Davis Wright Tremaine LLP

There are three things that cannot be stopped: time, gravity, and the increasing complexity of the Stark Law. To be fair, complexity has not been the goal of the Centers for Medicare & Medicaid Services (CMS). Rather, Stark's nearly impenetrable regulatory maze is the direct byproduct of a poorly drafted statute.

CMS has taken a number of positive steps to make the Stark Law more flexible, create exceptions that reduce the number of inadvertent or technical violations, and align the law with the industry shift from volume to value. For these efforts, CMS deserves to be complimented.

Unfortunately, CMS's regulatory efforts have not reduced the law's complexity. In fact, the trend has consistently been in the opposite direction and is supported by the publication of the 2022 Medicare Physician Fee Schedule proposed rule (MPFS Proposed Rule).1

The MPFS Proposed Rule would amend (yet again) the definition of "indirect compensation arrangement" (ICA) under Stark. You may recall that in January of this year the Stark Sprint Regulations2 introduced a new ICA definition. Seven months later, CMS is proposing to amend the new Sprint ICA definition to address its concerns about lease arrangements where the lessor is paid on a "per-use" or "per-click" basis.3

The proposed solution multiplies the number of variables in the ICA definition and introduces new, defined terms into the analysis. Understanding the proposal is challenging even for seasoned Stark lawyers and will likely confound the host of designated health service entities and physicians required to comply with the statute.

Sprint ICA

Under the current definition, an ICA is established if:4

  • There is an unbroken chain of financial relationships between a referring physician (or immediate family member) and the entity furnishing designated health services (DHS);
  • The referring physician received aggregate compensation that varied with, or took into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the DHS;
  • The individual unit of compensation received by the physician is either (i) not fair market value for services actually provided; or (ii) includes the physician's referrals to (or business generated for) the entity furnishing DHS as a variable, resulting in an increase or decrease in the physician's compensation that positively correlates with the number or value of the physician's referrals to (or business generated for) the entity; and
  • The DHS entity knows that the physician is receiving aggregate compensation that varies with the volume or value of referrals or other business generated.

If an ICA exists, the arrangement must fit within a Stark Law exception in order to avoid triggering referral and billing prohibitions. The ICA definition adopted in the Sprint Regulations narrowed the scope of arrangements that would qualify as ICAs, thereby avoiding the need for many arrangements to satisfy the requirements of an exception.

MPFS Proposed ICA

The MPFS Proposed Rule retains the same structure for the definition of an ICA described above, but adds another element. If there is an unbroken chain of financial relationships and the DHS entity has the requisite knowledge, any arrangement in which the referring physician receives aggregate compensation that varies with or takes into account the volume or value of referrals or other business generated by the referring physician will be considered an ICA if the payment is for anything other than services personally performed by the physician.5

In other words, only when the arrangement is for personally performed physician services will the unit of compensation elements be relevant to determining whether an ICA exists. For all other arrangements (equipment and space leases, agreements for the services of a group), if the aggregate compensation received by the physician varies with the volume or value of referrals or other business generated by the physician, the arrangement will qualify as an ICA and will need to fit within a Stark exception.6

Personally Performed Services

To guide the application of the new ICA definition, CMS also proposed regulatory text clarifying when services will be considered personally performed:

Services that are personally performed by a physician… do not include services that are performed by any person other than the physician… including, but not limited to, the referring physician's… employees, independent contractors, group practice members, or persons supervised by the physician….7

It is unclear whether services performed by an employee but provided 'incident to' services personally performed by a physician would in fact qualify as the physician's personally performed service.

Unit of Compensation

"Unit of compensation" was introduced as an element in the Sprint ICA definition.8 Acknowledging that providers have expressed confusion, the MPFS Proposed Rule offers a definition for this phrase.

CMS proposes to define the individual "unit" as either: (i) a service, where all compensation is based solely on the service provided; or (ii) time, in all other cases, including cases where any one of many bases of the physician's compensation is time-based.9 For example, if a physician is paid based solely on personally performed work relative value units (wRVUs), the unit, for purposes of the ICA definition, is a service. If a physician is paid a fixed hourly amount or annual salary, then the unit is time.

In those instances where both services and time are used in the physician's compensation formula, then the unit is time.10 If the arrangement includes more than one unit of the same type (e.g., $100 for each patient visit, $500 for each endoscopy), then each unit must be analyzed separately.


The comment period for the MPFS Proposed Rule ends September 13, 2021.11 The MPFS Final Rule will likely go into effect January 1, 2022. Consequently, it is prudent to consider both the current and proposed ICA definitions in determining whether an arrangement passes muster under Stark.

Existing arrangements that have been analyzed under the Sprint ICA definition should be reevaluated in light of the MPFS proposed definition. New arrangements should be analyzed using both the existing and proposed ICA definitions.

In commenting on the MPFS Proposed Rule, the ever-growing complexity of the statute is certainly a valid basis for criticism. In fact, one could suggest that if the agency's concerns with the existing ICA definition are focused on per-use or per-click leases, a straightforward reference to such arrangements in the ICA definition could address those concerns while creating more clarity.


1  MPFS Proposed Rule, 2021-14973 CFR.
2  Sprint Regulations, 85 FR 77492.
3  MPFS Proposed Rule, 2021-14973 CFR, at 615-624, 1309-1310 (to be codified at 42 CFR §411.354 (c)(2)).
4  42 CFR §411.354 (c)(2).
5  MPFS Proposed Rule, 2021-14973 CFR, at 615-624, 1309-1310, Medicare Program: CY 2022 Payment Policies under the Physician Fee Schedule and Other Changes to Part B Payment Policies (to be codified at 42 CFR §411.354 (c)(2)).
6  Id.
7  MPFS Proposed Rule, 2021-14973 CFR, at 1310.
8  Sprint Regulations, 85 FR 77492, at 77546.
9  MPFS Proposed Rule, 2021-14973 CFR, at 627.
10 Id.
11 MPFS Proposed Rule, at 1-2.

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