December 14, 2020

Changes to the Federal Physician Self-Referral Regulation

By Steve Lavenda, Partner, Advisory Services

Changes to the Federal Physician Self-Referral Regulation Healthcare

On November 20, 2020, the Centers for Medicare & Medicaid Services (CMS) finalized changes to federal regulations first enacted in 1989, which have added administrative costs and hindered the healthcare system’s move toward value-based reimbursement.


The Physician Self-Referral Law, also known as the “Stark Law,” generally prohibits a physician from making referrals to an entity for certain healthcare services payable by Medicare, if the physician has a financial relationship with the entity. The Stark Law protected patients from receiving unnecessary services, or services that were less convenient or higher priced because of a physician’s financial interest. This original regulation was developed for a healthcare system that reimbursed providers on a fee-for-service basis, where the financial incentives were structured to deliver more services.

Since the beginning of the 21st century, the American healthcare system has been increasingly moving toward reimbursement and reward based on quality and value, and rather than volume of services. The Stark Law has not evolved with the transition to a value-based system. Although the Stark Law regulations were updated multiple times in the past, they still were tailored towards the fee-for-service system.

Patients over Paperwork

Concerns regarding the Stark rule’s barriers to value were one of the top issues raised by providers when CMS held listening sessions in 2017 as part of its “Patients over Paperwork” initiative. It was determined that the burden of complying with the Stark rule was impeding patient care. This resulted in healthcare providers spending millions of dollars complying with regulations, which slowed down the move toward value, not just in Medicare, but also including Medicaid and private health plans.

With the 2020 final rule, CMS is ensuring the regulations interpreting the Stark Law will allow for changes to modernize the healthcare system. The rule finalizes many of the proposed policies contained in the notice of proposed rulemaking issued in October 2019, including the following:

  • Finalizing new, permanent exceptions for value-based arrangements that will permit physicians and other healthcare providers to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs would violate the physician self-referral law. This supports CMS’ broader push to advance coordinated care and innovative payment models across Medicare, Medicaid, and private plans.
  • Finalizing additional guidance on key requirements of the exceptions to the physician self-referral law to make it easier for physicians and other healthcare providers to make sure they comply with the law.
  • Finalizing protection for non-abusive, beneficial arrangements that apply regardless of whether the parties operate in a fee-for-service or value-based payment system – such as donations of cybersecurity technology that safeguard the integrity of the healthcare ecosystem.
  • Reducing administrative burdens that drive up costs by redirecting to patient care money previously spent on administrative compliance.

Unless otherwise specified in the rule, all provisions will go into effect 60 days from the rule’s display date in the Federal Register, or January 19, 2021.

CMS’s hope is that these revisions to the Stark Law will result in better patient outcomes through enhanced coordinated care arrangements. The law still does prohibit referrals that are solely based on financial incentives for the provider. Patients should still be assured that any care referrals are in the best interest of their overall health.

Click here to view more information on the final rule.

For questions regarding the changes to the Stark Law, please contact a Marcum LLP Healthcare team member.

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