Stark Law Regulatory Reform

Huiping Liu – On December 2, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a Final Rule to revise and clarify the regulations that interpret the physician self-referral law (often called the “Stark Law”).  Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations, 86 Fed. Reg. 77,492 (Dec. 2, 2020).  When the Stark Law was enacted in 1989 as Section 1877 of the Social Security Act, healthcare was paid for primarily on a fee-for-service basis.  The law recognized that a profit motive could influence some physicians to order services based on their financial self-interest rather than the good of the patient.  Therefore, the Stark Law prohibits a physician from making referrals for certain Designated Health Services (DHS) payable by Medicare if the physician (or an immediate family member) has a financial relationship with the entity performing the service. 42 C.F.R. § 411.351 (2021).  The law also prohibits the DHS entity from filing claims with Medicare (or billing another individual, entity, or third-party payor) for those prohibited referrals.  A financial relationship is an ownership or investment interest in the DHS entity or a compensation arrangement with the DHS entity.  While setting forth methods to enforce the restrictions and sanctions for violations, the statute also establishes a number of specific exceptions and grants the Secretary of the Department of Health and Human Services (DHHS) the authority to create regulatory exceptions for financial relationships that will not fall under the prohibitions of the Stark Law.

After the passage of the Patient Protection and Affordable Care Act of 2010, Medicare and the private healthcare market have implemented many value-based healthcare delivery and payment systems to increase the quality of care while bringing down the costs.  A value-based system pays based on the quality of patient care rather than the volume of services provided.  Elizabeth Teisberg et al, Defining and Implementing Value-Based Health Care: A Strategic Framework, Academic Medicine (Dec. 10, 2019),  Without reform, the Stark Law regulations tailored to a fee-for-service environment would not be able to keep pace with the transition to a value-based system.  Therefore, CMS started accepting comments for changes to the Stark Law regulations in 2018 and finalized the revised regulations in December 2020.  The Final Rules amended key concepts such as “Commercially Reasonable” and “Indirect Compensation,” proposed policy clarifications in multiple existing rules and exceptions, and introduced three new Stark Law exceptions (for value-based arrangements, for limited remuneration to a physician, and for cybersecurity technology and related services).  The Final Rule went into effect on January 19, 2021, with the exception of the changes to 42 C.F.R. § 411.352(i), Group Practices Provisions, which will become effective on January 1, 2022.

Soon after the outbreak of the 2019 Novel Coronavirus Disease (Covid-19) in early 2020, the Trump administration declared a public health emergency under the Public Health Service Act on January 31, 2020 and issued two national emergency declarations under both the Stafford Act and the National Emergencies Act on March 13, 2020.  Under Section 1135 of the Social Security Act, the Secretary of DHHS granted “blanket waivers” to allow health care providers who are unable to comply with the Stark Law requirements during the emergency period be exempted from the sanctions for noncompliance.  Ctr. For Medicare and Medicaid Serv. Blanket Waivers of Section 1877(g) of the Social Security Act Due to Declaration of COVID-19 Outbreak in the United States as a National Emergency (March 30, 2020).  The blanket waiver exempted 18 types of remuneration and referrals that are solely related to Covid-19 purposes.  Even though they only last through the duration of the public health emergency, the waivers, with the goal to reduce paperwork and offer certain healthcare providers with flexibility in furnishing timely services with good faith, have served as a testing ground for more permanent reform of the Stark Law.  The final rule issued by CMS on December 2, 2020 aims to reduce the unnecessary regulatory burdens on healthcare providers while continue to reinforce the Stark Law’s goal of protecting patients from unnecessary services.  Together with the CMS’ Patients over Paperwork initiative, the final rule opens avenues for healthcare providers to work from across different healthcare settings, to coordinate care for their patients, and to ensure their patients receive more convenient, higher quality of care with less expense.

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