Coming Later this Summer – Significant Stark Law Changes

July 3, 2019

A CMS official, Kimberly Brandt (Principal Deputy Administrator for Operations), recently announced that the long-anticipated proposed Stark Law changes will be issued by the end of this summer.

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.

CMS has promulgated new Stark Law exceptions at various times in recent years but commenters have become increasingly critical of the many technical aspects that, arguably, constrain providers from entering into innovative financial arrangements as the health care industry (including CMS) explores enhanced care coordination strategies as well as more qualitative and value-based reimbursement models. Others believe that the Stark Law and its exceptions have lagged behind such innovations in the health care industry.

As a result, in June 2018, CMS published a Request for Information[3] seeking comments on various aspects of the Stark Law, including “any undue regulatory impact and burden.” Comments on the Request for Information were due by August 24, 2018. The upcoming proposed regulations are expected to address issues raised in the several thousand comments CMS received last summer, including topics such as, among others:

Alternative payment models or other novel financial arrangements (including risk-based arrangements) that are not currently covered by a Stark Law exception
Additional exceptions/protections for existing CMS payment models (e.g., Medicare Shared Savings Program/accountable care organizations, bundled payment models, etc.)
New or revised definitions for specific health care and/or Stark Law terminology (e.g., fair market value, commercial reasonableness, care coordination, gainsharing, clinical integration, financial integration, integrated delivery system, etc.)
Updates to the requirements to qualify as a “group practice”
Additional and/or expanded exceptions that would be useful in furthering innovation, quality improvement, cost savings and other health care industry goals (e.g., promoting technological expansion and improvements, providing payment and risk-sharing flexibility, allowing provider network formation and financial/clinical integration, etc.)

We will be closely monitoring any developments with respect to the upcoming proposed Stark Law changes and will summarize such proposed regulations here when they are available.

[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).

[3] Available at https://www.federalregister.gov/documents/2018/06/25/2018-13529/medicare-program-request-for-information-regarding-the-physician-self-referral-law