Stark Law Change Impacting Physician Group Compensation Effective Jan. 1, 2022

On Dec. 2, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a comprehensive set of final rules in revision of the federal physician self-referral law or Stark Law. Most of these updated regulations went into effect on Jan. 19, 2021. However, some changes to the rules for a group practice and the distribution of profits were pushed back until Jan. 1, 2022, to allow for group practices to meet the Stark Law’s “set in advance” stipulation and the potential time-consuming changes to the compensation arrangements. Now that the effective date is quickly approaching, here’s what physician group practices need to know about these changes.

The Stark Law limits the ability of physicians to have a financial relationship with entities that provide certain services for which the physicians can refer patients. The federal government has provided a list of Designated Health Services (DHS) subject to the Stark Law. The Stark Law prohibits a provider or his or her immediate family members from referring a government healthcare program patient for any DHS to an entity with which the provider (or an immediate family member) has a financial relationship, unless an exception applies. DHS includes, but is not limited to, imaging, lab, physical therapy, durable medical equipment (DME), outpatient prescription drugs, and radiation therapy services. One of the exceptions that many medical groups rely upon to allow the providers to make internal referrals for DHS is the Stark Law’s in-office ancillary service exception. The in-office ancillary service exception changed significantly under these updated rules.

Some of the significant changes and clarifications for physician compensation and the in-office ancillary service exception are as follows:

• Group practices should divide overall profits and calculate productivity bonuses in a reasonable and verifiable manner that is not directly related to the volume or value of DHS referrals.
• Group practices may not split DHS profits differently by ancillary type (split pooling).
• Group practices are not required to distribute all of the DHS profits to physicians; the group practice may choose to retain some of the profits.
• If a group practice chooses to share overall profits from DHS with the physicians, it will need to choose one of the following:
  • Aggregate all DHS profits from the entire group
  • Aggregate all DHS profits from a component of the group as long as the component group has at least five physicians

The in-office ancillary service exception is a complex and detailed exception to the Stark Law.  Healthcare providers should consult with a trusted legal advisor regarding the details of their compensation arrangements to ensure they fit within the updated regulations prior to the Jan. 1, 2022, compliance date.

The views expressed in the above are intended for general guidance only and should not be considered legal advice. They are not intended as recommendations for specific situations. Users should consult a qualified attorney for specific legal guidance and interpretation of the updated regulations.