Provider Alert: Changes to the Stark Law are Likely on the Way

In a surprising and promising development, the Senate Finance Committee released a Majority Staff Report on June 30, 2016 that gives the health care industry some hope that Congress may finally address some of the serious concerns with the implementation and enforcement of the Stark law.

The Report is aptly titled Why Stark, Why Now? As stated by Senator Hatch, Senate Finance Committee Chair, the Report “reflects critical feedback from the stakeholder community on the law’s ambiguities, its unintended consequences, and the need for reform, and I am hopeful it jumpstarts the discussion on how Congress can modernize the law to make it work for patients, providers, and taxpayers.” 

One notable aspect of the Report is its discussion of the possible repeal of all or part of the Stark law; something that would never have been heard from many, if any, government officials even just a few years ago.

Problems with Stark Law Implementation and Enforcement

The Report is a welcome acknowledgement by Congress of the complexities and problems with Stark law compliance and enforcement. Generally, the report is careful to identify its descriptions of problems with the Stark law as having been reported by commenters, rather than explicitly endorsing any of these positions. Nevertheless, the Report’s collection of comments on a wide range of issues related to the Stark law is thoughtful and thorough, looking at numerous issues, including the potentially “devastating” penalties (some of which can result from “technical” violations), the high cost and difficulties of compliance, the practical impediments to prevailing at trial, and the overlap with the anti-kickback statute (sometimes inconsistently). The Report also heavily focuses on the Stark law’s interference with the shift to value-based payment methodologies. Other issues addressed in the Report include concerns with Stark law definitions, such as “fair market value,” “commercial reasonableness,” and “the volume and value of referrals.” Although not stated directly in the Report, confusion about these terms has led numerous health systems to agree to multi-million dollar settlements of False Claims Act cases based on underlying charges of improper employment, leasing, and other compensation arrangements with physicians, in alleged violation of the Stark law.

The New Political Context 

Although it might seem obvious by now that various provisions in the Stark law are incredibly complex and filled with ambiguities, it has been politically unpopular to take a stand against any law ostensibly targeted at preventing fraud and abuse. No one wants to be seen as being soft on fraud. As a result, despite numerous concerns expressed by health care providers for years about the confusion and unfairness surrounding the law’s interpretation and enforcement, very few changes were made by Congress. The Centers for Medicare and Medicaid Services often said they could not resolve most of these issues without further Congressional authority. In this context, it was particularly notable that the Introduction to the Report stated that “[t]he strict liability regime, huge penalties, and the breadth, complexity, and ambiguities of the Stark law and its regulations have created what is often referred to as a minefield for the health care industry.”

Further, the Report quotes a federal appellate court judge who stated that the Stark law has become a “booby trap rigged with strict liability.” However, the primary motivation behind the move for change appears to be the shift to value-based payment models. In fact, the Report is subtitled, “Suggestions to Improve the Stark Law to Encourage Innovative Payment Models.”

Next Steps

The Report’s conclusion strongly suggests that the Stark law will no longer be necessary once fee-for-service reimbursement is eliminated, and in the interim, the Senate Finance Committee intends to seriously consider various changes to the Stark law. The primary changes discussed (again, attributed to commenters, rather than the Committee) were: (i) creating new waivers or exceptions, or expanding existing waivers/exceptions to the Stark law to facilitate adoption of new payment methodologies; (ii) broadening CMS’s regulatory authority (e.g., to issue advisory opinions and other guidance and to provide CMS with more discretion to settle Stark Law violations for less than the statutory repayment amount); (iii) repeal of the prohibitions related to compensation arrangements; and (iv) repeal of the entire statute. According to the Report, the initial priorities will be to focus on changes to facilitate the implementation of alternative payment methodologies and to better define technical violations so they do not lead to ruinous exposure. Other issues may be addressed later.

A Unique Opportunity

While the Report was issued by the Senate Finance Committee, it was based, in part, on a roundtable convened in December 2015 with the House Ways and Means Committee, suggesting broader congressional support. While no time frame is provided, the final statement in the Conclusion of the Report that the Committee plans to “evaluate and develop potential changes to the Stark law” will be welcomed by virtually all providers and suppliers in the health care industry. And the Committee is not sitting back: on July 5, it announced that it will convene a hearing on July 12 “to examine ways to improve and reform the Stark Law.” According to Senator Hatch, the hearing (titled, Examining the Stark Law: Current Issues and Opportunities) “will give members of the Committee the opportunity to hear how the Stark Law works in practice for today’s healthcare providers and what reforms are needed to streamline the law to make it work for providers, patients and taxpayers.” 

Despite this new focus by Congress, any Stark law changes are likely to be fought by whistleblowers who have thus far made a great deal of money from False Claims Act cases based on alleged Stark violations. To the extent that companies doing business in the health care industry have concerns about particular Stark law provisions, interpretation, or enforcement, this is the time to let Congress know. For the first time in a long time, it looks like it may be possible to address some of the problems with the Stark law. 


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