The Stark law, from inception to COVID-19 blanket waivers: a review

Abstract

The concept of physicians referring patients to their own healthcare entities is considered a “self-referral”. A discerning factor of a self-referral is when the physician has a financial interest in the entity of patient referral. Prospects of healthcare overutilization and costs, thereby, rise. Self-referral laws, therefore, are important to regulate overutilization and contain costs. In the 1980s, Congressman Fortney Stark initiated an act that was one of the precursors to one such self-referral law, known as the Stark Law. The Stark Law, in its initial phase, known as Stark I, addressed self-referrals selectively from laboratory services. Stark I, thereafter, in a series of subsequent amendments and enactments, burgeoned to include multiple services, referred as Designated Health Services (DHS), for self-referrals. The expanded law, inclusive of those DHS, is now known as Stark II. The passage of the 2010 Affordable Care Act as well as the prevailing 2019 Coronavirus Disease (COVID-19) pandemic further modified the Stark Law. Given the legislative history of the said law, the present review curates the legal initiatives of this law from its nascent formative stages to the present form. The purpose of the above curation is to present a bird’s eye view of its evolution and present analysts of any future research segments. This review, furthermore, describes the waivers of this law specific to COVID-19, or COVID-19 blanket waivers, which are instruments to assuage any barriers and further placate any hurdles arising from this law prevalent in this pandemic.

Background

Caring for the sick and ailing often involves the expertise of more than one physician. In the continuum of care, physicians refer their patients to other clinical specialists. The practice of referring patients is broadly described as a patient referral. Physicians are considered to make referrals, directly or indirectly, if they caused, directed, or controlled referrals made by others [1].

A “self-referral” refers to the practice of physicians referring their patients for medical treatment or services to an entity in which either the physician or an immediate family member of the physician has a financial interest [2]. In 1972, self-referrals, initially, drew attention with the Medicare Fraud and Abuse statute [3]. Ever since, amendments, legislations, and regulations to patient self-referral laws prevail and continue to develop, as with the more recent Coronavirus Disease-19 (COVID-19) pandemic of today.

In 1989, Democratic Congressman, Fortney (Pete) Stark, then chairman of the House Ways and Means Subcommittee on Health, stated, “the integrity of our nation’s physicians is being threatened by seductive deals promoted by fast buck artists. Further proliferation of these ventures is bound to undercut public confidence in the medical profession.” [3, 4]. In 1989, Congressman Stark, then, reintroduced the Ethics in Patient Referrals Act [3,4,5,6]. The intent of the above act was to contain and regulate self-referrals to reduce treatment costs for patients.

Self-referral laws were, thereby, enacted to protect the patient’s best interest. The above laws safeguard that the patient receives the most efficacious treatment at an affordable cost. There were many reasons to enact and implement physician self-referral laws. Enacting and implementing physician self-referral laws is a necessary step in securing its regulation. The above laws, moreover, are perceived as instruments in curbing the overutilization of healthcare services.

The presence of self-referral laws, concurrently, appear to promote physicians’ better gauging the medical necessity of a referral or service [3, 5]. The patient, thereby, benefits from eliminating expensive and unnecessary services at entities in which they are treated [3]. Of the reasons known for regulating self-referrals, a particular law contextual to physician self-referrals is the focus of this paper. The above law that selectively pertains to physician self-referrals is known as the Physician Self-Referral Law (or hereinafter, the Stark Law).

The Centers for Medicare & Medicaid Services (CMS) specify the Stark Law stated in Sect. 1877 of the Social Security Act [7]. The said law: (1) prohibits a physician from making a referral for certain designated health services (DHS) payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship, unless an exception applies and its requirements are satisfied [7], (2) prohibits the entity from filing claims with Medicare (or billing another individual, entity, or third-party payer) for those referred DHS, and (3) establishes a number of specific exceptions and grants the Secretary the authority to create regulatory exceptions for financial relationships that do not pose a risk of program or patient abuse [7].

Core elements of the Stark Law

The Stark Law has a set of well-defined seven core elements [8]. Those core elements are stated as follows: (1) physician, (2) referral, (3) designated health service(s) (DHS), (4) entity, (5) financial relationship, (6) exceptions, and (7) statutory penalties [8]. A physician means a doctor of medicine or osteopathy, dentist, podiatrist, optometrist, or chiropractor [8]. Providers such as nurse practitioners, physician’s assistants, and physical therapists are not included within this definition [8].

