Washington Legislature Contemplates New “Baby” Stark Law

United States Representative Pete Stark, D-Calif., recently stated that he regretted sponsoring the now infamous federal physician self-referral legislation that bears his name.  Perhaps Mr. Stark's regrets will give pause to those in Olympia who aspire to follow in his footsteps.

Representative Eileen Cody introduced a new Washington State version of the federal Stark Law, earlier this month. This proposed “baby” Stark Law, House Bill 2691 (HB 2961), is much broader than its federal counterpart. Hospitals, physicians, payors, health care vendors and the host of providers covered under RCW 18.130 should be aware of the implications of this proposed legislation and be prepared to follow it closely when hearings begin in the Legislature

The current State Stark Law is a Medicaid-focused physician self-referral prohibition that specifically references the federal Stark Law. HB 2691 would repeal this statute and replace it with a much broader prohibition untethered from the federal statute.

Under HB 2691 health care providers would not be allowed to refer a patient for health care services to an entity with whom the provider (or an immediate family member) had a financial relationship unless an exception applied. Like the federal Stark Law, under HB 2691 a financial relationship may be either a “beneficial interest” (ownership) or a compensation arrangement. The proposed state referral prohibition, however, differs from the federal Stark Law and the current state Stark Law in many ways.  For example, HB 2691:

• Covers all patients and payors, not simply Medicare and Medicaid
• Applies not only to physicians but to all health care practitioners
• Applies to all health care services (the existing  Stark Laws  apply  only to 11 “designated health services”)
• Adopts different, and at times conflicting, definitions for terms defined under the federal self-referral law
• Includes a unique set of exceptions, some that are consistent with the federal statute, but many that are not
• Appears to significantly restrict the ability of hospitals to enter into joint venture arrangements with physicians or other providers
• Includes detailed requirements relating to patient disclosure
• Directs payors to amend provider contracts to exclude payment for any services provided pursuant to a referral prohibited by the statute

Health care providers should not underestimate the magnitude of the confusion HB 2691 would create. The bill introduces a host of complex definitions, exceptions and ambiguities. The Centers for Medicare and Medicaid Services has been working for more than 15 years on regulations clarifying the federal Stark Law. Despite several rulemaking attempts and thousands of pages of explanation in the federal register, the Stark Law remains riddled with ambiguities.  HB 2691 is broader and more ambiguous than the federal statute and would be incredibly difficult for Washington State health care providers to interpret and implement.

Given the significant differences between the proposed state law and the federal Stark Law, compliance with the federal statute would not ensure compliance with HB 2691. The potential application of the statute would need to be considered in the vast majority of transactions involving health care providers. Regulations addressing the statute's many ambiguities would be needed. Thus, HB 2691 would create an entirely new regulatory niche.

The burden that HB 2691 would impose on the provider community appears to far outweigh any benefit that might be derived from its enactment. The disclosure provisions alone would require the adoption of significant new processes to ensure that the provider has made the prescribed disclosure to the patient, obtained the patient's signed acknowledgment, posted the necessary signs (required to be legible from a distance of eight feet) and recorded the required information in the medical record.

Hearings on HB 2691 begin very soon. Given the potential implications of this statute, health care industry participants should monitor its progress and urge their elected representatives to carefully consider its pros and cons.