CMS Signals a Desire to Modernize Stark Law and the Draconian Compliance Provisions that may Prevent Innovative Medical Delivery Advances

Stark Law, as originally enacted in 1989, is designed to prevent self-referrals between physicians or groups of physicians unless they comply with a strict set of not so easy to understand rules. The drafters of Stark believed that self-referrals among physicians would increase the cost of health care by encouraging unnecessary medical care. From 1989 until 2007 Stark was modified in three major phases (I, II, III). From 2007 through 2018 Stark regulations were modified several times. The scope of the Stark Law, together with the piecemeal changes, make the law difficult to understand and implement. Beginning with the Bipartisan Budget Act of 2018 and ending with the June 20, 2018CMS Request for Information (“RFI”) Congress and CMS may be signaling their desire to bring Stark into the 21st century and allow modification that take into account more efficient and modern business structures that are focused on streamlining the medical delivery process, access, and cost.

On Feb. 9, 2018, President Trump signed the Bipartisan Budget Act of 2018 (“BBA”) into law. The legislation contains significant changes to Medicare, Medicaid, and other federal health care programs. With respect to Stark regulations, the BBA made three significant Stark changes.

  1. Signed writing requirement. Stark law requires that agreements that fall into the safe harbor provisions must be in writing and executed by the parties. Prior to the BBA changes it was argued the writing needed to be a single contractual document that complied with strict Stark law requirements. Several Qui Tam cases were brought against health care providers arguing the failure of the writing requirement was not insubstantial and therefore, the absence of the signed writing could give rise to a successful false claims suit. The courts struggled with the rule and often the health care provider was left to pay the price
    The BBA did not change the need for an executed writing but did make it clear that the writing requirement could be satisfied with a series of documents that show the existence of a signed agreement that complies with Stark law regulations. The BBA modification states, “….by a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties involved.” Stark law writing requirement is not in line with contract law and the basic steps necessary to prove the existence of a contract.
  2. Signature requirement. Prior to the BBA clarification, the signature requirement was often confusing, using language related to noncompliance, inadvertent noncompliance, and not inadvertent noncompliance. The new rule allows claims submission when the signature requirement is missing provided, “…not later than 90 consecutive calendar days immediately after the date on which the compensation arrangement became noncompliant (without regard to whether any referrals occur or compensation is paid during such 90-day period) and the compensation arrangement otherwise complies with all criteria of the applicable exception.” 42 CFR 411.357(g)
  3. Holdover lease and personal service arrangement (“PSA”). The BBA modified Stark to allow holdover and expired PSA agreements to indefinitely meet the requirements of Stark exception to office space, rental agreements, and PSA’s. The agreement must have been for at least one year and all other terms of the agreement must meet the Stark exception criteria.

On June 20, 2018, CMS issued a Request for Information (“RFI”) seeking public comment from the health care industry on the burdens of complying with Stark Law. Kelly Cleary, HHS Office of General Counsel stated that CMS was interested in exploring possible ways to remove the burdens of Stark law compliance while maintaining the integrity of the act. CMS signaled their interest in reducing the cost of compliance with respect to paperwork, etc. and to remove Stark as an impediment to creative delivery arrangements that increase health care access through coordinated care delivery models and limit the amount of waste and abuse. CMS stated they are particularly interested in financial arrangements that create alternative payment models that use “value-based” incentives and shared savings programs. CMS stated their intent to better understand provider concerns and target its regulator efforts to address those concerns. CMS administrator Seema Verma stated, “[W]e are looking for information and bold ideas on how to change the existing regulations to reduce provider burden and put patients in the driver’s seat.”

The RFI created 20 open-ended questions for which CMS is seeking input. Some of the questions appear below. For a detailed list see:

  • What, if any, additional exceptions to the Stark Law are necessary to protect financial arrangements that involve integrating and coordinating care outside of an APM?
  • How should CMS define “commercial reasonableness” in the context of the Stark Law?
  • Should CMS modify the definition of “fair market value” consistent with the statute and in the context of the Stark Law exceptions?
  • When should compensation be considered to “take into account the volume or value of referrals” by a physician or “take into account business generated” between parties to conventional financial arrangements and in the context of APMs and other novel financial arrangements? CMS is requesting examples of compensation formulas that do not “take into account” the volume or value of referrals or other business generated.
  • Do barriers exist to qualifying as a “group practice” under the Stark Law?
  • Do the following exceptions currently have application and utility, and so they could cover a broader array of arrangements:
    • The special rule for compensation under a physician incentive plan within the exception at 42 CFR 411.357(d) for personal services arrangements;
    • The current exception at 42 CFR 411.357(n) for risk-sharing arrangements; and
    • The current exception at 42 CFR 411.357(g) for remuneration unrelated to designated health services.
  • Could transparency about financial relationships, price transparency or the availability of other data necessary for informed consumer purchasing reduce or eliminate the harms to the Medicare program and its beneficiaries that the Stark Law is intended to address?
  • What are the compliance costs for regulated entities?

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Written By:

Ronald W. Chapman Sr. M.P.A., LL.M.

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President & CEO

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