American Health Lawyers Association on the Stark Law and its Revision: a Good Step Towards Holistic & Ethical Reform

Health reform that focuses exclusively on health care finance — that is, how we pay for universal access to insurance coverage — will not produce successful reform.  Reform must be holistic, with a focus on the entire system, as well as its component parts, including whether the system is structured to deliver the right kind of health care services in the most appropriate setting, whether we have sufficient quantity and kind of health care professionals and technology geographically dispersed to provide the health care services that people will presumably have insurance to access, and whether the system properly incentivizes health care professionals to make decisions that are efficient, effective, and in patients’ best interests.  This is a massive undertaking, with a tremendous risk that important components will be overlooked precisely because of the size of the undertaking.  The Stark Law represents the kind of on-the-ground healthcare delivery problems that healthcare reform must tackle.

The American Health Lawyers Association’s Public Interest Committee today released a Whitepaper entitled: “A Public Policy Discussion: Taking Measure of the Stark Law” analyzing the ” Ethics in Patient Referrals Act” (and its progeny), more commonly known collectively as the “Stark Law“, after its primary sponsor, Congressman Pete Stark, who now counts himself among the many who believe that while the problem the law aimed to address is real, the statute and its multitudinous exceptions have become a nightmare.

Stark was enacted in response to empirical studies showing that physicians who hold an equity interest in an entity that provides ancillary health care services, such as a clinical laboratory or MRI, more frequently order those services for their patients, referring them, unsurprisingly, to the entity they own (the Whitepaper notes that no studies indicated that this higher use equated to over-utilization).  The implication, then, is that the opportunity for additional profit causes excessive referrals, whether consciously or unconsciously.  Thus, Stark sought to establish a bright line test regarding the propriety of physician referrals.  Stark prohibits a physician from referring patients to entities in which the physician (or a family member) holds an equity interest.  Congress seeks to ensure that patients are referred only for tests and other health care services that are medically necessary and appropriate.  The law also prohibits the entity actually providing the services to the patient (the recipient of the referral) from billing Medicare if the patient care resulted from an impermissible referral (even if the patient needed the service).

But a basic prohibition proved too broad to be practicable.  For example, how should the law treat rural areas where the only potential investors in an MRI for the community are all of the local physicians?   While many of situations crying for exceptions have been legitimate, virtually every single business relationship that seems justified requires the adoption of a new exception — which, the Whitepaper points out, stymies innovation in a dynamic health care market.  I would add that simultaneous with the continuous recognition of new exceptions, Congress and CMS keep adopting new prohibitions in response to physicians (with the aid of their lawyers) who take advantage of loopholes by engaging in business practices that violate the philosophical goals of the law, but are not specifically banned.

And so now we simply have a mess on our hands.  According to the Whitepaper, on the positive side, Stark has encouraged health care institutions to adopt corporate compliance programs and contract management systems; hospitals are more careful about their relationships with physicians.  Repeating a recurring theme of this blog about physicians’ conflicts of interest, the AHLA Whitepaper suggests that Stark has had less effect on physicians’ awareness and avoidance of conflicts of interest — my observation is that they continue to engage in business arrangements and practices that increase healthcare expenditures and cause patients to receive unnecessary medical services.  This is likely because physicians don’t understand Stark, which is rarely enforced against them.  The Whitepaper conveys the observations of some of its participants that Stark has caused a restructuring of healthcare delivery (some would argue that physicians have simply re-packaged their business relationships, rather than eliminated their “pernicious” conduct).  Even more problematic is that Stark precludes the experimental implementation of some creative ideas to reduce health care costs and improve quality, such as pay-for-performance, shared savings, and bundled payments.  Essential to a reform of how we deliver health care is an alignment of physician and institutional financial incentives - Stark (as well as some other laws) makes difficult that effort.

The AHLA Whitepaper seeks statutory reforms and increased CMS discretion as part of overall healthcare reform.  It suggests reimbursement modifications as a mechanism that would more directly accomplish the government’s goals of reducing costs and controlling utilization, including: decreasing reimbursement for ancillary services provided through a physician group practice; decreasing payments for high margin services; implementing more stringent credentialing requirements for the provision of certain services; bundling the payment for a physician office visit and ancillary services;  and payments for episodes of care, rather than delivery of specific services.

While AHLA addressed an important problem that begs for resolution, the ultimate challenges for health care reform that the Stark problem points up are significant:

• First is the question of whether reform will restructure health care delivery so that patients receive quality care that they actually need, in a timely cost-effective and convenient way.
• Second is how to identify the most effective means of adjusting physicians’ norms of behavior so that they recognize and avoid or ameliorate conflicts of interest that adversely affect their care of patients.
• Third, since the HHS OIG began issuing its Guidances, the relationship between government and provider has been like one of cat and mouse — the government articulates a philosophy about its interpretation of fraud, waste and abuse and the attendant practices that violate the law, and providers adjust their behavior to discontinue the specifically enumerated offensive practices, and then adopt new behaviors that government then addresses and it goes on and on and on.
• All of the above points result from the fact that politicians have created a huge perception divide — physicians believe that they are professionals operating in a market who should be guided by their ethical code and the business practices that make America great - government regulators and prosecutors believe that taxpayers foot 40-60% of the healthcare bill, and should expect very stringent oversight of the behavior of health care providers to make sure taxpayer money isn’t being wasted. Whatever our health care system looks like this time next year, everyone — provider, supplier, and patient needs to acknowledge that irrespective of what descriptors we use, it is a system significantly underwritten by the government, which means that it necessarily operates by different rules….

In the meantime, the AHLA Whitepaper is a terrific description of all that is right and wrong with the Stark Law. Let’s hope Congress takes notice.  More important, it exemplifies the important contributions professional organizations can make to productively convey to policy-makers the on-the-ground effects of their laws.  The AHLA process also models an exemplary collaboration between the private sector and government to their mutual education and, hopefully, benefit.

While the author is an AHLA board member, this post solely represents the author’s interpretation of and opinions about the AHLA Whitepaper, and has not been reviewed by any director, officer or member of AHLA.  The author had no involvement in the production of the Whitepaper.