Modernizing and Clarifying the Physician Self-Referral Regulations

What is Stark Law?

Stark Law, otherwise known as 42 U.S. Code § 1395nn, regulates physician self-referrals for Medicare and Medicaid patients. The law prohibits a physician from referring their patients to medical facilities in which the physician has a financial interest such as ownership, investment, or a structured compensation agreement. While this law is designed to limit physician self-referrals, there are exceptions that allow for them when it can be shown that there is no risk for patient or program abuse. Allowing a physician to make referrals that have personal financial benefits creates a conflict of interest that Stark Law aims to diminish. This in turn helps keep overall healthcare costs lower across the industry by reducing overconsumption and promoting provider competition.

History of Stark Law

Stark I

Stark Law was first introduced in the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) which is now commonly referred to as “Stark I.” OBRA 1989 contained a provision that prevented physician self-referrals for clinical laboratory services under Medicare, although it was limited and there were multiple exceptions allowing what were considered to be legitimate business arrangements to continue. While this was a good first step in regulating physician self-referrals, to critics it lacked the breadth required to fully address the issue.

Stark II

The pushback Stark I received from critics led to the second iteration of Stark Law, known simply as “Stark II,” which was a provision included in the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993). Stark II applied the same general principle of preventing physician self-referral contained in Stark I, but banned a range of additional health services and Medicaid patients on top of the original Medicare/laboratory services ban. While Stark I was generally well-received (and even received pushback due to perceived leniency), Stark II saw more significant pushback from provider groups who thought it brought an unwarranted intrusion into the practice of medicine.

Stark III

This momentum led to another addition to Stark Law, known as “Stark III.” Stark III was published on September 5, 2007, and can be found at 72 FR 51011. Regarding Stark III, the Department of Health and Human Services has said, “Specifically, this rule finalizes, and responds to public comments regarding [Stark II] . . . which set forth the self-referral prohibition and applicable definitions, interpreted various statutory exceptions to the prohibition, and created additional regulatory exceptions for arrangements that do not pose a risk of program or patient abuse.” Essentially, this is a response to the pushback Stark II faced, reducing regulations to allow for exceptions of the §1877 Social Security Act (includes Stark III) for financial relationships that pose no risk of program or patient abuse. Physicians are permitted to self-refer despite individual financial incentive via the Secretary’s discretionary authority under section 1877(b)(4) of the Act as long as they are able to show no risk of patient or practice abuse.

Final Rule: Modernizing and Clarifying the Physician Self-Referral Regulations

Centers for Medicare & Medicaid Services (CMS) published a final rule on December 2, 2020, aimed at addressing any existing undue regulatory impact and burden of Stark Law. Specifically, exceptions to the physician self-referral law have been created for certain value-based compensation agreements between or among physicians, providers, and suppliers. In addition, a new exception has been established for certain arrangements under which a physician receives limited reimbursement for items or services actually provided by the physician; establishes a new exception for donations of cybersecurity technology and related services; and amends the existing exception for electronic health records items and services. Finally, this rule also provides critically necessary guidance for physicians and health care providers and suppliers whose financial relationships are governed by Stark Law. The final rule illustrates the difficulties of balancing regulation and efficiency in healthcare.

For More Information

This post provides a general overview of Stark Law and its legislative history. This is not a comprehensive overview of the black letter law and should not be used as such. For more information and in-depth analysis regarding this topic, please visit Starklaw.org.