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Senate Committee Releases Report on Potential Stark Law Changes, Hearing Scheduled

On June 30, 2016, the Senate Finance Committee's Republican staff issued a 20-page report discussing comments made by industry stakeholders after a December 2015 round-table on the future of the physician self-referral law, also known as the Stark law. Unless an exception is met, the Stark law prohibits physicians from referring patients to facilities in which they have an ownership interest or compensation arrangement. Originally targeting the overutilization of physician-owned clinical laboratories, the Stark law has expanded to prohibit the referral of a wide range of "designated health services." The law's complexity has created what one Fourth Circuit judge described as "a booby trap rigged with strict liability and potentially ruinous exposure." This is compounded by the fact that, as noted in the staff report, the Stark Law has been enforced primarily through the False Claims Act ("FCA"), thus imposing treble damages and penalties on the amounts paid by Medicare from any prohibited referral.

But most would agree that the Stark law has been a booby trap for years. Two developments explain the Committee's recent motivation. 

First, there has been a recent increase in exceptionally high settlements against providers that have violated Stark's byzantine requirements but who have not engaged in activity that negatively impacts patient care or the Medicare program.  The exposure for such technical violations is magnified by the fact that even the most technical of violations can expose providers to FCA liability. The potential for "ruinous exposure" has only increased with the Department of Justice's recent interim final rule that would double FCA penalties.

The second reason relates to the impediments that Stark places in the move away from fee-for-service reimbursement and towards alternative payment models ("APMs"). APMs such as the Medicare Shared Savings Program and the Bundled Payments for Care Improvement Initiative ("BPCI") were implemented under the Affordable Care Act ("ACA") to test reimbursement models other than Medicare's traditional fee-for-service ("FFS") model. The reliance on APMs to drive down health care costs increased dramatically with the passage of the Medicare Access and CHIP Reauthorization Act of 2015 ("MACRA"). Under MACRA, APMs have been transformed from mere pilot projects into driving forces for the abandonment of our FFS system. And as our fee-for-service system diminishes, so too does the primary reason for the Stark law. As the Committee notes in its report:

The risk of overutilization, which drove the passage of the Stark Law, is largely or entirely eliminated in alternative payment models. When physicians earn profit margins not by the volume of services but by the efficiency of services and treatment outcomes, their economic self-interest aligns with the interest to eliminate unnecessary services.

To help ensure that APM participants would not run afoul of the law, the ACA authorized the Secretary of Health and Human Services (HHS) to issue regulatory waivers of Stark and other fraud and abuse laws. These waivers have certainly encouraged providers to implement APMs. However, as the report notes, the waivers do not protect all of the APMs under MACRA, nor do they protect APMs that are implemented by commercial payers.  With this in mind, the Committee invited participants to comment on the current Stark law environment, health care reform implementation, costs associated with compliance and disclosures, possible fixes under both FFS and alternative payment models, and CMS' limited authority to create exceptions and to issue advisory opinions. The participants were also asked to specifically focus on (1) changes to the Stark law to implement health care reform, specifically MACRA, and (2) the distinction between technical and substantive violations.

Stakeholder Comments Related to Implementing MACRA

In its report, the Committee identified a number of common themes related to the Stark law and the implementation of MACRA, including the following:

  • Repealing Stark. The boldest suggestion is for a full repeal of the Stark law. These commenters argued that the federal anti-kickback statute ("AKS") in its current form can address the conduct that the Stark law seeks to curtail.
  • Repealing the Compensation Arrangement Prohibitions. A slightly less bold suggestion is for the repeal of the Stark law's compensation prohibition. As noted above, the Stark law prohibits referrals to entities in which the physician has an ownership and investment interest, or where the physician has a compensation arrangement with the entity.  Many of the significant Stark settlements have related to compensation arrangements between hospitals and physicians. An elimination of this prohibition would undoubtedly go a long way to eliminating some of the complexity and the extreme exposure facing providers.
  • New Risk Revenue Waiver. Multiple commenters recommended creating a new waiver from the Stark law for health care entities that have risk-related revenue of a certain threshold.
  • Expansion of Existing Waivers; New Waivers. Most commenters suggested extending the waivers that are currently limited to CMS-run programs so that they apply to APMs of all payers. Many commenters believed that expanding the waivers for the MSSP to qualifying APM participants would be the best solution.
  • New Exceptions. Some commenters recommended creating a new exception to enable financial arrangements that involve risk-sharing and gainsharing in APMs when appropriate safeguards are in place. Other commenters believe that a new exception should be designed to foster collaboration in the delivery of health care, referring to integrated delivery systems, accountable care, team-based care, and value-based payment arrangements.   Other commenters suggested the creation of a new Stark law exception that would apply to MIPS, physician-focused payment models, and payments associated with APMs.
  • Special Compensation Rule. A majority of comments touched on potential changes to how the Stark law treats compensation arrangements. One commenter suggested a special compensation rule related to MACRA alternative payment model financial arrangements that would automatically deem such arrangements (1) not to take into account the volume or value of referrals, or other business generated between the parties, and (2) constitute fair market value, provided all MACRA alternative payment model programmatic requirements are otherwise met.
  • Modify Existing Exceptions. Commenters also suggested modifying existing statutory or regulatory exceptions. For example, several comments recommended that Congress expand the Stark law's risk-sharing exception to apply to Medicare. Others suggested a new exception be created based on the risk-sharing exception that would apply to the various models implemented by the Center for Medicare & Medicaid Innovation ("CMMI"), including the MSSP, the Pioneer and Next Generation ACO models, and other CMMI models, as long as the arrangement is reasonably related to one of the purposes of the respective program.
  • Broadening CMS' Regulatory Authority. Many commenters agreed not only that Congress should create waivers but also that Congress should give CMS broader authority to create regulatory waivers.

Stakeholder Comments Unrelated to Implementing MACRA

Comments not related to MACRA included changes to Stark law's definitions, including the definition of "fair market value," "the volume or value of referrals," and "commercial reasonableness." On the issue of distinguishing between technical and substantive violations, many comments focused on documentation requirements and whether or not the violations harmed beneficiaries or federal health care programs. Commenters generally agreed that technical violations should be subject to a separate set of sanctions that would not give rise to either FCA exposure or potentially ruinous repayment liability. Some commenters submitted other suggestions for improving the law, including changes or clarifications to the in-office ancillary services exception, the physician-owned hospital exception, and documentation requirements.


Historically, Congress has had little appetite to revise legislation like the Stark law that is seen as combating fraudulent or abusive arrangements. However, the Committee is clearly concerned that the extremely broad law, with its extraordinarily harsh penalties, may prove to be an obstacle to implementing core parts of MACRA.  While there is nothing to indicate that revisions to the Stark law are imminent, the Committee's report is a positive development, and suggests that at least some members of Congress are seriously considering reforming the Stark law. The Committee will be holding a hearing on this issue on July 12, 2016.

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As a former official in the Civil Fraud Section of the U.S. Department of Justice, Larry has deep experience handling FCA investigations and qui tam litigation for industry leading health care clients across the country.