Summary

There appears to be momentum on Capitol Hill in Washington, DC to modify and/or repeal the Ethics in Patient Referrals Act of 1989, more commonly known as the Stark Law, which was enacted to curb overutilization of certain health care services. The Stark Law, as amended, prohibits a physician from referring Medicare patients for so-called designated health services to an entity with which the physician or an immediate family member has a financial relationship (compensation or ownership) unless an exception applies.

The momentum is prompted in part by the passage of the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) and Medicare’s movement away from a fee-for-service payment system and toward a value-based payment system.

Three recent events appear to suggest that changes could occur to the Stark Law.  First, on June 30, 2016, the U.S. Senate Finance Committee released a White Paper entitled, Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models (the “White Paper”). The White Paper summarized a roundtable discussion of subject-matter experts hosted by the Senate Committee on Finance and the House Committee on Ways and Means (the “Committees”). The discussion focused on possible reforms to the Stark Law in light of the transition of Medicare to a value-based payment system.

The White Paper stated that support for Stark Law reform has increased in recent years, particularly in light of the enactment of MACRA. MACRA authorizes numerous reforms to Medicare payments for health care services, specifically implementing value based payment approaches. The White Paper states that the Stark Law “has become increasingly unnecessary for, and a significant impediment to, value-based payment models that Congress, [the Centers for Medicare & Medicaid Services], and commercial health insurers have promoted.” The White Paper acknowledged that the Stark Law has placed a burden on hospitals and doctors to provide high quality care and reduce costs as part of the ongoing reforms within the health care delivery system.

The White Paper is available here. 

Second, the American Hospital Association (“AHA”) recently published a document entitled, Legal (Fraud and Abuse) Barriers to Care Transformation and How to Address Them (“AHA Paper”). The opening paragraph of the AHA Paper notes that, “Instead of payment based on volume (the number of services provided), payment is increasingly tied to value.” The AHA Paper identifies existing challenges to effectively create a value-based payment system and recommends changes to accomplish the same. 

According to the AHA Paper, the challenges posed by the Stark Law include: fair market value compensation arrangements that reward consumption as opposed to outcomes; a volume or value prohibition that makes it more difficult to incentivize cost reductions; a commercial reasonableness requirement that caps physician compensation without regard to the physician’s contribution in quality or efficiency metrics; and, a set in advance requirement that does not permit mid-year changes in payment mechanism. 

The AHA Paper focuses on various collaborative arrangements — shared electronic health records infrastructure; incentives for care redesign; coordination of care post- hospitalization — that can help achieve value based care and highlights some of the legal barriers currently in place that should be changed to improve the health care delivery system.

Third, the Senate Finance Committee (the “Committee”) held a hearing on July 12, 2016 entitled Examining the Stark Law: Current Issues and Opportunities to focus on potential repeal or reform of the Stark Law. This AHA Paper was released during testimony at the Committee hearing. During the hearing, Committee Chairman Orrin Hatch (R-Utah) suggested the Committee could take some action with respect to the Stark Law before the end of 2016 without specifying what that may entail.

Whether the Congress will implement any of the changes suggested in the White Paper or the AHA Paper — or otherwise — remains to be seen. Saul Ewing will continue to monitor the potential repeal or modification of the Stark Law.

The Stark Law has an intricate and complicated statutory and regulatory framework. Because the Stark Law is a strict liability statute and because the penalties for non-compliance are severe, health care providers must remain diligent about ensuring Stark Law compliance in their financial relationships.