New Stark & Anti-Kickback Rules: Impact on Physician Group Practice Structures

On December 2, 2020, CMS finally issued the much anticipated additions and modifications to the Stark law and the federal Anti-Kickback Statute. The changes came over one year following the publication of proposed rules and, with a few exceptions, are effective as of January 19, 2021. This is one of a series of articles we are preparing on the impact of these new rules on healthcare providers.

This article focuses on the Stark rules for physician groups and their compensation structures. Physician groups that provide Designated Health Services (“DHS”), such as in-office lab or radiology, must satisfy the “in-office ancillary services exception” to protect referrals for those services within their own group. To do so, physician groups must generally qualify as a “group practice” under the standards set out in the Stark regulations. These standards were set up in order to assure that DHS profits and bonuses were shared only within bona fide group practices and not on loose confederations of physicians who come together substantially in order to capture the profits from referrals of DHS. In order for groups to distribute profits or pay bonuses from DHS to physicians in the group, the group must meet the group practice requirements.

In general, the regulations allow a group practice to pay a physician (a) a share of the profits so long as not directly related to the volume or value of referrals of DHS by the physician or (b) a productivity bonus based on services the physician has personally performed, or services “incident to” such personally performed services, or both, provided that the bonus is not determined in any manner that is directly related to the volume or value of referrals of DHS by the physician. Overall profits are defined as DHS profits from the entire group or from a subgroup of five (5) or more physicians. In each case, there are safe harbors such that a distribution or payment on a per capita basis or on the basis of revenues from services that are not DHS payable by Medicare or any other payer are deemed not to directly relate to the volume or value of DHS. There is also a safe harbor related to instances where DHS revenues of the group and the amount paid to the physician are considered de minimis.

The new Stark rules provide important changes and clarifications for group practices that pay profit shares or productivity bonuses. The highlights include the following:

1 All profits from DHS must be aggregated and divided in the same manner within the group as a whole or within a subgroup of 5 or more physicians. Likewise, if a group wants to use subgroups for the distribution of profits, it must use the same subgroups of physicians for all DHS. Thus, a group could not aggregate and distribute lab profits in one way and radiology profits in a different manner, or assign a physician to one subgroup for the distribution of lab profits and another subgroup for the distribution of radiology profits. Stated a different way, a practice must aggregate all of its DHS profits (or the profits based on subgroups of at least 5 physicians) prior to distribution of profits or calculation of any bonuses. Note that multi-specialty groups may use different subgroups based on specialty but that a subgroup still must consist of at least 5 physicians. Thus if one specialty only had 4 physicians, it would no longer qualify as a subgroup.

2. Not every physician is required to receive a share of profits or a bonus. CMS clarified that groups can use eligibility standards to determine whether a physician is eligible to receive a distribution of profits or a productivity bonus, such as years with the group, ownership status, FTE status, etc. However, these eligibility standards cannot directly relate to the volume or value of a physician’s referrals. 

3. CMS has emphasized that in order to qualify as a group practice and thus distribute profits from DHS or pay productivity bonuses, the income and overhead expense must be distributed according to methods that are determined before the receipt of payment for the services giving rise to the income or the expense. Thus, the group’s compensation methodology must be established prospectively. CMS has also emphasized that profits must be distributed in a reasonable and verifiable manner. A purely discretionary allocation would not meet this test. 

4. The safe harbor for profit distributions was clarified so that it applies only if the allocation based on revenues does not include any DHS, whether payable by Medicare or other payers. Thus, a group will not meet the safe harbor if revenues are allocated in a way that includes DHS from private payers even though it excludes Medicare DHS. 

5. The final Stark rules contain several new provisions dealing with value based arrangements. A full discussion of the new value-based exceptions is beyond the scope of this article and will be covered in a separate article. However, as it relates to the satisfaction of the group practice definition, the new rule provides that profits that are directly attributable to a physician’s participation in a value-based enterprise may be paid directly to the participating physician regardless of the general prohibition on paying bonuses or profits shares in a manner that directly takes into account the volume or value of DHS. 

While most of the changes to the Stark rules become effective January 19, 2021, CMS delayed the effective date of the Stark rules for group practices until January 1, 2022 in order to allow time for group practices to modify their physician compensation models to comply with the revised rule.