A “referral” is the request by a physician for, the ordering of, or the certifying or recertifying of the need for, any DHS, including the request for a consultation with another physician and any test or procedure ordered by or to be performed by (or under the supervision of) that other physician [9, 10]. A “referral” does not include DHS personally performed or provided by the referring physician [9, 10]. Table 1 tabulates the list of DHS currently applicable under the above law [7, 11].

Table 1 List of Designated Health Services

An entity is referred to any person or entity that performed DHS that are billed as DHS and those who billed DHS to Medicare or Medicaid for reimbursing a bill or claim [8]. A financial relationship is construed as one of the following four [8]: (1) an ownership interest, (2) an investment interest, or (3) a compensation arrangement between the physician (or a physician’s immediate family member) and the entity, and (4) a compensation arrangement that may be either direct or indirect [8].

On the one hand, a direct financial relationship exists if remuneration passes between the referring physician (or a member of his or her immediate family) and the DHS furnishing entity without any intervening persons or entities in-between the above DHS entity and the referring physician (or a member of his or her immediate family) [8].

On the other hand, an indirect ownership or investment interest exists when there is an unbroken chain of owners between the referring physician and the DHS entity, and the latter has actual knowledge of (or acts in reckless disregard or deliberate ignorance of) the fact that that the referring physician has some ownership or investment interest in the above entity [8].

The Stark Law has certain exceptions for financial relationships and/or arrangements [8]. The above law is not invoked when certain transactions fall within the purview of these exceptions. Table 2 tabulates the list of Stark Law exceptions [12].

Table 2 List of Financial Exceptions under the Stark Law

Claims for DHS submitted in violation of the Stark Law triggers the following sanctions: denial of payment requiring amounts received to be refunded [8, 10], civil monetary penalties of $15,000 per service in which the violation is known [8, 10], and exclusion from Medicare and Medicaid programs in which a physician or entity has knowingly entered into an improper cross-referral arrangement or scheme designed to circumvent the self-referral prohibition [8, 10], and monetary penalties of up to three times the amount of the claim plus a penalty of an amount between $5,000 and $10,000 per claim [8, 10].

A review of past literature presented the initiation, legislative developments, and regulatory history, and thereby, cumulated the evolution of the Stark Law from 1972 to 2006 [3]. Thereafter, numerous amendments of the above law have taken place owing to the rapidly evolving healthcare landscape. As examples, both the 2010 Affordable Care Act (ACA) and the ongoing COVID-19 pandemic has initiated and made effective specific changes of the above law.

This paper has three research questions giving rise to three objectives. First, this review paper sequentially curates the above law’s evolution, from initiation to 2020. This is an attempt to chronologically tabulate its updates. Second, the present review describes initiatives and functions pertaining to the evolution of the above law. Finally, it describes how the 2020 COVID-19 Stark Law blanket waivers (hereinafter, blanket waivers) support specific patient self-referrals, expand on the permissible ways of remuneration for self-referrals, and protect eligible physicians from legal sanctions contextual to the COVID-19 pandemic.

There are two-fold objectives to curating developments of the Stark Law. First, to update past literature. Second, to further assist policy analysts identify any areas within the above law that may need amendments, if need be, as per their discretion, in the future. Finally, to discern how these blanket waivers financially and medicolegally buffer eligible physicians during the ongoing national and public health emergencies.

Stark Law blanket waivers during the COVID-19 pandemic

Section 1135 of the Social Security Act authorizes the Secretary of the Department of Health and Human Services to waive or modify certain requirements of healthcare programs such as Medicare, Medicaid, Children’s Health Insurance Program (CHIP), and Health Insurance Portability and Accountability Act (HIPAA) of 1996 [13].

There are two prerequisites that need to be met before the Secretary invokes the authority to waive or modify certain requirements of the above programs [13]. Those two prerequisites are: (1) the President must have declared an emergency or disaster under either the Stafford Act or the National Emergencies Act [13], and (2) the Secretary must have declared a Public Health Emergency under Sect. 319 of the Public Health Service Act [13].

On March 13, 2020, President Donald J. Trump proclaimed a nationwide emergency pursuant to Sec. 501(b) of the Stafford Act [14]. On January 31, 2020, prior to the above Presidential declaration, Alex M. Azar II, Secretary of the Department of Health and Human Services (DHHS), determined under Sect. 319 of the Public Health Service (PHS) Act, that a nationwide public health emergency exists and has existed since January 27, 2020 [15].

