Senate Finance Committee Examines Repeal of the Stark Law

July 06, 2016

A new report suggests that the Stark law is obsolete in new payment models.

On June 30, the US Senate Committee on Finance (the Committee) released the report Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models (the Report). Although the Report does not explicitly call for the repeal of the Stark law, the Report’s review of concerns expressed across a broad spectrum of stakeholders that the Stark law may be doing more harm than good for Medicare program objectives in implementing new value and quality-based payment models forecasts the need for additional review and action. The Committee has suggested that it will continue to monitor Stark law issues and consider reform of the statute to advance healthcare reform initiatives under the Affordable Care Act. The Report is groundbreaking in its analysis of the purpose, benefits, and burdens of the Stark law and its effect on the healthcare industry.

The Report documents widespread concerns that the Stark law is a major obstacle to new payment models and notes long-held industry criticisms of the Stark law, including its overlapping but not entirely duplicate provisions to the federal antikickback statute, its potential for overpayment and False Claims Act liability for technical violations, and its sheer overbreadth to address physician financial conflict-of-interest issues. The Report makes a strong case for dismantling the Stark law in favor of more linear and effective conflict-of-interest provisions, many of which already exist in the antikickback statute and the Civil Monetary Penalties Law. In this sense, the Committee’s entire process used an innovative approach to explore how to make well-intended but complicated regulations work logically and efficiently for the collective good.

Repeal and Other Changes to the Stark Law

The Report reflects the Committee’s consistent interest in healthcare industry fraud, waste and abuse issues, and access to high-quality healthcare. The Report cites significantly to a 2009 white paper on Stark law issued by the American Health Lawyers Association (AHLA) and a Stark law roundtable hosted by the Committee in December 2015 that generated intense interest in the healthcare industry, including substantive written comments submitted following the roundtable.

The 2015 Stark Law Roundtable hosted by the Committee was unprecedented and reflected a collaborative legislative approach to a complex regulatory issue. Roundtable participants reflected a deep bench of experts from academia, the private sector, government, and health law.[1] The roundtable panelists identified the significant challenges that the Stark law presents to healthcare providers and suppliers, particularly in connection with providers’ ability and willingness to adopt alternative payment models promoted by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Roundtable participants suggested potential modifications to the Stark law to remove hurdles to implementing healthcare reform, including outright repeal, repeal of certain compensation arrangement prohibitions, new waivers related to risk-based revenue, and expansion of existing waivers under the Medicare Shared Savings Program.

The Committee acknowledged in the Report that the “Stark law has become increasingly unnecessary for, and a significant impediment to, value-based payment models that Congress, CMS, and commercial health insurers have promoted.” The Committee also referenced the Stark law’s “breadth, complexity, and impenetrability” as creating a “minefield for the health care industry,” quoting Judge James Wynn’s concurring opinion in last year’s Tuomey decision and his view that “even for well-intentioned health care 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.”[2] The risk to providers for noncompliance with Stark law is out of proportion to the statute’s objectives.

The roundtable participants provided a number of comments to the Committee related to implementing MACRA’s alternative payment models. These proposed solutions ranged from creating new waivers or exceptions to the Stark law’s proscriptions to outright repealing the Stark law. The Committee recognized that “[m]any commenters suggested that the Stark law has outlived its utility.” In addition, the Committee considered commentary related to softening the Stark law’s strict liability, particularly as it relates to “technical” violations. Many comments noted the substantial burden created by the Stark law on the healthcare industry and—in particular—hospitals, which often bear the highest cost in managing Stark law compliance. For example, many proposals suggested aligning the Stark law with the antikickback statute, clarifying or eliminating Stark law prohibitions related to physician compensation arrangements, and modifying the burden of proof associated with Stark law noncompliance (e.g., requiring the government to prove a specific violation of the Stark law).

The concerns related to the Stark law are not simply whether it is an obstacle to new payment models. Some are concerned that the statute may be duplicative of other fraud and abuse statutes and simply too broad, complicated, and inflexible to make sense in today’s constantly changing healthcare landscape. For example, many of the recommendations addressed in the Report center on aligning the Stark law with the antikickback statute, given that they have many similar exceptions with serious consequences for any misstep. The Report cites a commenter who proposed, “rather than maintaining two parallel, but not identical, sets of regulations that outline permitted practices, the commenter believes it would be better to rely on the AKS safe harbors and eliminate the separate, but not identical, exceptions to the compensation arrangements provisions of the Stark law.”

The Report suggests that the Committee continue to assess the Stark law, noting that, “The Stark law was created to address a risk in an FFS payment model. The financial incentives that trigger overutilization concerns in an FFS payment model are largely or entirely eliminated in alternative payment models. Although the FFS payment model still exists, the comments show that the Stark law and its regulations have presented challenges to providers attempting to implement health care reform.” Citing the hoped-for effect of new payment models championed by Congress and the Centers for Medicare and Medicaid Services (CMS) alike, the Committee further explained that, “The Stark law has become increasingly unnecessary for, and a significant impediment to, value-based payment models that Congress, CMS, and commercial health insurers have promoted. The risk of overutilization, which drove the passage of the Stark law, is largely or entirely eliminated in alternative payment models.”

In addition to the recommendations noted above, the Committee identified several other possible recommendations for reforming the Stark law, including the following:

  • Aligning the Stark law with the antikickback statute
  • Creating a tax-exempt exception for certain compensation arrangements
  • Reversing the premise of the Stark law’s strict liability, and modifying the burden of proof to require the government to prove that a violation of the law occurred
  • Simplifying and clarifying the Stark law, particularly related to technical requirements and payments associated with personally performed services

What This Report Means for Providers

Today and for the foreseeable future, the Stark law remains in full force and effect along with its attendant risks and burdens, including the increased penalties under the civil False Claims Act effective in August 2016. Providers and compliance professionals need to remain vigilant to Stark law compliance and actively assess the opportunity to use the CMS Self-Referral Disclosure Protocol where appropriate. Although the Report suggests that a thoughtful reexamination of the Stark law may continue, any changes to the law  will require legislative action that has not yet been proposed at this writing. Significantly, qui tam whistleblowers and the US Department of Justice will continue to rely on the Stark law to advance theories of liability under the False Claims Act.

In addition to sustaining compliance vigilance, providers may also consider giving further input to the Committee on the continuing effect of the Stark law and encouraging the Committee to expand its roundtable discussions to consider legislative action on the Stark law.


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:

San Francisco
W. Reece Hirsch

Washington, DC
Joyce A. Cowan
Kathleen McDermott
Albert W. Shay
Howard J. Young
Jacob J. Harper

[1] Morgan Lewis partner Albert Shay was a participant in the 2015 Stark Law Roundtable and a co-author of the 2009 AHLA Stark Law white paper cited in the Report.

[2] United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., No. 13-2219, 2015 U.S. App. LEXIS 11460 at *56, *69 (4th Cir. July 2, 2015) (Wynn, J., concurring) (in which a jury found a $237 million False Claims Act judgment against Tuomey for Stark law violations, an award upheld by the Fourth Circuit).