The Physician’s Self-Referral Law – Are Changes Finally Coming?

The Physician Self-Referral Law, also known as the Stark law, prohibits a physician from referring federal health care program patients for “designated health services” to an entity in which the physician (or an immediate family member) has a financial relationship, unless an exception applies. Financial relationships include both ownership and investment interests, as well as compensation arrangements.  The law also prohibits an entity from billing federal health care programs for services provided pursuant to an impermissible referral.  Although Congress intended the Stark law to provide a bright line test to curb physicians’ self-referrals, it has, over the years, increased in complexity and breadth.

In December, 2015, the Senate Committee on Finance and the House Committee on Ways and Means invited a group of Stark law experts and stakeholders to participate in a roundtable discussion on issues related to the Stark law. The discussion resulted in a majority staff report issued on June 30, 2016 from the Senate Finance Committee entitled “Why Stark, Why Now?- suggestions to improve the Stark law to encourage innovative payment models.”  The report was based on 90 comments  from the industry roundtable discussion about the  law.

The report noted that new payment models for value-based that Congress, CMS, and commercial health insurers are promoting require coordination, cooperation, and financial integration among providers.  In contrast, the current Stark law prohibits much of or restricts this kind of integration.  The Joint Committee received wide-ranging comments addressing such areas as new waivers or exceptions, expansion of existing waivers or exceptions, repealing the compensation arrangement prohibition, or repealing the Stark law in its entirety.  Comments were also received on changes to standard Stark definitions such as fair market value, the volume and value of referrals, and commercial reasonableness.  The report concluded that the Stark law was created to address risks in the fee-for-service payment model world.  In contrast, the financial incentives that trigger over utilization concerns in the fee-for-service payment model are largely eliminated in value-based and alternative payment models, yet the Stark restrictions remain.

Whether the Senate Finance Committee moves forward is anyone’s guess. The report does, however, point out many of the shortcomings in Stark law and it provides a way forward toward repeal and/or reform in a value-based and alternative payment model world. The report can be found at http://www.finance.senate.gov/imo/media/doc/Stark White Paper, SFC Majority Staff.pdf