On March 13, 2020, therefore, with both the Presidential proclamation and DHHS Secretary’s determination of the nationwide emergency and public health emergency, respectively, both the above prerequisites were met to invoke the authority to waive or modify certain requirements of the above healthcare programs [13].

On March 30, 2020, consequently, DHHS Secretary used his authority under the Sect. 1135 of the Social Security Act to waive certain requirements of the healthcare programs [13]. These waivers, more specifically, comprise of those for Sect. 1877(g) of the Social Security Act (or the Stark Law) [13]. CMS, on the very same day, thereby, issued waivers under the Stark Law, given the national and public health emergencies [16].

On March 30, 2020, CMS, therefore, issued the set of 18 blanket waivers to the Stark Law [16]. These waivers are retroactively effective on March 1, 2020, related purely to COVID-19 purposes, and would terminate after a certain duration as per Sect. 1135(e) [13]. Section 1135 waivers expire at the end of the national emergency period or 60 days from when they are effective [17]. These blanket waivers, therefore, need to be renewed if a need persists to extend its applications [17].

Discussion

Table 3 presents a bird’s eye view of the legislative and regulatory evolution of the Stark Law from 1972 to 2020 [3, 13, 18,19,20,21,22,23,24,25,26,27]. Table 4 presents 18 blanket waivers that CMS issued during the COVID-19 pandemic [13].

Table 3 Curated developments of the Stark Law

Table 4 COVID-19 Blanket Waivers

Given the COVID-19 pandemic, in general, most healthcare entities were stretched beyond their capacities to provide clinical care. The pandemic entailed an increased influx of patients admitted into healthcare entities, both COVID-19 afflicted and otherwise. There was a predominant national need for providers and the entire healthcare workforce to care for the above influx of patients in tertiary care environments. Healthcare entities were observed to be overstretched because of rapidly consumed hospital resources and medical supplies, owing to the sheer volume of patients admitted at outpacing numbers.

In such circumstances, there was a dire need of flexibility in clinical care. The above situation, additionally, necessitated rendering clinical care in the presence of legalities that were not self-limiting in nature. CMS, contextually, issued 18 blanket waivers to the Stark Law in the presence of the nationwide and public health emergency. CMS, therefore, permitted certain financial arrangements, authorized certain forms of provider remuneration, waived certain sanctions for patient self-referrals, and thereby, protected eligible providers from medicolegal liabilities.

These 18 blanket waivers have trifurcated functions categorized into three segments [13]. These three segments that are solely related to “COVID-19 purposes” strategically ensure the: (1) availability of healthcare items and services, (2) reimbursement for providing such items and services in good faith, and (3) exemption from sanctions arising from self-referral liabilities [13]. These segments are applicable to selective beneficiaries enrolled in Medicare, Medicaid, and CHIP programs [13]. These blanket waivers, furthermore, are applicable to eligible providers that provide healthcare items and services to eligible beneficiaries, exclusively, in the COVID-19 pandemic [13].

In further detail, these blanket waivers ensure that sufficient healthcare items and services are available to meet the needs of program beneficiaries [13]. The above waivers may reimburse eligible providers that furnish healthcare items and services in good faith to program beneficiaries but are unable to comply to one or more regulations of the Stark Law, while doing so, in COVID-19 situations [13]. Blanket waivers, moreover, exempt providers from selective sanctions, and thus, buffer those adhering to the regulations of the Stark Law, fraud, and abuse rules [13].

At first glance, blanket waivers #1 through #11 specify terms and conditions of remuneration and charges [26]. Blanket waivers #12 through #14 specify the same for referrals from physician owners of hospitals and mention those for physicians that have an ownership or investment interest [26]. Blanket waivers #15 and #16 are contextual to patient self-referrals by physicians in group practice settings [26]. Blanket waiver #18, conclusively, waives sanctions arising from the Stark Law in the absence of a written or signed document detailing compensation arrangement [26].

In the forthcoming content, this review paper explores each blanket waiver, one-by-one, to grasp the scope of its functions specific to expanding remuneration for self-referrals, safeguarding physicians’ ownership (or investment interests) and financial arrangements, along with waiving certain sanctions applicable to the above law, and thereby, protecting eligible physicians.

