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Health Care Delivery Reform: Senate Committee on Finance Holds Hearings on Stark Law

Efforts to promote reform in health care delivery have encountered obstacles that have attracted the attention of policymakers, including legislators on Capitol Hill.  The federal physician self-referral law, or “the Stark Law1, originally enacted in 1989, and amended in 1993, was designed to prohibit referrals by physicians of their Medicare patients to facilities for designated health services where the physician has a direct or indirect financial relationship in the facility performing the services.  The law was designed to address overutilization of health care services arising from the financial incentives for physician to refer patients for designated services.       

The Stark Law has been the subject of considerable debate about the complexities of the statute, and regulatory exceptions.  The statute has been viewed as an obstacle to the pursuit of health care delivery reforms, and there has been a growing number of critics calling for the repeal of, or amendments to, the law.              

On July 12, 2016, the U.S. Senate Committee on Finance held a hearing on the Stark Law for the purpose of determining the fate of the law.  Chairman Orrin Hatch (R-Utah) commenced the hearing by stating that the Stark Law is an “embodiment of good intentions muddled with complex execution.”  The Chairman observed that the law has had a significant effect on the health care delivery system.  With the current emphasis on implementing value-based payment models, Senator Hatch queried whether the Stark Law as currently structured, and implemented, retains its relevance2.  Senator Hatch spoke in terms of narrowing the reach of the law, prohibiting the types of financial relationships and practices that are prone to abuse.       

Witness Statements Before the Committee on Finance      

Troy A. Barsky, Partner, Crowell & Moring LLP   

Troy Barsky emphasized that the Stark Law’s complexity and ambiguity results in excessive costs and presents, as currently drafted, serious obstacles to achieving compliance.  The risks are particularly acute in view of strict liability under the law. 

Mr. Barsky observed that health care reforms mandated by the Affordable Care Act as well as the Medicare Access and CHIP Reauthorization Act of 2015 are put in jeopardy by Stark Law prohibitions.  Reforms are intended to encourage integration of providers, both financially and clinically.  Additionally, reforms are designed to reward physicians for value and quality.  These goals are incompatible with the Stark Law which strives to preclude financial relationships.  Mr. Barksy also suggested that the Stark Law is no longer needed in view of the new health care delivery models contemplated.  The Stark law was enacted to remove the financial incentives for referrals that often lead to overutilization.  The new payment models based on value, and not volume, of services are designed to lessen the degree that financial incentives may have on medical judgments in rendering care.  

Short of repealing the Stark Law, Mr. Barsky advanced several suggestions for amending the law, or its implementation, to remove the barriers that the Stark Law presents in adopting reforms in health care delivery.  This would include: (1) the use of bright line rules, rather than currently ambiguous provisions; (2) grant the Secretary of the U.S. Department of Health and Human Services enhanced authority to issue advisory opinions; (3) curtail the impacts arising from purely technical violations; (4) provide for new exceptions; (5) grant the Secretary boarder authority to provide waivers in a more unified approach; (6) congressional action to redress the negative effects of the in-office ancillary services exception where it  presents obstacles for these services to migrate to integrated care models.  

Ronald A. Paulus, President and Chief Executive Officer, Mission Health

Ronald Paulus advocated for the repeal of the Stark Law so that payment reform can be implemented. He opined that value-based payment models had significant attributes.  Adoption of such models though is being thwarted due to the significant legal risk from restrictions imposed by the Stark Law.  Long term investments in value-based approaches to care are not being pursued because of the risks perceived from the Stark Law.  Mr. Paulus also suggested that more efforts should be made to promote gainsharing arrangements.  Short of repeal of the law, Mr. Paulus commented that there are a number of revisions to the Stark Law that could be made to lessen the burden that the Law imposes on implementation of alternative payment models.  

For example, Mr. Paulus mentioned that for entities that are not participating as an Accountable Care Organization in the Medicare Shared Savings Program (MSSP), waivers should be available similar to those under the MSSP, or an exception should be provided, if such entities are using alternative payment models.     

Peter Mancino, Deputy General Counsel, The Johns Hopkins Health System Corporation

Peter Mancino stated that the Stark Law is viewed as a “top compliance risk” to the Johns Hopkins health system.  Thus, there is a need to seek “common-sense revisions” to the law.  Mr. Mancino promoted three areas for legislative changes to the law.  First, Mr. Mancino suggested that efforts be made to remove ambiguity of some terms under the law.  By way of example, Peter Mancino mentioned the law’s terms “commercial reasonableness,” “fair market value,” and “varies with or takes into account” the “volume or value” of referrals.  These terms lack a level of clarity that increases the burden, and uncertainty in efforts to be compliant.  Mr. Mancino also advocated for an enhanced process for providers to seek and obtain guidance from federal officials.  

Mr. Mancino also addressed the need to provide less onerous penalties when violations occur.  This becomes particularly acute when providers face strict liability under the Stark Law for unintended violations, with a duty to refund overpayments, and are exposed to potential monetary damages and penalties under the False Claims Act.  

Finally, Peter Mancino explained that the Stark Law limits hospitals from engaging in innovative payment arrangement with physicians.  Specific reference was made to gainsharing and value-based payment models, where Stark Law restrictions inhibit these approaches.  The limits that the Stark Law impose on innovation frustrates the aim of the Medicare Access and CHIP Reauthorization Act of 2015.                                     


With the embrace of health care delivery reform emphasizing quality and value, not volume of services, in payment design, momentum is building to redress obstacles that hinder this national goal.  The Stark Law stands in the crosshairs of this effort.  Once viewed as an important legislative measure to guard against financial incentives which encouraged overutilization of health services, the law has increased in its complexity and reach, casting doubt on its relevancy in modern day health delivery reform.  The Stark Law is now perceived as an obstacle in achieving the national agenda for reforms.  

Most recent congressional activity, exemplified by the roundtable hosted on Capitol Hill in December 2015, the white paper issued on June 30, 2016 by the Senate Committee on Finance and the hearing before that Committee on July 12, 2016 provides a glimpse of the terrain going forward.              

With congressional focus on this matter, undoubtedly there will be further legislative interest, with prospects for legislative measures to remedy obstacles that the Stark Law presents in achieving innovative reforms that Congress has envisioned. 

The views and opinions expressed in this article are those of the author, and cannot be attributed to the Office of the Inspector General for the District of Columbia.

1   42 U.S.C. §1395nn

2   In December 2015, two congressional committees, the U.S. Senate Committee on Finance and the U.S. House Committee on Ways and Means, held a roundtable discussion on the Stark Law, its implementation and the future of the law. Much of the issues raised and recommendations made at that roundtable meeting, and papers subsequently submitted, led to the issuance on June 30, 2016 of a white paper by the U.S. Senate Committee on Finance that identifies recommendations for improvements in the Stark Law. The white paper is entitled "Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models."

Copyright © Stuart SilvermanNational Law Review, Volume VI, Number 196

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