Way back in 1989, Medicare used a strictly fee-for-service payment structure. Physicians were compensated based on the volume of claims they submitted. 

With that payment structure, Congress became concerned that physicians were profiting from self-referrals for use of clinical laboratory services. Consequently, Congress enacted Section 1877 of the Social Security Act, commonly known as the “Stark Law.” The law was subsequently expanded in 1993 and 1994 to encompass additional services. Currently, the self-referral provisions include prohibiting a physician from:

  • making referrals for designated services that Medicare pays to an entity with which the physician or an immediate family member has a financial ownership; and/or
  • submitting a claim to Medicare for those referred services.


Services Stark covers 

The list of designated services that Stark covers includes items that affect ophthalmologists, such as clinical laboratory services, radiology and other imaging services, outpatient prescription drugs and outpatient hospital services, among other services. 

Over time, we’ve come to understand that the Stark laws can run counter to the overall goals the Centers for Medicare & Medicaid Services has established for patient care, so CMS has evolved. The goals of the current CMS program include ensuring:

  • a patient’s ability to understand treatment plans and make empowered decisions;
  • providers’ alignment on an end-to-end treatment approach (that is, coordination among providers along the patient’s full care journey);
  • incentives for providers to coordinate and collaborate and provide patients with tools to get more involved; and
  • information-sharing among providers, facilities and other stakeholders to enable efficient care while preserving and protecting patient access to data.1


Counter to collaboration

These goals, especially those related to incentivizing providers to collaborate, as well as other changes to Medicare, led CMS to add exceptions to the Stark law, with significant changes enacted last November. For instance, the revised final rule “permits parties to reconcile payment discrepancies in compensation arrangements without running afoul” of Stark.1  

CMS also recognized that programs such as the Merit-Based Incentive Payment System (MIPS), which encourages shared care and value-based care, may result in referrals that could be considered violations under Stark. In response, CMS established routes to grant waivers to accountable care organizations under Stark law revisions. 

The Federal Register states: “Congress also granted [the Secretary of Health and Human Services] broad authority to waive provisions of section 1877 of the Act and certain other Federal fraud and abuse laws when he determines it is necessary to implement the Shared Savings Program … or test models under the Innovation Center’s authority.”1 

Significantly, the Stark revisions address potential conflicts that arise from ACOs, otherwise known as “value-based” arrangements. The new exceptions for value-based arrangements include those:

  • designed to achieve at least one value-based purpose, including a provision of item or service; 
  • that provide at least one value-based activity for a target patient population;
  • enterprises in which participants collaborate to achieve at least one value-based purpose, an exception that requires financial and operational oversight;
  • that coordinate and manage care, improve care, appropriately reduce cost and transition to quality-of-care- based payment mechanisms.1

The overarching rationale for the Stark exceptions is to encourage innovation in the shift from fee-for-service to value-based payment models. For example, depending on the structure, some current shared-savings/shared-loss arrangements may be unable to meet current self-referral law requirements due to referral provisions, requirements to refrain from ordering unnecessary care and pay-for-performance. 


Fixing unintended consequences

The Stark revisions also address other areas of the law that had unintended consequences for patients and physicians. In addition to addressing issues regarding fair market value, group practice concerns, profit sharing and electronic security, provisions in the revised law address concerns regarding in-network patient referrals. 

Correcting issues in the original law regarding network referrals has significant impact on physicians working in some referral- and hospital-based employment arrangements. The law requires significant contractual support to avoid violation of Stark.

Non-monetary referral arrangements, such as paid travel or fee waivers, can be considered Stark violations. In addition, payments to a group practice that then flow to individual physicians may also violate the law.

Despite revisions in the law, it’s important to note that Stark is a “strict liability statute.” That means that proof of specific intent to violate the law is not required. Violation of Stark can include fines and/or exclusion from participation in federal health-care programs.2  

The Stark law is longstanding and thus has had many revisions and changes, including the latest updates. It behooves a physician to have a qualified health-care attorney review any monetized referral schemes, accountable care arrangements, lease agreements or computer-related service agreements to avoid running afoul of the Stark laws. RS



1. Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations. Federal Register. December 2, 2020;77492-77682; 2020-26140. Available at: https://www.federalregister.gov/documents/2020/12/02/2020-26140/medicare-program-modernizing-and-clarifying-the-physician-self-referral-regulations

2. Office of the Inspector General, U.S. Department of Health and Human Services. A roadmap for new physicians: Fraud and abuse laws. Undated. Available at: https://oig.hhs.gov/compliance/physician-education/01laws.asp