Congress closes in on Stark law reform

Competing bills vie to simplify or eliminate Stark’s confusing compensation provisions

Rep. Bill Thomas (R-CA) has his way, hospitals will see a rollback of a major portion of the self-referral laws passed by Congress in 1993. Last week, the House Ways and Means Health Subcommittee Chairman unveiled legislation that would strip the compensation portion of the self-referral laws otherwise known as Stark I and Stark II.

Notably, Thomas opted to introduce this measure as a freestanding bill and not part of a larger Medicare reform package he is known to be working on. Aides say that’s because Thomas is intent on passing Stark reform measure and fears tying it to the fate of a more complex Medicare bill. "We are not going to rule out the prospect that this bill could be attached to something but right now it is independent," says a Ways and Means aide. "We won’t really know anything else until we get back from recess after Labor Day."

Repeal of the compensation provision in Stark would have a major impact on the ability of hospitals to enter a variety of arrangements with physicians and other providers. "That’s really 90% of the law," adds the aide. "This bill will clarify the law so that doctors can be reimbursed by hospitals even if they have been given a parking space at the hospital."

"This would solve a huge number of problems," agrees Bob Homchick of the Seattle-based Davis Wright Tremain. "A lot of the problems with Stark revolve around the incredibly broad definition of financial relationship’ and direct’ or indirect’ compensation arrangements," he says. "HCFA has clearly struggled with this law from Day One."

"But there are still some very difficult issues quite frankly," he adds. Homchick says he still has questions about how this revision would affect the group practice exception and the in-office ancillary services exception as well as other areas.

Thomas signaled he would try to reign in current self-referral laws at a May 13 Health Subcommittee hearing.

He argues that while the ownership portion of Stark II is workable, the compensation portion is not. "We have a statute on the books that is unenforceable," he said at a press conference on Capitol Hill July 29. "The whole intent was to draw bright lines to allow people to have guidelines about what was and what was not permissible," he asserted. "The problem is that since 1993 HCFA has not been able to write the regulations dealing with that compensation portion."

Thomas admitted that increased flexibility will lead to increased services and said the Congressional Budget Office estimates his bill will cost Medicare $100 million to $200 million over five years. "Cost is not necessarily an evil," he argued, "but rather an indication government is not allowing creativity."

Rep. Pete Stark (D-CA), the main sponsor of the original laws, wasted no time blasting Thomas’ bill and introducing his own. "Total repeal of the compensation provisions is a loophole you can drive an armored division through," argues Stark. He says his measure would simplify and streamline the law by creating a "fair market value exception" or "safe harbor" for providers who have compensation relationships with entities to which they refer Medicare and Medicaid beneficiaries for health services.

Under the fair market value test, an agreement must be in writing for a definite period of time and not be dependent on the volume or value of referrals and the compensation in the contract must be a reasonable fair market rate.

Stark’s proposal simplifies some of the issues but probably does not go far enough, says Homchick. "Combining all of the compensation exceptions into the fair market value exception makes things somewhat easier but the statute still presents very thorny issues."

Support for Thomas’ bill is tough to gauge since he sought no co-sponsors. "The smart money right now is on the Thomas bill," says one Ways and Means aide. "It helps to be in the majority."