Editor's Corner: Stark Law overhaul long overdue

headshot of Evan Sweeney
Everyone has that closet in their house--the one that’s full of a wide assortment of possessions that lost their functionality a long time ago. And yet you keep adding things to it.

“I’m sure I’ll use that old exercise equipment again,” you think to yourself. “I’ll just put it here for now.”

You know the drill. You don’t use it again. It sits in your closet, gathering dust with the other useless nick-knacks until one day the urge strikes (i.e. when you move) to just throw it all away.

The Stark Law has become that cluttered closet in need of a good purge.

Other experts have made different comparisons. During a Senate Committee testimony last week, Troy Barsky, a partner with Crowell & Moring LLP--a man who once oversaw Stark Law policy for the Department of Health and Human Services--called the law “a tortured web of confusing standards.”

During the same hearing, Ronald Paulus, M.D., president and CEO of Mission Health System, said the law “creates a choking fog of uncertainty."

Last year, Judge James A. Wynn of the U.S. of Appeals for the Fourth Circuit called the law a “booby trap rigged with strict liability and potentially ruinous exposure,” after begrudgingly affirming the verdict in what has become the infamous Tuomey Healthcare case.

These are harsh descriptions, especially when you consider the fact that the Stark Law was supposed to provide a “bright line test” that would limit physician self-referrals. Now it is marred with dozens of complicated exceptions.

The “bright line” needs a new bulb.

The argument for a full repeal of the Stark Law--or at least a significant overhaul--is growing stronger. The American Hospital Association recently released seven ways the Stark Law hinders care transformation. At the same time, a comprehensive report by the majority staff with the Senate Finance Committee indicated that compliance with the law is becoming even more challenging as value-based payments take over the industry.

These concerns have been building for some time. In 2009, the American Health Lawyers Association convened 16 Stark Law experts to discuss some of the challenges created by the law. Even then, experts were lamenting the implications of Stark Law on new payment models.

In a 2010 paper authored by Paula Tironi, assistant general counsel of the American Dental Association, pointed out that even in instances where a hospital discovers it has violated the Stark Law, there is no mechanism for self-reporting, and the Centers for Medicare & Medicaid Services can offer almost no leeway. Even an “inadvertent minor oversight such as omitting a signatory to a written agreement” would leave the hospital on the hook for all claims tied to that physician.

Here’s the other problematic feature of the Stark Law: Unlike its sibling, the Anti-Kickback Statute, Stark Law is a strict liability statute, which means intent is immaterial. Ticky-tack violations can quickly escalate to multi-million dollar fines.

This creates a nightmare scenario for healthcare attorneys that are tasked with providing legal guidance to providers, and the Tuomey case encapsulates this perfectly. In an effort to stem potential losses associated with surgeons moving to off-site surgery centers, the system entered into part-time employment contracts with those surgeons. In addition to seeking advice from its in-house counsel, the provider also enlisted the help of a national consulting firm that specialized in physician compensation, Richard Kusserow, the former inspector general for HHS, as well as an attorney with Hall Render, all of whom signed off on the arrangement.

But the hospital failed to heed the advice of one other expert: Kevin McAnaney, the former chief of the industry guidance branch of HHS, who wrote a substantial portion of the Stark Law. He told the provider that the agreements presented “red flags” and would be an easy victory for government prosecutors. For that, Tuomey endured a long, arduous legal battle, paid $72.4 million in fines, and was sold off to Palmetto Health in Columbia, South Carolina.

There was a time, in the 1970s and 80s, when the Stark Law was necessary. At that time, physician ownership in clinical laboratories fostered legitimate concerns about the impact of self-referrals. Although ownership and self-referral arrangements are still important from a fraud perspective, nearly four decades later, the healthcare payment landscape is vastly different. At this point, the Stark Law is a regulatory annoyance at best, and legitimate impediment to progress at worst.

Put another way, it’s time to clean out the closet.