At the end of 2019, the government amended the federal physician self-referral law (Stark Law). This amendment brought significant changes to how compensation is reported under the group practice definition. This blog discusses the Stark regulation updates and how the changes will affect your physician compensation models.

What is the Stark Law? Why is it Important?

The Stark Law prohibits physicians from referring patients for certain Designated Health Service (DHS) paid for by Medicare to any entity in which the physician has a financial relationship.  This is a strict liability statute – meaning, the physician’s intent to influence referrals does not matter.  If in violation, the monetary penalties can be significant.  Exceptions apply, but arrangements must meet every element of an exception.

Under the Stark law, a referral by a physician to the physician’s own practice can implicate Stark. Thus, many physicians rely on an exception to assure compliance. Certain exceptions (Physician Services; In-Office Ancillary Services) rely on the practice meeting the definition of a “Group Practice.” Thus, to qualify for the Stark exception(s) and allow partners/employees of a physician practice to “refer” DHS to their own practice, the practice must meet the definition of “Group Practice” – and every element within.

To meet the definition of a group practice, you must:

• Be a single legal entity.
• Have at least two physicians.
• All physicians must provide a full range of patient care services.
• Substantially all the physicians’ services must be furnished through the group/Substantially all the group’s services must be provided by the physician members.
• Be a unified business.
• Distributions of expenses and income must be pre-determined.
• Compensation cannot be based on the volume or value of referrals (for DHS).

Notable Rule Changes/Clarifications

There are a few notable changes and added clarification to the Stark Law. These include:

• Restructuring the regulation
• Removal of the Medicaid reference related to DHS
• Update and clarification to the definition of “Overall Profits;” end of “split pooling;” robust discussion of pod pooling/distributions

Timeline

On November 19, 2020, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services Office of Inspector General issued a final rule modernizing the Stark Law. Many of the revisions to the Stark regulations became effective January 19, 2021; however, revisions to the physician group practice regulations became effective January 1, 2022.

As of that date, there are several implications for group practices from these changes, but most notably, these changes revise the rule related to the distribution of overall profits and productivity bonuses.

Profits from all the DHS of the practice, or a component of the practice that consists of at least five physicians (a “5+ physician pod”), must be aggregated before distribution. Group practices that use split pooling need to modify their compensation methodologies to account for this change.

Physician practices also need to be aware of important commentary from CMS on the special rule that clarifies CMS’s intentions regarding permissible DHS profit sharing and additional revisions to the regulation text that impact profit sharing, which may also necessitate (or, in some cases, permit) changes to certain group practice compensation methodologies.

Solutions for Group Practices That Do Not Meet Revised Stark Regulations

There are several possible solutions for group practices that do not currently meet the Stark revisions for the group practice compensation formula.

For some larger group practices where certain pods or subsets of at least five physicians exist, multiple revenue distribution models can be adopted. As an example, Pod 1 can be distributed one way, while Pod 2 can be distributed another, as long as the same method for distributing overall profits for every physician in the pod is the same. 

Practices with less than five physicians may identify other models.  If there are fewer than five physicians in a group, “overall profits” mean the profits derived from all the DHS of the entire group and they may aggregate DHS profits among less than five physicians (because the entire group is less than five physicians.)

CMS confirmed that any physician in the practice may be paid a share of the overall profits of the group practice; the share does not have to be just among owners.

What is Changing in Physician Compensation?

The reality is that physician compensation is changing. From provider mix, reimbursement models, workforce demographics, and the ever-changing regulations and compliance, it is important now more than ever to remain current with rules and regulations to ensure agreements are in line with the current statutes.

Value-Based Participation

The Stark rule update adds another exception that allows physicians to be paid profits from DHS that relate directly to a physician’s participation in a value-based enterprise.

“Profits from designated health services that are directly attributable to a physician’s participation in a value-based enterprise may be distributed to the participating physician.” It is important to note that value-based enterprises must meet the Stark definition.

Value-based enterprise (VBE) means two or more VBE participants:

1. Collaborating to achieve at least one value-based purpose,
2. Each of which is a party to a value-based arrangement with the other or at least one other VBE participant in the value-based enterprise,
3. That have an accountable body or person responsible for the financial and operational oversight of the value-based enterprise, and
4. That have a governing document that describes the value-based enterprise and how the VBE participants intend to achieve its value-based purpose(s). Arrangements will have to be reviewed for compliance.

Now is the time for physician group practices to implement these changes into their compensation plans. This is also a good opportunity to update compensation plans for reasons other than compliance. Physician groups should also examine the methods of payment they are participating in or contemplating participating in so that they can assess now whether they can modify physician compensation in 2022 both to be compliant and to further attract and incentivize excellent health care providers.

If you have any questions or would like to learn more about this topic, please contact us.