Blanket waiver #1 administers no Stark Law penalty towards remuneration given to the physician (or an immediate family member; hereinafter, a relative) for services he or she personally performs [13, 26, 28]. The above waiver, additionally, permits healthcare entities to pay the physician or relative above or below the Fair Market Value (FMV) for services they personally perform. The above waiver, therefore, protects the entity to additionally compensate physicians employed therein. In the event the entity decides to pay the physician increased salary to bridge provider shortage, arising from overtime or hazard pay, then the above waiver imposes no penalty.

Blanket waivers #2 and #3 authorize the entity paying rental charges below the FMV for occupying and using office space and medical equipment, respectively, to the physician [13, 26, 28]. This payment below the FMV is applicable for leasing office space equipment to provide clinical care. The above waiver helps entities as tenants retain their office space and leverage equipment, in the event they become financially constrained because of the pandemic. These waivers do not protect payments for office space that exceed the FMV. Similarly, they are not applicable to payments for the use of medical equipment that exceeds the FMV.

Blanket waiver #4 permits the entity to remunerate the physician (or relative) an amount below the FMV for healthcare items or services that the entity buys from the latter [13, 26, 28]. The purpose of this waiver is to avoid overpaying for any healthcare item or service during the pandemic. This waiver, moreover, permits restocking healthcare items or services without overpaying for those during the pandemic.

Blanket waivers #5 and #6 authorize the physician (or relative) paying rental charges that are below the FMV for leasing office space and equipment, respectively, from the entity [13, 26, 28]. This waiver does not apply to payments exceeding the FMV. Blanket waivers #2, #3, #5, and #6, therefore, permit entities/physicians, as landlords, to accept rental rates below the FMV for office space and equipment if tenants are financially restrained because of the pandemic. These provisions also render the landlord eligible to provide office space and equipment to the tenant at no extra charge to sustain the surge of patients.

Blanket waiver #7 permits a physician (or relative) paying an amount below the FMV to an entity for using the latter’s premises [13, 26, 28]. The same also permits the former paying an amount below FMV to an entity for buying healthcare items or services from them.

Blanket waivers #8 and #9 permit medical staff and physicians (or relatives) receiving incentives in the form of incidental benefits and non-monetary compensation, respectively, during the pandemic [13, 26, 28]. The above two waivers, therefore, are medical staff benefit and non-monetary physician compensation waivers. The medical staff benefit waiver allows the entity to incentivize medical staff benefits that exceed the $36-per-item limit set forth in 42 CFR § 411.357(m)(5) [13, 26, 28]. The non-monetary physician compensation waiver allows the entity to incentivize physicians’ non-monetary compensation that exceeds the $423 annual limit set forth in 42 CFR § 411.357(k)(1) [13, 26, 28]. The above waiver, additionally, makes provisions to facilitate telehealth, free continuing medical education lectures on COVID-19 training, transportation, childcare, and meals [13, 26, 28].

Blanket waivers #10 and #11 permit remuneration between a physician (or relative) and entity by/to the opposite party to receive monetary loan payments [13, 26, 28]. The above two waivers are referred as monetary loan waivers. The extended loan is permitted to have two provisions [13, 26, 28]. First, the above loan is permitted to have an interest rate less than the FMV [13, 26, 28]. Second, it can be on terms that are unavailable from any other lender or third party with whom the physician (or relative) and entity has associations [13, 26, 28]. The above waivers, therefore, assist with solving liquidity and bankruptcy issues that may arise because of the pandemic.

Blanket waiver #12 permits those referrals from a physician owner that temporarily expands the capacity of the facility [13, 26, 28]. The above waiver is referred as a facility expansion waiver. In this case, this waiver permits expansion of the number of operating rooms, procedure rooms, and beds [13, 26, 28]. The above expansion is applicable to those hospitals licensed on March 23, 2010, or for entities whose provider agreements were in effect on December 31, 2010 [13, 26, 28]. The above waiver does not sanction hospitals for expanding its capacity with no prior application and approval [13, 26, 28].

Blanket waiver #13 permits referrals from physician-owners to hospitals that were previously ambulatory surgery centers (ASCs) [13, 26, 28]. This waiver is referred as a physician-owner referral waiver. The above waiver applies to those hospitals that converted from ASCs on or after March 1, 2020 [13, 26, 28]. There are four conditions to this waiver being applicable [13, 26, 28]. First, the hospital should not satisfy one or more requirements of the Stark Law stated in Sect. 1877(i)(1)(A) through (E) [13, 26, 28]. Second, the hospital should be converted to a Medicare hospital [13, 26, 28]. Third, the hospital should meet Medicare conditions of participation [13, 26, 28]. Fourth, the hospital’s enrollment should be consistent with the Emergency Preparedness or Pandemic Plan of the state in which it is located [13, 26, 28].

