the submitted information with its experts and, according to Hargan, release a proposal addressing these suggestions. In the July 17, 2018, hearing, Hargan expressed HHS's desire to maintain the core of the Stark Law, which was intended to address improper motives and overutilization, while accounting for the changing focus on value.

Potential Impact of Review of the Stark Law

As identified by nearly all Subcommittee members and witnesses, the Stark Law is long overdue for reform to meet the demands of a modern system of integrated, value-based care. While the delivery of care in the United States is evolving, providers remain hampered by an outdated regulatory framework under the Stark Law that is not sustainable in the long term. Federal review of the Stark Law could affect physicians and other healthcare providers in several ways if it results in reform.

A shift to value-based care cannot be fully accomplished under the current regulatory framework. The Stark Law's strict liability standard and draconian penalties for technical violations coupled with the potential for liability under the Anti-Kickback Statute often serve as a deterrent to increased collaboration and coordination between physicians and other healthcare providers across industry sectors. It is promising that Hargan recognized this concern and acknowledged how difficult it is for providers to navigate both the Stark Law and the Anti-Kickback Statute as both address the same or similar conduct.

The healthcare provider community is aligned in seeking relief from the government to the law's strict liability standard. Providers are continuing to develop innovative care models focused on achieving better outcomes in a more efficient manner. The Subcommittee hearing is a positive first step in addressing the conflict between the fraud and abuse laws and Medicare's shift to quality payment models. Changes in the law that allow providers the flexibility to work together and utilize payment arrangements under an integrated model of care will at least partially address the shift to value-based care and provide a less restrictive environment in which providers may operate as the industry continues to move in this direction. As Hargan indicated, these changes will help level the playing field for small providers and maintain competition in the marketplace while at the same time benefitting all providers, who historically have been required to expend significant resources to ensure that their arrangements meet the technical compliance requirements of the Stark Law. Providers who have developed models that cannot be implemented due to fraud and abuse restrictions should consider submitting comments to CMS's RFI advocating for the changes needed.

Notably, the Stark Law and its implementing regulations have not undergone any significant overhaul to account for how the delivery of healthcare is evolving. As one example, artificial intelligence will play an ever-increasing role in enhancing patient care, including in detecting, preventing, and treating diseases and disorders. When the Stark Law was passed, Congress likely did not consider this technology, and how arrangements between the companies at the forefront of this trend would desire to contract, interact, and share value with entities that provide designated health services. This is just one example, and there are certainly many more changes coming.

Entities interested in obtaining assistance with preparing comments in response to CMS's RFI related to reducing burdens under the Stark Law may contact attorneys in our Healthcare Practice Group.


Summarized below are the 20 areas in which CMS's RFI requests public input by August 24, 2018:

1. Details regarding either existing or potential arrangements that involve entities providing designated health services and referring physicians that participate in alternative payment models or other novel financial arrangements, whether or not such models and financial arrangements are sponsored by CMS, including a description of the alternative payment model(s) and novel financial arrangements if not sponsored by CMS.

2. Additional exceptions to the Stark Law that are necessary to protect financial arrangements between designated health services entities and referring physicians who participate in the same alternative payment model, if any.

3. Additional exceptions to the Stark Law that are necessary to protect financial arrangements that involve integrating and coordinating care outside of an alternative payment model, if any, including the types of financial arrangements and/or remuneration related to care integration that should be protected and why.

4. The utility of the current exception at 42 C.F.R. § 411.357(n) for risk sharing arrangements.

5. The utility of the special rule for compensation under a physician incentive plan within the exception at 42 C.F.R. § 411.357(d) for personal service arrangements.

6. Possible approaches to address the application of the Stark Law to financial arrangements among participants in alternative payment models and other novel financial arrangements.

7. Definitions for critical terminology, such as alternative payment model, care coordination, clinical integration, financial integration, risk, risk-sharing, physician incentive program, gainsharing, health plan, health system, integrated delivery system and enrollee.

8. Identification and suggestion of definitions for other terminology relevant to the comments requested in the RFI.

9. Possible approaches to defining "commercial reasonableness" in the context of the exceptions to the Stark Law.

10. Possible approaches to modifying the definition of "fair market value" consistent with the Stark Law and in the context of the exceptions.

11. When, in the context of the Stark Law, compensation should be considered to "take into account the volume or value of referrals" by a physician or "take into account other business generated" between parties to an arrangement, including compensation formulas that do not take into account the volume or value of referrals by a physician or other business generated between parties.

12. When, in the context of alternative payment models and other novel financial arrangements, compensation should be considered to "take into account the volume or value of referrals" by a physician or "take into account other business generated" between parties to an arrangement, including compensation formulas that do not take into account the volume or value of referrals by a physician or other business generated between parties.

13. Whether and, if so, what barriers exist to qualifying as a "group practice" under the regulations at 42 C.F.R. § 411.352.

14. Application and utility of the current exception at 42 C.F.R. 411.357(g) for remuneration unrelated to designated health services, including how CMS could interpret this exception to cover a broader array of arrangements.

15. Any provisions, definitions, and/or exceptions in the regulations at 42 C.F.R. 411.351 through 411.357 for which additional clarification would be useful.

16. The role of transparency in the context of the Stark Law (e.g. if provided by the referring physician to a beneficiary, whether transparency about a physician's financial relationships, price transparency, or the availability of other data necessary for informed consumer purchasing reduce or eliminate the harms to the Medicare program and its beneficiaries that the Stark Law is intended to address).

17. Whether and how CMS could design a model to test whether transparency safeguards other than those currently contained in the Stark Law could effectively address the impact of financial self-interest on physician medical decision-making.

18. Compliance costs for regulated entities.

19. Recent studies assessing the positive or negative effects of the Stark Law on the healthcare industry, including provision of a copy of the study(ies).

20. Whether CMS should measure the effectiveness of the Stark Law in preventing unnecessary utilization and other forms of program abuse relative to the cost burden on the regulated industry and, if so, how CMS could estimate this.

1 Ethics in Patient Referrals Act of 1989, 42 U.S.C. § 1395nn (2018).

2Modernizing the Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program: Hearing Before the Subcomm. on Health of the Comm. on Ways & Means, 115th Cong. (2018).

3 Centers for Medicare & Medicaid Services, Request for Information Regarding the Physician Self-Referral Law, 83 Fed. Reg. 29524 (June 25, 2018).

4Modernizing the Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program: Hearing Before the Subcomm. on Health of the Comm. on Ways & Means, 115th Cong. (2018) (Statement of Eric Hargan).

5 Modernizing the Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program: Hearing Before the Subcomm. on Health of the Comm. on Ways & Means, 115th Cong. (2018) (Statement of Dr. Gary Kirsh).

6 Modernizing the Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program: Hearing Before the Subcomm. on Health of the Comm. on Ways & Means, 115th Cong. (2018) (Statement of Michael Lappin).

7Modernizing the Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program: Hearing Before the Subcomm. on Health of the Comm. on Ways & Means, 115th Cong. (2018) (Statement of Claire Sylvia).

8See supra note 3.

9See id. at 29525.

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