Stark Law Overhaul Delayed

On August 27, 2020, the Centers for Medicare & Medicaid Services (CMS) announced that it was extending the timeline for finalizing its proposed changes to the Stark Law until August 31, 2021. This new deadline is a year later than expected based on previous CMS announcements. As you may recall, the Stark Law reform initiative was ramped up last summer with proposed changes published last fall; you can find more details on the Stark Law reform initiative and proposed rules here and here.

The Physician Self-Referral Law (Section 1877 of the Social Security Act), more commonly known as the “Stark Law,” generally prohibits a physician from referring a Medicare patient for certain “designated health services” (or “DHS”)[1] to any health care facility or entity in or with which the referring physician (or an immediate family member of the physician) has a direct or indirect financial relationship[2], unless the financial relationship satisfies one or more specific Stark Law exceptions. The Stark Law also prohibits the entity furnishing the DHS from presenting claims to Medicare, the beneficiary, or any other third party for DHS that are furnished as a result of a prohibited referral.

The Stark Law is a strict liability statute, meaning that the statute is automatically violated whenever a prohibited referral occurs between parties to a financial relationship that does not meet a Stark Law exception, regardless of the parties’ intent. Parties that violate the Stark Law are subject to, among other things, denial of payment of claims related to prohibited referrals, refund/repayment of amounts collected for such claims, civil money penalties for knowing violations of the prohibition, and potential False Claims Act liability.

The proposed Stark Law changes published in October of 2019 largely addressed modernizing the law with, among other things, specific exceptions to allow enhanced physician participation in valued-based arrangements as well as to allow for the donation of cybersecurity and electronic medical record technologies.

The cause for the delay is not entirely clear; however, the Trump administration has confirmed that such regulatory reform remains a high priority. Moreover, a CMS official clarified that CMS “is not delaying the Stark rule and is working hard to finalize it”, suggesting that the final rule may still be published well in advance of the new deadline.

However, considering the timing of the delay (i.e., during an election year), any significant political changes in the legislative and executive branches and their respective staffs may very well impact the timing and/or substance of the regulatory changes. As a result, various industry groups and other commentators have urged CMS and the current administration to finalize the changes before year end, especially in light of increased financial and operational challenges in the healthcare industry due to the COVID-19 pandemic.

We will continue to monitor and provide updates on the timing of the Stark Law final rule as well as related developments.

[1] DHS are defined in 42 C.F.R. §411.351 to include the following services that are payable, in whole or in part, by Medicare:  (i) clinical laboratory services; (ii) physical therapy, occupational therapy, and outpatient speech-language pathology services; (iii) radiology and certain other imaging services, including (but not limited to) MRIs, CAT scans, ultrasound services and nuclear medicine; (iv) radiation therapy services and supplies; (v) durable medical equipment and supplies; (vi) parenteral and enteral nutrients, equipment, and supplies; (vii) prosthetics, orthotics, and prosthetic devices; (viii) home health services; (ix) outpatient prescription drugs; and (x) inpatient and outpatient hospital services.

[2] A “financial relationship,” for purposes of the Stark Law, is defined as either an ownership or investment interest, or a compensation arrangement, whether direct or indirect.  A compensation arrangement “is any arrangement involving remuneration, direct or indirect, between a physician (or a member of a physician’s immediate family) and an entity.”  42 C.F.R. §411.354(c).