Self-Referral Law Seen as Barrier to New Provider Arrangements

BNA’s Health Care Daily Report™ sets the standard for reliable, high-intensity coverage of breaking health care news, covering all major legal, policy, industry, and consumer developments in a...

By James Swann and Alex Ruoff

May 5 — Doctors and hospitals are shying away from deals that pay physicians based on quality and care coordination out of fear those arrangements will violate the federal physician self-referral law, attorneys told Bloomberg BNA recently.

The Medicare program and private insurers have been moving toward physician reimbursement models based on quality of care, and in late April the federal government released a proposed rule that would begin implementing a new quality-based payment structure for Medicare doctors.

But attorneys told Bloomberg BNA that doctors and hospitals will be reluctant to enter in to pay-for-quality arrangements because of fear that current federal anti-fraud laws may prohibit the kind of arrangements necessary to make the deals work.

The Stark law, or physician self-referral law, is a strict liability statute and prohibits most Medicare self-referrals, including situations where physicians own or invest in a hospital or refer Medicare patients to entities with which they or their immediate family members have a financial relationship.

Impossible to Navigate

Danielle Sloane, an attorney with Bass, Berry & Sims in Nashville, told Bloomberg BNA May 3 that while the Stark law was well intentioned in its attempt to protect a physician's independent judgment, it's extremely technical and complex and doesn't allow providers and suppliers to navigate it by themselves.

“For example, physician practices often have a hard time just understanding if they qualify as a group practice under the group practice rules, when it seems so obvious to them that they are a physician group practice,” Sloane said.

Each round of changes to the Stark law added another layer of complexity for physicians as well as increased the amount of time and money spent on doing a Stark analysis, Sloane said.

Above all, the Stark law doesn't have the flexibility to allow for physician arrangements that didn't exist when it was first enacted, Sloane said, such as physician arrangements that arise out of the new Medicare reimbursement strategy.

“While things like waivers for shared savings programs are certainly helpful, they're limited in their scope and application,” Sloane said.

Some modern health-care arrangements that have never been addressed by Stark include small urgent care facilities that often have physician ownership, Sloane said.

Physician owner referrals for simple diagnostics, which are often not a large portion of urgent care revenue, can run afoul of the Stark law if the physician owner opted to maintain a separate general practice to limit liability, Sloane said.

Stark Uncertainty

The Centers for Medicare & Medicaid Services took steps last year to relieve some of the burden from so-called technical Stark violations, uncertainty remains, Sloane said.

The 2016 Medicare physician payment rule, released in November 2015, included several provisions designed to ease provider compliance with the Stark law, including allowing an arrangement that qualifies for a Stark exception to continue indefinitely after the arrangement's expiration date and giving all parties involved in an arrangement seeking a Stark exemption 90 days to get missing signatures on an agreement (216 HCDR 216, 11/9/15).

“For example, CMS clarified that an agreement can be evidenced by a compilation of documents supporting the terms of the arrangement, but leaves one wondering whether you have enough documentation to evidence a written agreement and whether a potential whistle-blower or a regulator will disagree with you, issues that often relate more to sloppiness than to fraud and abuse,” Sloane said.

The technical nature of the Stark law also often leads to whistle-blower complaints that can lead to False Claims Act cases, Sloane said, even in cases where there are no bad actors or attempts to drive up utilization.

Fear of whistle-blower lawsuits has resulted in extensive due diligence in transactions, in addition to a huge increase in voluntary self-disclosures to the CMS, many of which are still waiting resolution in a backlog that spans several years, Sloane said.

Incentives for Doctors

Health-care organizations trying to test new models for paying incentives for doctors to deliver better care and reduce their overhead costs are worried they’ll run afoul of the Stark law because the law might penalize them for rewarding doctors for better care, David Main, an attorney with Nelson Mullins Riley & Scarborough LLP in Washington, told Bloomberg BNA May 2.

The Stark law definitions for illegal referrals or kickbacks are overly broad, leaving hospital and health system executives fearful that any financial rewards offered to physicians for cost reductions or better care—cornerstones of alternative payment models—could lead to a federal investigation, Main said.

While there are exceptions to the Stark law for health-care organizations participating in Medicare-sponsored accountable care organization programs, organizations developing their own alternative payment models often face uncertainty over whether the contracts they’re drawing up for physicians as part of these models might violate the law, Main said.

These concerns over the Stark law could stymie the Obama administration’s goal of expanding the use of alterative payment models, such as ACOs and bundled payment arraignments, Main said.

“The problem is that almost everything could be seen as a kickback,” Mike Ruggio, an attorney who focuses on fraud and abuse cases for Nelson Mullins Riley & Scarborough, told Bloomberg BNA May 4.

Draconian Penalties

Penalties for violating the Stark law are “draconian,” Linda Baumann, an attorney with Arent Fox LLP in Washington, told Bloomberg BNA May 2.

Baumann said that despite waivers from the CMS for arrangements such as ACOs, providers are still concerned about running afoul of the Stark law.

“Some of the people paying big Stark settlements aren't doing anything that different from everyone else,” Baumann said, referring to physician payment arrangements that have been cited by the government as Stark violations.

The Senate Finance Committee, along with a House committee, earlier this year asked for ideas about how to handle technical Stark violations and how to integrate Stark law requirements into new value-based payment methods that are being developed under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 (20 HCDR, 2/1/16).

A Senate committee spokesman told Bloomberg BNA May 2 that the comments are under review and will be the basis for a report on how the Stark law might be changed.

Fixing Stark

Arent Fox's Baumann said a legislative fix would be the best way to address Stark law issues, but said she wasn't sure whether Congress would have the time to take up the matter during an election year.

“Not making the Stark law a strict liability statute would help, but the enforcement folk won't go for that,” Baumann said. With a strict liability statute, any violation will result in penalties, even if there was no intent to defraud the government and the violation was the result of a technical error.

Faster OIG Opinions?

One option to clear up some of the Stark uncertainty would be to create an expedited advisory opinion process, so providers could determine if a new arrangement was okay, Baumann said.

Currently, organizations that request an advisory opinion from the Department of Health and Human Services Office of Inspector General can expect to wait months, if not years, for a response, Baumann said.

Another idea is to allow providers to move forward with a reimbursement arrangement until they receive an advisory opinion, Baumann said.

“They could be allowed to proceed in good faith, and if the advisory opinion comes back negative, they could just unwind the arrangement and not be penalized,” Baumann said.

To contact the reporter on this story: James Swann in Washington at and Alex Ruoff in Washington at

To contact the editor responsible for this story: Kendra Casey Plank at