Medical groups that have division-based or service-level approaches to physician compensation should spend their summer evaluating their models in light of Stark Law revisions that go into effect on January 1, 2022. The revisions, seen by CMS as a clarification of original intent, will effectively prohibit distributions of profits from designated health services, or DHS, on a service-by-service basis.
The physician self-referral law or Stark Law prohibits a physician from referring a patient to an entity with which the physician (or an immediate family member) has a financial relationship, for the furnishing of DHS—including lab, imaging, and hospital inpatient and outpatient services—for which payment otherwise may be made under Medicare or Medicaid, unless an exception applies. Physician group practices commonly rely on the in-office ancillary services exception (IOAS) to protect referrals for DHS among physicians within the practice or for ancillary services provided by the practice. In short, if the practice satisfies the highly technical requirements to be considered a “group practice” (defined at 42 C.F.R. §411.352), both the physicians’ ownership and compensation arrangements can be structured to be compliant with the Stark Law.
In the 1998 proposed rule for Phase I of the Stark Law, CMS proposed to define “overall profits” as the entire profits of the entire group (or any component of the group that consists of at least five physicians). However, in an important nuance, the final 2001 regulation defined “overall profits” as a group’s entire profits derived from DHS payable by Medicare or Medicaid or the profits derived from DHS payable by Medicare or Medicaid of any component of the group practice that consists of at least five physicians. By including a portion of the definition of DHS within the context of “overall profits”, Phase I has been commonly interpreted to support distributions of profits based on individual categories of DHS, including division-based or service-level compensation.
In its January 2021 Stark Law update (previously covered in a two-part blog post by Jana Kolarik on Health Care Law Today), CMS moved to finally clarify its intent by redefining “overall profits” as a group’s entire profits derived from all the designated health services of any component of the group that consists of at least five physicians. However, recognizing that this could create challenges for many practices, CMS made the revisions prospective, to be effective in January 2022.
The following helpful tips should be taken into account in reviewing compensation practices for compliance. The group practice requirements are technically complex, however, and physician group practices that have questions about their compensation models or the definitional changes are advised to consult with counsel well in advance of year-end.
In issuing this important clarification, CMS recognized the time and effort involved in revising compensation arrangements for physician group practices that have separated profits by service type until now. For that reason, CMS is delaying the effective date of the final rule until January 1, 2022.