Rural Hospitals Get a Pass on Self-Referral Rules: What the Stark Law Changes Mean for Medicare Patients

The “Physician Led and Rural Access to Quality Care Act” is taking a knife to some of the most complex rules in healthcare—specifically, the federal prohibitions on physician self-referral, often called the Stark Law. This law generally prevents doctors from referring Medicare patients to facilities where they have a financial stake, and for good reason: it’s supposed to stop financial incentives from driving medical decisions. This bill, however, carves out two major exceptions that could significantly change how healthcare is delivered and paid for, especially in remote areas.

The 35-Mile Rule: A New Exception for Rural Hospitals

Section 2 of this bill creates a brand-new special exception for what it calls a “covered rural hospital.” If you’re a doctor who owns part of a hospital, you usually can’t refer your Medicare patients there. This bill changes that for specific rural facilities. To qualify for this new self-referral pass, the hospital must be located in a defined rural area and, crucially, must have been situated more than a 35-mile drive away from any other hospital or critical access hospital when it first enrolled in Medicare. If a hospital meets this strict geographical test, the general ban on physician self-referral is lifted. The idea here is clear: if a hospital is truly isolated, doctors should be incentivized to invest in and use it to ensure services are available to the community. For people living in these remote areas, this could mean better access to specialized care without having to drive hours.

Expansion Limits Are Gone for Existing POHs

Currently, many existing physician-owned hospitals (POHs) operate under certain self-referral exceptions, but there’s a catch: they can’t expand their services or capacity if they want to keep using those exceptions. This bill removes that restriction entirely. Starting immediately upon enactment, physician-owned hospitals can expand their physical footprint, add new wings, or increase their patient capacity without losing their self-referral allowance. This is a huge win for existing POHs that have been capped in their ability to grow, potentially allowing them to modernize and increase volume. For example, a POH that previously couldn't add an MRI machine or extra operating rooms without losing its referral privileges can now move forward with expansion plans.

The Real-World Trade-Off: Access vs. Cost Control

While the goal of increasing access in rural areas is commendable, these changes come with a significant policy trade-off. The Stark Law exists to prevent conflicts of interest where financial gain might influence a doctor's decision. When a doctor can send profitable Medicare business to a facility they own—especially without limits on expansion—there is a risk of increased utilization. This could mean more procedures are performed, driving up costs for Medicare and, ultimately, taxpayers and beneficiaries. For a Medicare patient, this means the referral they receive might be influenced by their doctor's investment portfolio, not just their medical needs. The bill prioritizes investment incentives and access in remote areas, but it does so by removing a key federal safeguard designed to keep healthcare costs and utilization in check.