Quick, Time to Fix the Stark Law

Two experts who testified at a bipartisan congressional hearing say the law is so outdated and full of exceptions that it thwarts healthcare modernization efforts and encourages perverse economic behavior.

Now that the election is mercifully behind us, healthcare CEOs are hoping that the lame-duck Congress will act to modernize the so-called Stark law.

They argue that many of Stark's prohibitions have outlived changes their usefulness or are covered by other statutes. Further, many contend the laws conflict with the Affordable Care Act's implicit requirement that healthcare entities work together to manage care.

Ron Paulus, MD, president and CEO of Mission Health in Asheville, NC, and Troy Barsky, formerly with the Department of Health and Human Services, testified last summer before a bipartisan Congressional committee that much of the Stark law is so outdated and full of exceptions that it thwarts healthcare modernization efforts and encourages perverse economic behavior.

They're hopeful the upcoming Congressional session will provide an opportunity to modify or repeal Stark, which is actually a patchwork of federal laws and exceptions intended to prevent physician self-referral.

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Paulus says the law paralyzes potential incentives between health systems and independent physicians, and prevents actions that would clearly benefit the patient.

Mission Health wanted to provide genetic counselors in private obstetricians' offices when it's discovered that a fetus will die at birth or shortly thereafter. The service would have been free to grief-stricken patients, but because the Stark laws would consider the counselors a benefit to the private obstetrician, the program was nixed, he says.

Paulus also contends that Stark prevents hospitals from rewarding independent physicians for process improvements that could improve care quality and efficiency. Mission wanted to institute an incentive program to reduce readmissions, he says, but again he had to drop that idea because of Stark.

"Had we moved forward, we would have had to reward the same amount to those whose readmissions quadrupled as to those who eliminated them," he says. "That's the quandary of working with non-employed physicians."

Current fraud and abuse laws already provide protection from self-referral, while Stark punishes unintentional violations where benefits of any self-dealing are far from evident, Paulus claims.

In multiple acquisitions of small hospitals in which he has been involved, the acquirer had to self-disclose unintentional Stark errors found in due diligence that violated the letter of the law, but not the spirit.

'Bureaucratic Overhead it Creates is Nuts'

"We paid a lot less in fines than we would have if we had not self-disclosed, but we still paid hundreds of thousands for truly no-harm, no-foul errors," he says. "It's simply not possible for small organizations to have the checks and balances and oversight to avoid every possible administrative error."

Former Hospital CEO to Pay $1M for Stark Violations

Even for large sophisticated organizations like the $7 billion (revenue) Mission Health, Paulus says relationships have to be policed as in a military state.

"Let's say an administrative assistant knows a doc who is not employed is going to be meeting with me and she decides to order lunch. We now have a Stark violation. The bureaucratic overhead it creates is nuts."

Barsky, a partner at Crowell & Moring in Washington, DC, served at HHS from 2002-2013 and was director of the Division of Technical Payment Policy from 2009-2013. He says repealing Stark is probably not an option politically, but modification is possible.

"[Stark] has stifled innovation because there's confusion on the application of the law and confusion on enforcement activities," he says.

One way to improve Stark would be to create broad waivers for providers participating in new payment models. "There's no waiver authority under MACRA, so there's a lot of confusion in the provider community over whether that can be successful because folks worry about Stark," he says.

Hospital CEOs are afraid to embrace new payment models because they know potential Stark law violations—even minor ones—can bankrupt their organization. Their reluctance is well founded, as the DOJ is aggressive, and CMS has not defined critical terms in the Stark laws, including "fair market value" and "commercially reasonable."

Paying Attorneys, Consultants to Stay in Compliance

"Hospital systems don't know what the law means anymore," he says. "There's such a confusion that no one knows how to comply, and compliance costs alone are astronomical. We want hospitals to spend money on high-quality care, but they're spending lots on attorneys and consultants to avoid running afoul of Stark."

The False Claims Act offers significant protection against fraud, and the anti-kickback statute serves as protection against paying bribes or kickbacks to induce referrals, Barsky says.

From a political standpoint, Paulus and other hospital chiefs would settle for what is possible. He says members of Congress have told him privately that rare bipartisan agreement could bring modifications to Stark during this session.

A revision "would enable me to provide appropriate incentives that are based on performance just like I do with my management team," he says. "If you move the ball you get a reward. If you don't you move backwards. Why should docs have to be employed in order to be rewarded?"

For more on how the outcome of this week's election will affect healthcare policy, payments, and politics, listen to this on-demand HealthLeaders Media webcast: How the 2016 Election Will Affect the Future Landscape of Healthcare Payment and Policy.