Modifications to Stark Physician Self-Referral Prohibition Proposed
 
September 1, 1999
 

After months of attempting to reach an agreement on a bipartisan proposal to modify the laws governing self-referrals by physicians, more commonly known as Stark II, the leading proponents of competing viewpoints, Rep. Bill Thomas (R-Calif.) and Rep. Fortney (Pete) Stark (D-Calif.) have finally agreed to disagree and have introduced separate bills in Congress to modify the existing prohibitions. While different in scope and approach, the good news for physicians is that both proposals loosen, to varying degrees, the restrictions on physician referrals to an entity with which the physician has a financial relationship as a result of a compensation arrangement with the entity.

In its current form, Stark II prohibits referrals by physicians for the provision of certain Medicare or Medicaid reimbursable "designated health services" (1) to entities with which the physician (or members of the physician's immediate family) has a financial relationship. "Financial relationship" is defined as an ownership or investment interest in the entity, or a compensation arrangement with the entity. "Compensation arrangement," in turn, is defined to include any arrangement that involves remuneration between a physician (or a member of the physician's immediate family) and the entity to which the physician refers a patient. The statute does carve out a specific list of exceptions to the broad coverage of "compensation arrangements," but the compensation arrangement component has nonetheless received great criticism over the years, particularly by physician organizations, for being confusing, difficult to comply with, and ambiguous. Opponents have long argued that the overly broad definition effectively eliminates from consideration many business transactions deemed essential to today's system of integrated health care. Such criticism has grown steadily with HCFA's continuing failure to issue final Stark II regulations.

In his bill (H.R. 2651), Rep. Thomas, Chairman of the House Ways and Means Health Subcommittee, proposes eliminating the ban on referrals to entities with which a physician has merely a compensation arrangement, but would preserve the ban on referrals to entities in which the physician has an ownership or investment interest. Thomas noted that the compensation arrangement section of Stark II is overly burdensome on providers, effectively unenforceable, and has done little to eliminate waste in the nation's health care delivery system. He characterized his proposal as a "very modest, small step" toward making physician self-referral prohibitions functional.

In contrast, Rep. Stark proposes to modify the compensation arrangement component of his namesake legislation in a more modest way, rather than eliminate it in its entirety. The Stark proposal (H.R. 2650), calls for a series of specifically targeted modifications to a variety of financial relationship components including a clarification of the direct supervision requirement under the in-office ancillary services exception, an expansion of the prepaid plan exception, and the creation of exceptions for capitated payments, ambulatory surgical centers, hospices and services furnished in communities with no alternative providers. The Stark package further proposes to revise the exceptions unique to compensation arrangements by creating a single, unified set of "Requirements and Exceptions for Permissible Compensation Arrangements."

Both bills were introduced on July 29, 1999, and if the past failure to reach a compromise acceptable to legislators on both sides of the aisle is any indication, debate over the final form of a Stark Amendment may take some time.

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1. Such "designated health services" include: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services.