Senate Hearing Addresses Potential Stark Law Changes

Earlier this summer, the Senate Finance Committee heard testimony from stakeholders arguing for changes to the Stark Law that could make compliance easier and facilitate new business models that promote value-based, coordinated health care services. The hearing followed a round table held last year and a recent Senate Finance Committee white paper on the self-referral law.

In December 2015, the Senate Committee on Finance and the House Committee on Ways and Means convened a group of experts to discuss the Stark Law, which prohibits physicians from referring Medicare patients for "designated health services (DHS)" to entities with which the physician has a financial relationship. The group considered changes that might be needed to facilitate implementation of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and keep up to date with an industry shifting to alternative payment models.

Prior to the Senate Finance Committee hearing, the Committee released a white paper, "Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models," addressing potential revisions to the law that could make it easier for health care providers to collaborate and pursue alternative payment models that promote the government's Triple Aim. Senate Finance Committee Chairman, Orrin Hatch (R-Utah), explained in a statement: "This paper 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."

Suggested Changes/Improvements to Stark Law

Here are just some the suggestions raised in public comments and the Senate hearing for ways to address the Stark Law and its impact on efforts to reform the health care system.

• Repeal Stark Law entirely

• Repeal just the compensation arrangement requirements, limiting Stark's scope to ownership and investment interests

• Add new waiver or exceptions to the law to permit alternative payment models

• Keep existing exceptions but modify them to accommodate coordinated and integrated care delivery models

• Make exceptions correspond more closely to Anti-Kickback Statute exceptions

• Increase in advisory opinions and agency guidance on the law

• Distinguish technical violations from substantive violations with different sanctions for each

• Clarify meaning of key terms and definitions within the Stark Law such as fair market value, "takes into account the volume or value of referrals," "commercially reasonable," and "group practice"

• Add an intent requirement

• Change penalty determinations to incorporate mitigating factors such as technical versus substantive violations, inadvertent mistake rather than intentional act, corrective actions, emergency situations requiring physician services and harm to Medicare.

Summing up complaints in the public comments that the law is difficult to interpret and apply, the paper highlights the law's "strict liability regime, huge penalties, and the breadth, complexity, and ambiguities" as creating "what is often referred to as a minefield for the health care industry." The difficulty predicting when conduct will violate the law is impeding progress in developing alternative payment models said commenters.

The white paper notes the history and purpose behind Stark—to avoid improper influence on physician referrals—in the context of the current trend toward alternative payment methodologies focused on value rather than volume. This trend, commenters argued, alleviates some of the concerns, such as overutilization, that Stark was intended to address. Essentially, the argument is that because incentives are shifting toward coordination and less care rather than a focus on reimbursing based on volume, there should be less need for the Stark Law's restrictions in the new health care marketplace.

Public comments leading up to the white paper proposed several options for addressing the Stark Law ranging from complete repeal of the law to increased authority for advisory opinions (see box). The white paper indicates "commenters generally agreed" that there should be different consequences for "technical violations" and for substantive violations. It was suggested that technical violations could relate to documentation issues (such as whether the arrangement was in writing or met requirements for signatures or if there was a gap between a prior expired relationship and a new arrangement) or perhaps compensation arrangements that violate Stark but don't violate the Anti-Kickback Statute or don't unduly influence physicians' decisions. But even this suggestion for less harsh consequences for technical violations raised complaints about difficulty in executing it and an increase of complexity rather than a move toward simplicity and clarity. Another suggestion recommended adding an intent requirement to the famously strict liability law to avoid punishing "purely accidental omissions."

At the July Committee hearing, health care executives Ronald A. Paulus, MD, President and CEO of Mission Health System, and Peter B. Mancino, Deputy General Counsel of The Johns Hopkins Health System Corporation explained how the Stark Law generates significant compliance costs due to its complexity and vagueness and complicates efforts to adapt to a changing health care environment. Paulus argued the law had "outlived its usefulness" and suggested the law's repeal would allow providers to do what the government has asked the industry to do—focus on patients and transform the fee-for-service reimbursement system. Mancino advocated revisions that would eliminate ambiguities, make penalties more reasonable and reform the law to allow innovative arrangements. Health care lawyer Troy A. Barsky, Esq. a partner at Crowell & Moring, LLP, provided his perspective as counsel to health care providers, explaining the difficulty in complying with the Stark Law, grave consequences for even inadvertent technical violations, and how it is "diametrically opposed" to goals of new payment systems. He argued Congress should consider repealing the law and if not, make "common sense" reforms such as removing technical requirements or limiting the consequences of technical violations and "removing barriers" to health care reform.

Takeaway: As the health care industry seeks to implement alternative payment models to improve quality and reduce costs, regulators are considering how current regulatory requirements could put up barriers to reform.