Stark blasts proposed safe harbors

June 5, 1991

Rep. Fortney "Pete" Stark (D-CA), chairman of the HouseWays and Means subcommittee on health, urged last month that theproposed safe harbor regulations on referring-physician ownershipof medical centers be revised or scrapped. The proposed

Rep. Fortney "Pete" Stark (D-CA), chairman of the HouseWays and Means subcommittee on health, urged last month that theproposed safe harbor regulations on referring-physician ownershipof medical centers be revised or scrapped.

The proposed rules of the Department of Health and Human Servicescould interfere with congressional efforts to extend a ban onself-referrals beyond clinical laboratories, the congressman saidin letter to Richard Kusserow, HHS inspector general.

The HHS is formulating safe harbor regulations in responseto existing Medicare fraud and abuse legislation. They will definewhat is an appropriate investment by referring physicians in medicalimaging and other outpatient centers. By doing so, they will restrict--butnot outlaw--physician ownership of centers to which they referpatients.

Stark sponsored sections of the Omnibus Reconciliation Actof 1989 that severely restrict referring physician ownership ofclinical testing laboratories. He had originally aimed his legislation,dubbed the Stark Bill, at a broader spectrum of medical facilities,including medical imaging centers. Although the final wordingof his first bill was watered down, Stark still hopes to guidestronger restrictions through Congress.

"I am deeply troubled that the department (HHS) is consideringpromulgating a regulation that would immunize any self-referralarrangement when research is ongoing to determine whether to bansuch arrangements," Stark said.

The congressman's major concern involves two sections of theinvestment safe harbor provision within the proposed HHS rules:

  • centers with less than 50% referring-physician ownershipwould be immune from prosecution; and

  • centers would also be exempt when referring-physicianownership is held through a $5 million or larger publicly tradedentity.

"Even if referring physicians only own 50% of a particularventure and are responsible for no more than 50% of the referralsto that entity, the incentives for overutilization and higherprices still exist," Stark said. "In fact, I suspectthat ventures in which physicians own less than 50% are currentlythe dominant form of these deals."

The $5 million threshold for publicly traded companies is substantiallylower than the $100 million threshold in the law prohibiting referring-physicianinvolvement in clinical laboratories. It is too low to prohibitabuses, he said.

Stark is concerned that the safe harbor regulations will merelyprovide a guide for doctors trying to get around the intent ofthe law.

"The only thing the draft safe harbor regulations woulddo is to provide a road map to lawyers and unscrupulous physicianson how to structure these deals to continue the practice of buyingand selling referrals in the marketplace, without fear of enforcement,"he said.