Stark II Analysis and
Summary
Introduction
A. Overview
The Federal physician self-referral law, generally
referred to as the "Stark law," generally prohibits a
physician's referral of a Medicare patient to an entity for
the provision of certain designated health services if the
physician has a financial relationship with the entity. The
law is highly technical and complex, and has engendered both
confusion and controversy throughout the health care
industry. The confusion is based on the complexity of the
statute itself, and the failure of the Health Care Financing
Administration ("HCFA") to adopt clear and concise
regulations as to its applicability. The controversy lies in
the simple fact that it either interferes with or regulates
a broad array of business and professional arrangements
between physicians and other health care providers, often in
a manner that affects competition for delivery of ancillary
services between physicians and other entities.
The Stark law is separate and distinct from the Federal
anti-kickback law and other Federal fraud and abuse
authorities which can also be implicated by physician
financial arrangements with entities to which they refer
Medicare and Medicaid patients. Compliance with the Stark
law does not guarantee compliance with other fraud and abuse
provisions, and compliance with those other fraud and abuse
provisions does not guarantee compliance with the Stark law.
The regulations published January 4, 2001 answer many of
the questions that have perplexed physicians, other
providers, and their professional advisers for many years.
In many respects, they do so in a more liberal and flexible
manner than was the case under the January 1998 proposal. At
the same time, the new rules remain highly technical, and
HCFA provides roughly 100 pages of commentary accompanying
their publication. Even with this detail, the January 2001
rule does not complete the regulatory scheme. As noted
below, another Stark rulemaking is yet to come.
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B. Statutory and Regulatory History
Congressman Pete Stark (D-CA) first proposed a Federal
physician self-referral law in 1988, and what became known
as "Stark I" was enacted by the Congress in 1989, at the
same time Congress overhauled Medicare's physician payment
program and adopted the RBRVS fee schedule approach. The
Stark I law applied only to clinical laboratory services and
became effective with the fee schedule on January 1, 1992.
HCFA proposed implementing regulations for Stark I in March
of 1992, and these rules were finalized on August 14, 1995.
They were codified at 42 C.F.R. 411.350 et seq.
Meanwhile, as part of a major package of Medicare and
Medicaid amendments enacted in 1993, the Congress had
significantly expanded the Stark law to cover a long list of
designated health services in addition to clinical lab
services. These amendments, which became effective January
1, 1995, became known as "Stark II."
After a shift in control of the Congress in 1994,
Congress reconsidered the statutory scheme it had just
enacted. Legislation to significantly pare back Stark II was
initiated by the House Ways and Means Committee in 1995, and
was ultimately passed by both the House and the Senate as
part of a large Medicare and budget bill. However, that bill
was vetoed by President Clinton for other reasons, and the
issue saw no further action on Capitol Hill for several
years.
No implementing regulations were proposed for Stark II
until January of 1998. In its January 1998 proposal, HCFA
attempted to flesh out the regulatory scheme as applied to
the Stark II's longer list of designated services, and in
particular, as to the law's applicability to physician group
practices. At the same time, HCFA issued implementing
regulations establishing an advisory opinion process
pursuant to which affected organizations can seek advance
rulings from HCFA with respect to particular transactions
and arrangements.
The January 1998 proposal was the subject of extensive
public comment, and there was strong opposition from the
physician community to many aspects of the rules. At the
same time, industry representatives took their complaints
with the statute and the proposed rules to Capitol Hill.
Once again, legislation was introduced to significantly pare
back the law. That legislation was not, however, acted upon
by either the House or the Senate in the last Congress.
In responding to voluminous comments, and developing what
became the January 2001 final rule, HCFA made a policy
decision to bifurcate the final Stark II regulations into
two phases. The January 2001 rule represents "Phase I." It
deals extensively with the key definitions in the law, the
provisions dealing directly with group practices, and the
general exceptions which protect both ownership and
compensation relationships, most important of which is the
"in-office ancillary services" exception. In addition, Phase
1 adds several new compensation exceptions, some of which
were not previously proposed. What HCFA has not finalized
are most of the exceptions relating only to compensation
arrangements, proposed in the January 1998 rule, as well as
the exceptions which protect only ownership interests. Those
provisions will be finalized in a new "Phase II," the future
timing of which (like everything associated with Stark!)
remains uncertain.
At the same time, by finalizing many of the law's key
definitions, the Phase I promulgation does provide
considerable guidance with respect to the reach of the law,
interpretation of existing Stark I compensation exceptions,
and the likely applicability of the Phase II compensation
exceptions when finally promulgated.
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