Navigating the Stark Law Amidst Healthcare Change

governmentHealthcare is a field that everyone understands is highly regulated.  For the most part, providers have been able to work with regulations like Anti-kickback and the Stark Law.  However, with the idea of value based care becoming ever more prevalent, The Stark Law has become an even larger obstacle for providers to handle as they attempt to move forward with the times.  The Ambulatory M&A Advisor takes a look at some of the current concerns involving the Stark Law, how providers can work with it now, and some changes that could be coming down the line.

Concerns with the Stark Law

“The Stark Law, especially when combined with other healthcare related laws, can make business transactions, which seem extremely common and permissible in any other business context, more complex, even to the point of being prohibited, when the transaction involves physicians or other healthcare providers and entities.  In recent years, in large part due to passage of the Affordable Care Act, providers are trying to find ways to partner with one another in order to achieve certain efficiencies or align resources to better serve patient needs and reduce costs.  Stark makes the structuring of these provider arrangements more challenging,” Kenya Woodruff, partner with Haynes and Boone says.

Linda Baumann, partner at Arent Fox LLP believes that everybody has had tremendous concern about compliance with the Stark Law, because it is a strict liability statute.  She explains that the laws and regulations are very complex and are ambiguous in many situations making it very difficult to comply.

“The government interpretation of a lot of the provisions seems to change over time, making it very difficult to be sure that physicians are in compliance.  On top of that, the government is propagating these new reimbursement methodologies that are just inconsistent with the Stark Law.  The Stark Law is premised on the theory that there is likely an impropriety when the provider and the physician financial incentives are aligned.  Whereas the new reimbursement methodologies are designed to align these incentives.  It has not been working very well, and the government has proposed some specific sets of waivers, but they don’t address all of the circumstances,” Baumann says.

Baumann says the government is well aware of this problem and have held congress health hearings focusing on this and there is talk about amending the Anti-kickback Statute and/or the Stark Law.

“There is even talk about abolishing all or part of the Stark Law.  I don’t know if it will go that far, but it is shocking to me that they are even talking about it.  It’ a pleasant change, but we will have to see what they are actually going to do.  The hearings indicated that some changes were likely by the end of the year, so we will see if that actually happens,” Baumann says.


As far as new provider arrangements, Woodruff says the issue is less about the complexity of the Stark Law itself, and more about helping physicians understand how the newer payment models work in light of Stark.

“For instance, Affordable Care Organizations specifically encourage providers to join together to provide high quality care to Medicare patients and permit the providers to then share in the savings achieved.  And, depending on the structure of the ACO, there are certain “waivers” for provisions of fraud and abuse laws (including Stark) to make an arrangement permissible which might have otherwise been impermissible without the waiver.  Providers have heard the warnings about complying with Stark for so many years, that it is going to take some time for messaging about the new models and options to change their thinking.  It also takes time to have evidence of the new models working and being a benefit to all involved (patients, providers, and payors) before you will change some providers’ perspectives,” Woodruff says.

Tom Anthony, Chair of the Healthcare Practice with the law firm Frost, Brown, Todd says that there are currently some regulatory complications outside of the Stark Law seen for urgent cares and ASCs trying to expand in the modern market.

Anthony says that when examining the regulatory aspect of state laws, they are very inconsistent in the way they regulate urgent care centers. According to Anthony, many states don’t regulate them at all and almost view these urgent care centers like a doctor’s office.

Working with the Current Stark Law

“I think providers need to consult with experienced healthcare counsel.  A lot of providers have gotten in trouble over the years because they go with the lawyers they have been using for their real estate matters, or their labor law issues.  They really need to work with healthcare counsel because this situation is incredibly complex,” Baumann says.

“Those lawyers should then be able to advise them on if the type of arrangement is one that fits in a waiver.  If it is not, the lawyers can help providers see what their other options are which could be anything from seeking an advisory opinion, to a lawyer just helping them assess how much exposure there surely is.  There are so few clear lines in this area.  I always talk about there being a danger zone, and a lawyer should be able to tell you how close to the line you are.”

Similar to a physician not wanting her patient to rely solely on information obtained from the Internet and friends regarding a medical condition and the patient trying to treat the problem himself, Woodruff encourages physicians to read articles about the laws and talk to other physicians, but the physician needs to have legal counsel involved to ensure arrangements are compliant with Stark as well as the numerous other laws which may be at issue (for instance, the Anti-Kickback Statute, state-specific fraud and abuse laws, or corporate practice of medicine doctrines).

“Too often I am consulted only after a physician has signed a contract for an arrangement or a few days before a merger or acquisition of healthcare entities is about to be finalized, and my pointing out any concerns with the arrangement at that point is either too late or causes a lot of extra work and stress on everyone’s part.  Many times it is just a minor change to the relationships of the parties or additional provision or two in a contract which will bring the arrangement into compliance, but such changes are much easier early on in the process,” Woodruff says.

Potential Improvements to the Stark Law

Baumann says that many of her clients would be thrilled if they abolished the law all together, however she thinks that is rather unlikely.

“There is another suggestion to abolish the compensation provisions and keep the law focused on the prohibition on ownership interest.  That would help a great deal, and even Pete Stark ended up saying that that is what he thought should happen at the end of the day,” Baumann says.

Woodruff says that as far as improvements to the Stark Law, she is not sure one can quickly reduce the apprehension providers have that results from years of being told what “not to do,” and there should still be a healthy level of respect for the Stark Law by providers.

“Stark began as a seemingly bright-line rule prohibiting certain activities.  Over the years, CMS has added exceptions to make certain arrangements permissible, but the exceptions often contain several intricate components and those components often contain rather ambiguous terms or language.  In recent years, it seems CMS is making an effort to clarify existing language, revise components that seem overly burdensome to comply with, and add exceptions to support current trends in the industry.  CMS should continue these efforts.  Specifically, I think more exceptions related to risk sharing arrangements and value-based payment models would be beneficial in showing providers there are ways to be innovative with their practices while complying with Stark.  Additionally, if CMS would issue more advisory opinions addressing specific providers’ questions about Stark Law topics, it could give all providers (and their counsel) further insight into CMS’ interpretations and guidance regarding Stark.  (CMS has issued less than 20 advisory opinions since 1998. In contrast, OIG issues about 20 advisory opinions per year in response to provider questions related to the Anti-Kickback Statute and False Claims Act),” Woodruff says.

Woodruff adds that CMS made several additions and clarifications to existing provisions that went into effect this year that CMS believes will make it easier to comply with Stark and help to accommodate ongoing care delivery and payment system reforms.

“For instance, certain arrangements, like the renting of office space or equipment or contracting with another party for the provision of services, require that the parties document their arrangement in writing.  Previously, Stark used the term “written agreement” which led many to believe there had to be a formal, single, written contract between the parties.  CMS has revised its terminology to say “written arrangement” and explained that a compilation of multiple documents could be used as evidence of the arrangement between the parties.  In other words, an exchange of emails between the parties, copies of timesheets and invoices, or other documented exchanges between the parties could, depending on their contents, be enough to satisfy the “written arrangement” requirement,” she says.

Additionally, she adds that CMS has recognized the increased use and benefit of non-physician practitioners (like nurse practitioners or physician assistants) to provide care to patients. So, Stark now has an exception addressing the use of these non-physician practitioners that allows hospitals to compensate doctors so that the doctor can then compensate the non-physician practitioner that is part of the doctor’s practice.

If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or




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