Is Stark Law Reform or Repeal in the Offing?

June 29, 2018

The Centers for Medicare & Medicare Services has issued a request for information seeking public comment on how to address the undue regulatory impact and burden of the physician self-referral law, commonly known as the Stark Law. 83 Fed. Reg. 29524 (June 25, 2018). Replies are due no later than August 24, 2018.

The health industry has lived, and sometimes struggled, with the Stark Law for over 25 years. This strict liability civil statute prohibits physicians from referring Medicare and Medicaid patients for “designated health services” to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. A failure to comply imposes strict overpayment liability and sanctions and sets up providers for False Claims Act (FCA) punitive liability, a double legal whammy. The statute, which was intended to create “bright lines” between compliant and non-compliant arrangements, has instead required hundreds (if not thousands) of Federal Register preamble commentary to explain its meaning. Even today, seasoned practitioners who have studied the law and its implementing regulations for years are sometimes uncertain as to the application of the law to certain arrangements. Indeed, in one of its decisions in the infamous Tuomey case, which imposed over $245 million in Stark Law and FCA penalties, the US Court of Appeals for the Fourth Circuit stated that “even for the well-intentioned healthcare providers, the Stark Law has become a booby trap rigged with strict liability and potentially ruinous exposure – especially when coupled with the False Claims Act.”

Many have advocated for the amendment or outright repeal of the Stark Law, including the law’s namesake, Pete Stark. In recognition that the Stark Law may be an impediment to the adoption of innovative payment models, including those enacted as part of the Medicare Access and CHIP Reauthorization Act of 2015, the Majority Staff of the Senate Committee on Finance convened a group of subject-matter experts in December 2015 to share their views on how the law could be changed to better accommodate the desire to reform the healthcare system and encourage the adoption of value-based payment models. That effort resulted in a Senate Finance Committee Majority Staff Report titled “Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models.”

The request for information (RFI) appears to be seeking information necessary to implement suggestions set forth in the Senate Finance Committee Report and other forums. Recognizing the goal of transforming the healthcare system to a value-based system through care coordination, the Centers for Medicare & Medicaid Services (CMS) establishes as the focus of the RFI identification of barriers to coordinated care arrangements imposed by the Stark Law. The RFI solicits information by posing 20 specific questions. These questions relate to the structure and operation of alternative payment models or other financial arrangements between referring physicians and entities subject to the Stark Law, and solicit suggestions for exceptions to protect the relationships. Feedback is also solicited on the utility of the current exceptions in the Stark Law for risk-sharing arrangements and remuneration unrelated to designated health services, as well as the special rule for compensation under a physician incentive plan. Comments are sought on the development of definitions for critical terminology, with several terms identified, including the very terms that are often most critical in establishing a violation of the Stark Law—i.e., “commercial reasonableness”, “fair market value”, and “takes into account the volume or value of referrals.” Thoughts on the role of transparency in the context of self-referral are sought. Finally, comments are requested on the cost of compliance.

In the last several years, there has been an uptick in FCA private citizen enforcement actions for private gain related to Stark Law non-compliance issues. In fact, the FCA appears to be the primary enforcement vehicle for Stark Law compliance. For this reason, compliance with the Stark Law is a major risk area for the health industry resulting in compliance costs and penalties out of proportion to the concerns addressed by the law. The anti-fraud enforcement of Stark Law non-compliance is the biggest reason providers are hesitant to enter into innovative arrangements without some regulatory relaxation of the Stark Law.

So is the RFI worth the time to respond? We bet yes, and urge a strong response to the RFI by all health industry stakeholders, small or large. The Trump administration has shown an interest in tackling interesting regulatory reform issues, increasing the likelihood of meaningful clarifications and reforms.

Please contact the authors of this LawFlash or our healthcare industry team for assistance with submitting comments or questions concerning the RFI.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Banee Pachuca

Washington, DC
Kathleen McDermott
Albert Shay