The Stark Law and Anti-Kickback Statute: What to Expect


The Stark Law and Anti-Kickback Statute: Key considerations for becoming a System of Health as payment models evolve and regulatory restraints are modified.


Healthcare fraud and abuse is a multibillion-dollar problem facing Medicare. There are two major federal healthcare fraud and abuse laws: (1) the Stark Law; and (2) the Anti-Kickback Statute (AKS). Both laws regulate financial relationships and physician self-referrals. These laws, enacted in 1989, were devised under a fee-for-service system and intended to eliminate a profit motive for unnecessary services and overutilization.

The two laws are aimed at solving the same problem, both are complicated, and each has been a target of critics who claim the laws discourage risk sharing arrangements between physicians and hospitals. As payment models evolve, these two complicated laws must be reviewed and adjusted so that risk sharing arrangements can be more easily established.


The Stark Law prohibits a physician from making a referral for certain designated health services (DHS) to an entity with which the physician has a financial relationship.i Whereas the AKS prohibits “anything of value” to induce referrals for services paid by Medicare. The AKS broadly defines what constitutes “anything of value” and violations may result in both civil and criminal penalties.  See the table below to compare the provisions.


Table Source: Reforming Stark/Anti-Kickback – USC-Brookings Schaeffer Initiative for Health Policy


Part of the administration’s efforts to deregulate the healthcare industry include “The Regulatory Sprint to Coordinated Care,” which, among other initiatives, aims to lessen the regulatory burden to value-based care. On June 25, 2018, the Centers for Medicare and Medicaid Services (CMS) published a Request for Information (RFI) to ascertain how the Stark Law encumbers care coordination and provider partnerships. CMS asked for input about aspects of the law that cause “undue regulatory impact and burden.”  The RFI also sought input on how to (re)structure the compensation arrangements between providers involved in alternative payment models. The comment period closed on August 24, 2018. CMS has not yet published its recommendations.

On August 27, 2018, the U.S. Department of Health and Human Services (HHS) Office of the Inspector General (OIG)  issued a second RFI for stakeholder feedback about  reforms needed on numerous issues including “care coordination, value-based arrangements, alternative payment models, arrangements involving innovative technology, and other financial arrangements that may implicate the anti-kickback statute or beneficiary inducements civil monetary penalty (CMP);  and types of incentives providers and suppliers would support, and how those incentives would improve quality, care coordination, and patient engagement.” The RFI’s comment period closed on October 26, 2018.


CMS has doubled down on payment reform and easing fraud regulations would open a pathway for providers take on higher levels of risk in new alternative payment models like bundled payments and accountable care organizations (ACOs). It is likely the administration’s aim to expand alternative payment models and lessen regulatory constraints in healthcare will include changes to Stark and AKS. The importance of payment reforms cannot be overstated – HHS Secretary Azar recently remarked, “alternative payment models are key to value-based care” and indicated that the new payment models will become mandatory in the near future (i.e. bundled payments).ii

Monitoring regulatory changes around the Stark Law and AKS is an ongoing responsibility and business relationships will be influenced by new referral exceptions and safe harbor additions. CMS is using the RFIs to assess common concerns where risk is inherent due to the intentional design of provider networks and the inevitable referral – financial relationships that form as a result. A key goal of CMS, in modernizing the anti-fraud laws, is to promote technology innovation. In fact, Medicare is supporting digital and telehealth innovation by paying for virtual check-ins, so patients can connect to their providers via mobile device.

ACOs and clinically integrated networks (CINs) are susceptible to violating federal anti-fraud laws because managing the volume and value of patient services is the goal to achieve cost-effective quality care. Risk management is a major concern for organizations making the transition to value-based care and analytics that flag areas of potential fraud are key to compliance.

The timing and process to implement changes to Stark and AKS are uncertain, but seemingly under consideration. It is clear alternative payment models linking physician payments and compensation arrangements to the “value of referrals” implicate anti-fraud laws as they are currently enforced.iii So, changes and expansions to Stark Law exceptions for financial arrangements are anticipated.


There are three immediate takeaways for hospitals and medical groups:

  1. Participation in alternative payment models requiring physicians and hospitals to assume financial risk and clinical outcomes should be carefully evaluated. The administration has said it will require downside risks to be assumed by providers. Infrastructure, care coordination processes, and complement of facilities and digital connectivity capabilities must be assessed.
  2. Financial risk-sharing between hospitals and physicians must be calculated against costs that optimize use of virtual/telehealth services and expand involvement of less costly mid-level providers where safe and effective.
  3. The data-driven* distribution and accessibility of services and programs across a market, including ambulatory facilities, the location of tertiary services and specialists, and growing complement of retail and digital health capabilities are critical factors to attracting physicians to share risk with a health system partner in becoming a System of Health. Modification of Stark and AKS regulatory constraints will enable new approaches to joint ventures and hospital-physician collaboration.

Resources Cited

i  Westphal, H., Lauer, K.,Oppenheim, C.B. (Mar. 2017). “Exceptions require compensation to be: FMV, commercially reasonable, and not vary with referrals.” Health Care Compliance Association.  (Presentation)

ii  Alex M. Azar II, A.M. (Nov. 8, 2018). “Remarks on Primary Care and Value-Based Transformation” Patient-Centered Primary Care Collaborative (Speech transcript).  U.S. Department of Health and Human Services.

iii Hatch, O. (June 2016). “Why Stark, why now? Suggestions to improve the Stark Law to encourage innovative payment models.”  U.S. Senate Finance Committee Majority Staff Report.,%20SFC%20Majority%20Staff.pdf.


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