Legislation & Regulation

At 30, Stark Law Chugs Along But It’s Overdue for Repairs

It is supposed to keep physicians from unduly profiting from referrals. But CMS Administrator Seema Verma and others see the Stark Law as an obstacle to ACOs and value-based care.

Richard Mark Kirkner
Contributing Editor

In 1989, when Congress passed the Ethics in Patient Referrals Act to prohibit health care providers from referring to facilities they had a financial interest in, fee-for-service health was pretty much the only health care game in town. The ACA? Not even a glimmer in Congress’s eye.

Today, with value-based payment models gobbling up a greater share of the market, thanks in part to the ACA, the law known as “Stark” is still chugging along like a 30-year-old clunker, according to advocates of coordinated care. CMS is now at work on revising Stark-related regulations so providers don’t run afoul of Stark when crafting shared-risk models.

The Stark Law, named for former Rep. Fortney “Pete” Stark of California not Ned, is one of two laws that prohibit health care providers from referring patients to any entity—a hospital, surgery center, imaging center, laboratory, and so on—in which they have a “financial relationship,” according to CMS; that is ownership, investment, or compensation. Stark is a civil statute that CMS regulates. The second law is an antikickback statute under the jurisdiction of the Department of Justice and a criminal law. Their common purpose is to eliminate the temptation for physicians to profit from patient referrals. The antikickback statute falls under Section 1320 of the U.S. Code and stipulates penalties for anyone who knowingly offers, pays, solicits, or receives anything of value for referrals of patients within federal programs.

Kevin McAnaney

Fair market value is difficult to define, says Kevin McAnaney, one of the nation’s leading authorities on the Stark law.

“Stark is actually more important because Stark is a strict liability statute,” says Kevin McAnaney, a New York City attorney who specializes in health care regulation and who participated in the second phase of Stark rulemaking from 1997 to 2003 in the Office of Inspector General at HHS. No proof of intent or negligence is necessary under strict liability statutes, so doctors can be found guilty of violating the Stark law even if they don’t mean to. Violation of the antikickback statute requires criminal intent.

Why now?

When CMS sought comments last year on proposed changes in payment rules, Stark was one of the top subjects that came up, Deputy CMS Administrator Kimberly Brandt noted at a Brookings panel in January 2019. “There were a lot of people who felt that the amount of burden and the amount of uncertainty and lack of clarity … with respect to the Stark Law, was a real impediment to them being able to provide value-based care or value in care, generally,” Brandt told the Brookings audience. That’s why last June, CMS put out a request for information (RFI) specific to Stark and received 375 comments totaling about 3,500 pages, Brandt said at the Brookings panel.

In a blog post last June, CMS Administrator Seema Verma wrote that the current physician self-referral law “may prohibit some relationships that are designed to enhance care coordination, improve quality, and reduce waste.” But not everyone thinks that Stark and antikickback statutes should be brushed aside. In one of those letters that were part of the voluminous response to CMS’s RFI, the American Hospital Association, while urging greater flexibility in applying Stark to ACOs, urged no changes in the law’s provisions prohibiting providers from having an ownership interest in entities they refer to. “That ban is a carefully developed policy that is working as Congress intended,” the letter noted. Of course, preserving that prohibition gives hospital systems a leg up in competing against physician-owned surgery centers and the like.

McAnaney, considered one of the country’s leading authorities on Stark, has seen the perils of Stark violations up close. He was consulted on what’s considered a landmark case in the Stark canon: the $72.4 million settlement Tuo­mey Healthcare System of South Carolina reached with the federal government in 2015 because Tuomey’s part-time physician employment contracts violated the law. McAnaney says that he “voiced great concerns” during talks between Tuomey and the doctors that the contracts would violate Stark. However, Tuomey followed the advice of its own lawyer and entered into contracts with 19 specialists. Under those contracts, Tuomey agreed to pay the physicians’ liability insurance premiums and employment taxes, and let physicians participate in the hospital system’s health plan. In return, the physicians had to send their outpatient surgery cases to the hospital or another Tuomey-owned facility. One orthopedic surgeon, Michael Drakeford, MD, refused to sign and filed a lawsuit in 2005 under the whistleblower provision of the Federal False Claims Act, which is the legal mechanism for enforcing Stark. It’s difficult to determine Drakeford’s share of the settlement, but the Constantine Cannon law firm says that whistleblowers tend to get a 15% to 30% cut of any settlement.

Stark navigation

ACOs rely on agreements between providers to share risk. To make that happen, the ACA authorized CMS to create a mechanism that grants Stark waivers to ACOs; they don’t have to apply individually for the waivers. Troy Barsky, a health care attorney who oversaw Stark issues during the last four years of his 2002–2013 stint in the HHS general counsel’s office, explains that transparency has been a key element of those waivers. ACOs have to publicize that they have a Stark waiver, a process for documenting their Stark-exempted transactions, and their boards have to articulate the ACO’s purpose (such as care coordination, improving care, lowering costs).

Troy Barsky

Don’t be surprised if CMS or HHS proposes a rule this year that attempts to update the Stark Law, says health care attorney Troy Barsky.

Barsky says navigating Stark and staying on the right side of the law depends on understanding three key elements: The fair market value of collaborative care arrangements; not using volume or value of referrals between parties as a metric; and that the arrangements be “commercially reasonable.” Says Barsky: “Those three terms have gotten skewed over the years in court cases.” Many comments on Stark call for getting back to the original statutory intent, he says. “Let’s create a bright-line rule with regard to each three of these definitions. Everyone wants to comply, but organizations spend so much money trying to figure this out from a compliance-cost standpoint, and the consequences for not getting this right are enormous.”

Fair market value is one of those elements that’s difficult to define, McAnaney says. “If I pay a doctor $1 for generating $4 in savings, that’s a good deal, and that’s how the IRS views it. It’s just that in Stark world and in the kickback world, they have very much of a regulatory gloss on what constitutes fair market value.”

Possible fixes

Going forward, McAnaney would like to see CMS take a broad-based approach to easing self-referral strictures on value-based, coordinated-care models beyond ACOs. “Rather than trying to make the regulation so prescriptive up front, they should make it broader up front and trust other laws they can use—the kickback statute, for example,” he says. “But I think they should err to make it broader at the beginning until they see if there are problems.”

Barsky says coming up with clearer definitions of the three principles he previously mentioned—fair market value, a metric for evaluating referrals, and the meaning of “commercially reasonable”—are key elements of any fix. At the same time, CMS has to be mindful that most providers are also living in the fee-for-service world in which the Stark protections should apply. He calls it the “carrot-and-stick” approach. “A reward or encouragement to move to value-based payment arrangements would be that Stark doesn’t apply anymore,” Barsky says.

Barsky notes that Congress has been looking at Stark for a few years. “I’m not sure if this would be the year, in light of the focus on drug pricing and the general political climate, that legislation would get through both houses of Congress, but I still think it’s an issue that Congress is going to continue to evaluate,” he says. “I think it’s more likely there would be activity from CMS and HHS in the form of a proposed rule this year.”

With 3,500 pages of comments to sift through, CMS has plenty of work to do.


A blueprint for high-volume, high-quality lung cancer screening that is detecting cancer earlier—and helping to save lives

Clinical Brief

Multiple Sclerosis: New Perspectives on the Patient Journey–2019 Update
Summary of an Actuarial Analysis and Report