Stark Wars: Competing bills vie to amend law

Health care industry united in support for Thomas proposal to eliminate Stark’s compensation provision

Last week, the first shots were fired in the Congressional battle to amend the complex and controversial Stark physician self-referral laws.

On Wednesday, Rep. Bill Thomas (R-CA), who heads up the pivotal House Ways and Means Health Subcommittee, unveiled a bill that would completely eliminate the part of the law governing compensation arrangements. A day later, Rep. Fortney Pete Stark (D-CA), the author of the law that bears his name, announced a set of counter-amendments that would revise but not eliminate the compensation provisions. (For a complete breakdown on the differences between the competing bills, see comparison, page 2.)

The Proposed Stark Amendments: A Comparison

Current Law

Thomas 1999

Stark 1999

Bans compensation between doctors and health providers. But there are many, complex exceptions to the ban. Compensation ban totally abolished. Replaces most exceptions with a single fair market value test. Keeps exception for physician recruitment and de minimis gifts.
Requires direct physician supervision of those providing designated health services. General supervision (meaning the physician is legally responsible but doesn't need to be present on site). General supervision, but physician must be on site.
Defines group practice. Removes HHS Secretary's authority to add more conditions. Clarifies that a group practice should be a "unified business."
Includes managed care exemption. Includes no provision. Exemption extended to Medicaid managed care and Medicare+Choice.
Makes exception if there is no alternative provider. Defines rural exception as meaning 75% of service in rural area. An exception if HHS Secretary determines area is underserved.
Reporting and Civil Monetary Penalties (CMPs) for failure to report. No provisions. Repeals reporting requirement. Abolishes CMPs for failure to report.
Designated health services. Removes eyeglases, lenses from list Removes eyeglases, lenses from list
Administration of law. Amendments effective upon enactment, regardless of when regulations are promulgated. Requests for advisory opinions must be answered within 60 days.
Exceptions. No provisions. Includes durable medical equipment, parenteral and enteral in exception for in-office ancillary services.


The Stark law, enacted in 1989 and expanded in 1993, was intended to bar physicians from referring Medicare patients to clinics for laboratory services where the physicians might benefit financially from the referral. Currently, it restricts all referrals based on ownership interests and compensation arrangements.

But according to Thomas, "under current law, compensation arrangements have been virtually impossible to enforce because almost anything can be considered 'compensation' — such as when a hospital gives a doctor free parking."

Senior Congressional aides say efforts to simplify the physician self-referral laws gathered steam in April, when Republican members of Thomas' House Ways and Means Health Subcommittee grilled top Health Care Financing Administration officials over the complexity of the existing statutes, as well as the agency's failure to issue final regulations, six years after the law was expanded.

Within hours of Thomas' press conference announcing his bill to eliminate the compensation provisions, virtually every major medical association issued statements supporting it, including the American Medical Association, the Medical Group Management Association, the American Medical Group Association, the American Academy of Family Physicians, the American Hospital Association, and the Federation of American Health Systems.

Stark himself was quick to condemn the Thomas bill, calling it "pro-fraud" and claiming that eliminating the compensation provisions will effectively gut the self-referral law. "We do not believe the government's authority to regulate compensation relationships should be deleted," says Stark's press secretary, Anne Montgomery. "It's the heart of the law. If you take it out, we go back to the days of the 1980s, when physicians set up all kinds of referral-for-profit schemes. It's not necessary, it's wrong, and it would be extraordinarily bad for health policy. And it would cost Medicare an awful lot in overutilization."

Stark's proposed amendment would, he claims, simplify the compensation provisions by replacing most of the compensation exceptions with a single "Fair Market Value" test. Under that test, a compensation agreement must be in writing, cover a definite period of time, and the compensation must not depend on the volume or value of referrals. The compensation in the contract must be at a "reasonable fair market rate."

That doesn't go far enough for Thomas supporters, who remain eager to see the compensation provisions stripped out of the law entirely. They claim that, besides being confusing and complex, the compensation provisions aren't necessary, since most referral-for-profit schemes are already prohibited by the anti-kickback statute, says Anders Gilberg, an analyst with the Medical Group Management Association in Englewood, CO. "The only difference is that with the anti-kickback statute, the government has to show that there was some intent to defraud," he says.

Montgomery argues that the anti-kickback statute's fairly high burden of proof standard would allow many questionable arrangements to slip through the cracks. "You would never be able to uncover the kinds of things with the anti-kickback law that the physical self-referral law prevents," she says.

With both bills now set to be introduced in Congress as soon as the session resumes, health care experts are optimistic that some type of Stark reform will pass by the end of the year. But if nothing is passed in 1999, there’s little chance it will be passed in the election year of 2000, cautions Brent Miller, director of government affairs at the Alexandria, VA-based American Medical Group Association. "And that means it probably won’t happen for a long time," he says.