Blanket waiver #14 permits a physician to refer Medicare patients for DHS to a home health agency [13, 26, 28]. This waiver is referred to as a home health agency referral waiver. The above waiver permits referrals to home health agencies on the basis that: (1) the home health agency does not qualify as a rural provider stated in 42 CFR 411.356(c)(1), and (2) physicians (or relatives) creating such referrals are either owners or have investment interests in those home health agencies [13, 26, 28].

Blanket waiver #15 permits a physician in a group practice to create referrals for beneficiaries needing medically necessary DHS [13, 26, 28]. This waiver is referred to as the group practice referral waiver. In the above waiver, however, location does not qualify for all requirements set forth in the “same building” or “centralized building” definitions [13, 26, 28].

Blanket waiver #16 permits a physician in a group practice to order services for program beneficiaries at their homes and assisted- or independent-living facilities for medically necessary DHS [13, 26, 28]. This waiver is referred to as the private home, assisted- or independent-living facility waiver [13, 26, 28]. The above waiver is particularly applicable to those beneficiaries who are isolated or observing social distancing in their homes. The eligible group practice, nevertheless, needs to satisfy all the requirements of 42 CFR 411.352 [13, 26, 28].

Blanket waiver #17 permits a physician to refer beneficiaries to an entity in which the physician’s relative has a financial interest [13, 26, 28]. This waiver is referred to as the rural area referral waiver. All the same, it applies when the beneficiary resides in a rural area [13, 26, 28].

Blanket waiver #18 permits the physician to be compensated for referrals to an entity in which the physician (or relative) has a compensation arrangement which may not be specifically printed or signed as a formal contract [13, 26, 28]. This waiver is referred to as the physician compensation waiver in the absence of a written or signed compensation arrangement [13, 26, 28]. This waiver removes the written and signed requirement in a referral arrangement to grant flexibility in compensation [13, 26, 28].

It is important to state some limitations of this study that may prospectively point towards future studies furthering this topic. First, the above paper is limited to curating the legislative and regulatory history of singularly the Stark Law. Second, this study is limited to exploring only the pandemic-related blanket waivers. Observing changes in healthcare practices, at the macro-level, from the evolution of the above law would have added dimension to this study. Third, this study limits itself to providing a bird’s eye overview of the Stark Law from the nascent to its more recent stages. Fourth, if this study had to be explained contextual to the applications of the above law on billing and coding of charges, at the micro-level, then it would probably have expanded the scope of this study. Finally, this paper is limited to curating tabulated updates of the Stark Law until the COVID-19 episode and not its impending ones.

Conclusion

There are some avenues for future work on this topic aligning with the above limitations. First, there are additional healthcare regulations such as the Anti-Kickback Statute and False Claims Act. A new study, therefore, explaining the evolution of the above two laws would be an avenue for future work. Second, a study explaining the effects of the said law on the overall changes in healthcare practices, at the macro-level, potentially is an insightful one. Third, a more specific study focusing on how this law modulated changes in medical/surgical specialties on patient care as it evolved would also be an informative one. Fourth, a study selectively reviewing how changes in the above law may have impacted clinical billing and coding practices contextually deepens our understanding of this law. Finally, curating the Stark Law’s future initiatives, as they are available, would be keeping in pace with its developments over time.

The purpose of this paper was to review the above law through the lens of its chronological evolution and COVID-19 blanket waivers. In the first spectrum, this review article describes how the above law evolved to its present form in a series of curated developments.

In the second spectrum, this review paper explores details and functions of those developments in forms of amendments and enactments, given the entire gamut of its evolution. In this process, this paper describes above law’s transition from Stark I to Stark II, noting that the latter is more prevalent and currently practiced. Furthermore, it made notes on how CMS insightfully intervened by implementing multiple blanket waivers. CMS, in this process, assuaged prospective convolutions in remuneration, self-referrals, and salvaged sanctions thus arising from the ongoing pandemic.

Finally, this review focuses on how the above blanket waivers were, are, and will continue to be instruments to further buffer our physicians and the healthcare workforce as long as this or any other pandemic continues to be part of our lives.