HomeHealth Care NewsTrump Administration Clips the Wings of Cost-Driving Stark Laws

Trump Administration Clips the Wings of Cost-Driving Stark Laws

Physicians are now able to deliver more efficient care through Medicare thanks to new federal rules finalized by the Trump Administration that remove restrictions on patient referrals.

The rules roll back regulations under the Physician Self-Referral Law or “Stark laws,” enacted in 1989 after Rep. Pete Stark (D-CA) wanted to promote more ethical practice in making patient referrals. Stark laws and related anti-kickback measures were intended to prevent physicians from profiting from referrals to entities in which they had a financial interest.

Such laws were meant for a health care system that reimbursed providers on a fee-for-service basis, which created a perverse incentive to order more health care services. Today, the trend is moving towards “value-based” care, which rewards doctors for keeping patients healthy and out of the hospital.

Providers have argued for years that Stark laws and other anti-kickback rules prevent them from coordinating patient care and forming outside relationships in fear of harsh liability fines under Stark laws or criminal sanctions from anti-kickback rules. For example, anti-kickback measures restrain Medicare and Medicaid physicians from waiving co-pays. Another workaround involves hospitals hiring more expensive physicians through temporary placement agencies to avoid the liability from running afoul of Stark Laws.

The new rules will amend the regulations to allow new, permanent exceptions for value-based arrangements, provide additional guidance on key requirements of the exceptions to the physician self-referral law, and reduce administrative burdens that drive up costs.

Financial Burden to All

Complaints about Stark laws’ burdensome regulations have become commonplace in the medical industry. Hospitals and hospital systems have complained the regulations force them to spend millions of dollars and a significant amount of time complying with the rules, which impedes patient care, directs money toward compliance with regulations instead of patient care, and drives up the overall cost of health care.

One red flag of violating the regulations is when a hospital pays a physician that exceeds what is deemed “fair market value.”

“I would argue that, in general, we have no idea what the fair market value is in much of healthcare,” said Philip Eskew,  D.O., J.D., founder of DPC Frontier and policy advisor to The Heartland Institute, which co-publishes Health Care News.

Eskew says “fair market value” is often determined by an influential group, not the free market. In this case, the American Medical Association (AMA), a private professional organization, determines how much Medicare should pay physicians and then owns and licenses those particular payment codes.

“The AMA then gets a cut of each transaction, similar to a credit card company,” Eskew said. “This is the AMA’s main source of income (less than 10 percent of physicians are active dues-paying members of the AMA). Members of the AMA’s RVS (relative value scale) Update Committee then decide what each code should pay, and Medicare/Medicaid argue they should pay less than various insurance companies.”

The process does a poor job of reflecting fair market value or a patient’s need for a procedure because it only reflects the negotiating and lobbying efforts of specialty physician and administrative groups that dominate the AMA’s RVS Update Committee, Eskew says.

“They undervalue primary care while overvaluing specialty care,” Eskew said. “This undervaluing of primary care has resulted in too many specialists and too few primary care physicians because primary care physician salaries reflect lower CPT code reimbursement amounts established by the AMA’s RVS Update Committee.”

Additionally, the ambiguities in the Stark laws made providers fearful of a violation, which can lead to costly consequences. One issue that leads to these large fines is the fact that there is not an intent requirement to a Stark law violation.

“Notice that there is no intent requirement to a Stark law violation,” Eskew said. “These kinds of mistakes are million-dollar mistakes. If you audit any hospital’s books you are likely to find something. If you audit a DPC practice’s books you are likely to find that that Medicare was never billed at all and that care is actually simple and affordable.”

An Industry of Whistleblowers

Although preventing health care fraud is important, the incentives created by Stark laws and other anti-kickback statutes provide an easy path to a million-dollar payday for hospital employees who catch their employers running afoul of regulations, Eskew says.

The money adds up when an employee catches a mistake committed multiple times.

“As the original Qui Tam relator (legal terminology for whistleblower), you would get anywhere between 5 to 15 percent of the total take hauled in by the government,” said Eskew.  “Some of these suits have been settled for over half a billion dollars by hospital systems, and the largest was with Glaxo, at around $3 billion.”

In a case settled in 2019, Sutter Health paid over $46 million to settle Stark law violations, and the whistleblower who brought the claim received nearly $5.9 million of the federal government’s recovery.

“When we kicked off our Patients Over Paperwork initiative in 2017, we heard repeatedly from front-line providers that our outdated Stark regulations saddled them with costly administrative burden and hindered value-based arrangements,” said Centers for Medicare and Medicaid Services Administrator Seema Verma in a news release. “Ambiguities in the Stark law have frozen many providers in place, fearful that even beneficial arrangements might violate the law, which can come with dire and costly consequences. This has resulted in health care providers spending millions of dollars complying with arcane regulations instead of putting those dollars toward patient care.”


Kelsey Hackem, J.D. (khackem@gmail.com) writes from Washington State.


Kelsey Hackem
Kelsey Hackem
Kelsey E. Hackem is a freelance writer based in Washington state. She has experience litigating cases to advance and protect property rights, taxpayer and entrepreneur rights, parental rights, and search and seizure at a non-profit law firm in Ohio. She earned her undergraduate degree from the University of Florida and her J.D. from Villanova University.


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