Is Stark Too Restrictive?

Certain joint venture arrangements between physicians and hospitals may be illegal as of today. This is the day when changes to federal physician self-referral rules—Stark law—that limit specific financial relationships take effect.

You or someone at your practice should already know this—implementation of some components was delayed for a year when providers complained to CMS that they needed more time to restructure, or, in some cases eliminate, certain arrangements. If you weren't aware of the changes, stop reading right now and start reviewing your contracts.

Arrangements that will be affected include:

• Per-click payments. CMS is tightening restrictions on per-click, or unit-of-service, payments for space and equipment leases. For example, a physician can't lease equipment to a hospital and receive a per-click fee each time a patient is referred to the hospital for a test.
• Under arrangements. The target is physician-hospital joint ventures that allow physicians performing a service to receive higher compensation by contracting with a hospital to bill for the service. This is typically on an outpatient basis and was allowed previously because the definition of a designated health service was originally based on the entity that billed, rather than the one that performed, a service. Clinical labs or imaging services are sometimes contracted this way.
• Percentage-based compensation. Physicians can still set up arrangements with hospitals for percentage-based compensation for professional services revenue they generate. However, they can no longer receive percentage-based payments for office space and equipment rentals or indirect compensation.

The new rules aren't drastically different—for the most part CMS was simply closing loopholes or expanding existing restrictions. But many physicians aren't happy with the changes. The American College of Cardiology and the American Medical Association have sent various letters to CMS asking the agency to alter the rules or at least delay implementation further.

While the rules don't outright restrict joint ventures and partnerships, they add to the administrative and regulatory hoops that physicians must jump through before they can partner with a hospital or just run a business.

Are the self-referral laws too restrictive? Many physicians would probably say yes.

The reasoning behind the original Stark law—to prohibit physicians from turning patients into profit centers by referring them to entities in which they have a financial interest—is fairly sound. Medicine is fundamentally different from most business ventures in that patient health and lives are at stake. The Hippocratic Oath by itself isn't enough to keep in check the potentially wayward invisible hand of profit-driven medicine.

But many physicians are small business owners and need to keep down costs and partner with other providers to make a living and provide quality care to their patients. Yet complying with Stark has become a game of cat and mouse, in which providers have to parse limited exceptions to the restrictions and continually revamp contracts in order to avoid becoming a criminal.

Stark law has been developed in three major phases, but there have been many more tweaks and changes over the years. Stark rules have popped up in the Inpatient Prospective Payment System, the Medicare Physician Fee Schedule, and in separate releases in the Federal Register. How is a physician supposed to follow along? The only real winners are the healthcare lawyers who interpret the regulations for a living.

I'm not suggesting we do away with Stark completely—self-referral deserves some attention. But as interest in hospital-physician partnerships has increased, it has become more difficult for them to work together.

Some simplification would help physicians and hospitals a lot.