AHLA on the Stark Law and its Revision: a 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

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
  • 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.

Kathleen Boozang is Associate Dean and Professor of Law at Seton Hall University.  She has dedicated much of her career to nonprofit governance issues, with a special focus on religiously-sponsored hospitals. In the last several years, however, she has expanded her research and teaching to explore the legal and policy issues related to the global pharmaceutical and medtech industries.  Dean Boozang oversees Gibbons Institute of Law, Science and Technology, and the Center for Health & Pharmaceutical Law & Policy. In addition to her duties at the Law School, Dean Boozang serves on the Board of Directors of the American Health Lawyers Association. This year she was named a Fellow to The Hastings Center, an independent nonprofit bioethics research institute.  She is currently a member of the New York State Task Force on Life and the Law, an interdisciplinary commission with a mandate to develop public policy on bioethical issues.  Dean Boozang is also a frequent contributor to Health Reform Watch, where this post first appeared

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  2. Doctor comment. I wonder what MOST people think about the idea that “fee for service” not being aligned with the pulbic’s interest. How about the patient who is actually sick?
    Is it really evil that a doctor is financially motivated to be available at that person’s beck and call? Evil that he/she would take risks to purchase equipment to make diagnosis with increased accuracy and convenience? To own and maintain equipment with which to render treatment with increased oversight, convenience, and personal accountability? Would one really rather be faced with a situation where the MD gets a flat fee from a third party, whether they see you today, tomorrow or never? Cancel your surgery or stay late and do the case? Send you all over town to stand in line for Xrays or treatments? The major incentive being to get you off the schedule. Do we really think the government has the talent or incentive to force “better care” out of this type of arrangement?
    Every physician is partly motivated by financial forces. If your doctor is only motivated in this way, find another one. You might get an extra Xray if he is fee for service and owns an Xray machine… or blown off altogether if they are salaried. We know which way the third party payor likes it… but really… how about the patient? If the patient wants a salaried doctor, to be “protected” from fee for service… no problem… sign up for an HMO. Done. No 1.5 trillion dollars needed.
    I find that most of the doctors that point fingers at “greedy fee for service doctors”, are also the ones who can’t seem to show up to work on time, cover their share of call, seek extra training, or work past the point of minor fatigue, and are often at the twilight of their carreer calling foul against younger more energetic “upstarts” who outshine them. Apparently, we don’t retire gracefully. Naturally, these less energetic types would favor receiving equal pay to against their harder working counterparts. Are they really the best of us to lead us through this debate?
    I fantasize about a world where some of the patient’s own money is in play, one with widely publicized treatment guidlines created by science (not in courtrooms), where cost saving strategies bring smiles to the faces of an actual live patients (not a third party payor), and hard work still pays.
    I dread going back to the VA type of environment, where any case gets cancelled for an encyclopedia of reasons that really boils down to the staff wants home by 3 pm or 1 pm even better. Pays the same either way at the VA. Costs the government less… so they get away with it with a little nod from the supervisor at the end of the month for keeping costs down. Your greedy fee for service physician just shrugs his shoulders and heads out to play golf. Pays the same.
    The status quo is unacceptable to the third party payors who have promised comprehensive care they cannot deliver. Now the grand illusion that we will pay for some vague grand tally of “results” which… so long as they are cheap, will be touted as success. The individuals with missed tumors, delayed surgeries, outdated (but cheap) treatments… well the lawyers can handle that.

  3. There is no doubt that healthcare reform is the classic systemic problem described in Peter Senge’s book “The Fifth Discipline: The Art and Practice of the Learning Organization.”
    It is likewise a classic “wicked problem” with social, organizational and political complexities. Throw into the mix the powerful stakeholders on both sides of the issue and you have a recipe for confusion; which some are obviously exploiting to further their own agenda.
    That said, even proponents of reform need to understand that healthcare reform is enormously complex and non-trivial, even if everyone was happily on board. I would argue that what is really required is actual competition in the healthcare marketplace vis-a-vis pay-per-outcomes instead of fee for service.
    We are a long ways from that. Anyone that actually believes that we have real competition today in the healthcare marketplace is either being disingenuous (to be polite about it) or completely uninformed. It is certainly not a question between two false premises, regulation versus no regulation, but rather the appropriate balance between the two.
    The status quo is completely unacceptable and will literally continue to kill thousands of Americans–a tragic legacy to leave to our children and grandchildren.