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Is The End of Stark (and IOAS) Near?



Since its passage in 1989, the now ubiquitous federal law known as the Stark Law has driven the business behavior of health care providers of many kinds.  Recent developments, however, make us wonder whether the end of Stark is near, and if so, whether that’s a good thing.

By way of background, the Stark law has two components:  part one, a self referral prohibition, generally forbids physicians from referring to a provider of any “designated health service” (DHS) (e.g. MRI, PT, clinical lab) if the physician or his/her immediate family member has a financial relationship (including ownership interest) with the provider of the service.  Part two mandates that certain compensation arrangements between healthcare providers meet certain requirements.  Things like medical director agreements, management agreements, employment and independent contractor arrangements have been regulated by the law since its inception.  Most notably, for purposes of this article, one provision (the “In Office Ancillary Services” exception or “IOAS”, also known as the “Group Practice Exception”) has allowed medical practices to provide all sorts of “ancillary services” to their own patients.  That is the key aspect of the law that is lately coming under serious attack.

Regulatory Rumblings re IOAS

In October, 2012, a Government Accountability Office (GAO) report to the Senate Finance Committee was critical of the financial impact of physicians being able to provide diagnostic imaging services to their own patients.  Even more recently, another GAO report was critical of the same dynamic with respect to anatomic pathology.  On August 1st, the GAO issued yet another critical report, this time targeted at the practice of urologists referring patients to IRMT services that provide a financial benefit to the referring physicians.  Congressman Pete Stark himself (voted out of office last year), on August 2nd, stated that the Stark Law had become overly complex and was full of loopholes that conflict with the original intent of the law, which prohibited anyone taking a bribe, commission or kickback in exchange for referring a patient.

The Hammer

But wait, there’s more!  This month, Congresswoman Speier (CA) introduced a proposed law aimed at doing away with the IOAS altogether.  HR 2914, the “Promoting Integrity in Medicare Act of 2013” (PRIMA”) would prohibit self referral altogether for advanced imaging, anatomic pathology, radiation therapy and physical therapy.   If it becomes law, HR 2914 will:

●Substantially reduce the kinds of services that “group practices” may provide to their own patients

●Create a $25,000 civil monetary penalty per violation

●Create a $150K fine for wrongful referrals

●Require DHHS to review compliance six month after becoming law

●Applies the anti markup law to the technical or professional component or any (newly defined) “non ancillary service”

●Creates a new category of impermissible referrals within group practices, “non-ancillary services” which are not usually provided and completed during a physician office visit and determined to be necessary.  Those services include—

*The technical or professional component of (i) surgical pathology, (ii) cytopathology, (iii) hematology, (iv) blood banking, or (v) pathology consultation and clinical lab interpretation services

*Radiation therapy services and supplies

*Advanced diagnostic imaging studies (which include for instance MR and CT)

*Physical therapy services

The prohibitions, if they become law, would be effective 12 months after becoming law.

Support for the Law

Those who think the proposed law has no chance of passing and who continue to think the sacred nature of the IOAS aspect of Stark is unassailable, have to consider that the alleged cost-saving concepts in the proposed law has the support of the following organizations—


●Medicare Payment Advisory Commission

●Alliance for Integrity in Medicine (coalition of medical societies)*

●The American Society for Radiation Oncology

●The American College of Radiology

●The American Society for Clinical Pathology

●The Wall Street Journal

●The Washington Post

●The Baltimore Sun

●Representative Waxman

●Representative McDermott

●Congresswoman Titus

●Congresswoman Speier

*AIM members include American Clinical Laboratory Association; American College of Radiology; American Physical Therapy Association; American Society for Clinical Pathology; American Society for Radiation Oncology; Association for Quality Imaging; College of American Pathologists and Radiology Business Management Association.

Interestingly, the Bill recites the CMS rationale for the IOAS:  “to permit physicians to provide ancillary services in their offices to better inform diagnosis and treatment decisions at the time of the patient’s initial office visit.”  The Bill strikes at the rationale by citing support for the assertion that a large majority of ancillary services provided by physician offices are not actually provided at the time of the patient’s initial office visit.

Devastating Impact

If passed, the Bill has the ability to strike a hole in the heart of many medical business models that are near and dear to physicians.  For instance, a lot of the large medical group migration being observed is founded in good measure on the existence of the IOAS and the desire among physicians to provide more services and to expand their existing lines of business.


The Bill is another misguided and self- interested attempt at cost cutting.  Bill supporters are clearly in a position to financially benefit from cutting medical practices out of ancillary services.  The bigger issue, however, is the ever-increasing role of business in medicine.

The IOAS is one tool in the toolbox of attorneys and consultants who assist physicians in growing the business foundation and continuity of care offered by physician owned medical practices.  The Bill would not work to reduce the volume of ancillary services.  It would merely shift the provision of those services away from [less expensive] physician owned medical practices and into the hands of corporate (including hospital) owned medical practices which charge more for the same services.

The Bill is simply a physician robbing measure, since the IOAS is not a limiting factor for those non-physician owned practices.  It is also a way for businesses that compete with physician practices to grab at the ever shrinking healthcare dollar.  Moreover, though the Bill would give practices 12 months to restructure and divest, there will be strong foundations for litigating what amounts to a “taking” of the many millions of dollars invested by physicians in their ancillary business structure which extends to costly equipment and facilities, all of which is ironically billed far below the cost of what will now be charged entirely by corporate owned practices.

Physician organizations like the AMA and FMA need to scratch behind the rhetoric and step up to the plate to call things as they really are.  Legislators need to be more aware of the difference between positioning and real policy-making, which is especially tough when policy makers are not even affected by the healthcare decisions they make.

Practices focused on the Bill will have to be cautious re planned ancillary expenditures, planned hiring and expansion.  Moreover, practices that fuel the expense of departing shareholders with ancillary revenues will have to reexamine their corporate plans in the even the Bill’s traction continues.  In short, the Bill is a game changer.  It is also a call to arms.  Who will answer?